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February 2, 2024
Managed money, or “The Funds,” have a way of exploiting those that are out of position in any given market.
During a bull market, the fund manager realizes that market participants who use the product that is rising in value are in a weak position, and managed money will aim to inflict financial pain on those caught short, for the monetary benefit of the fund of course.
The opposite can be said of a bear market, where the fund manager realizes that participants who produce the product that is decreasing in value are in a weak position, and managed money will aim to inflict financial pain on those caught long, for the monetary benefit of the fund, of course.
Grains are in a bear market and the producer is perpetually long. The producer is long the crop in the bin, long the crop to be planted this spring, and long every crop moving forward that has yet to be grown. Meanwhile, managed money is short, very short. Funds have accumulated not only the largest short positions for this time of year, but they are also closing in on the largest short positions, period, for any time of year.
The last Commitment of Traders (COT) data released Jan. 26, and current as of Jan. 23, showed managed money short 265,285 contracts of corn and 91,842 contracts of soybeans. On Jan. 23, March corn settled at $4.465 while March soybeans settled at $12.395, and as of Feb. 1, those settlements were $4.4725 and $12.0325, respectively.
It is logical to assume that money managers have pumped the breaks on adding to their short corn position, yet have added to their soybean short position, taking it over 100,000 contracts.
Prior to 2024, the largest managed money short position in corn for this time of year was January 2018, where the funds accumulated roughly 225,000 short contracts. The record short position was April 2019 at about 325,000 while June 2020 was a close second right at about 300,000 contracts. In each of those instances, the fund community went from short to long, and in two of those three instances that transition from short to long took about a month.
A similar situation is at hand with managed money’s position in soybeans. The largest short position at this time of year was January 2018, where the funds accumulated just over 100,000 short contracts. The record short position was May 2019 at about 165,000 while June of 2017 and December of 2019 both reached roughly 120,000 short contracts.
I think you get the point. The funds are aggressively short.
However, the commercial participants are holding a net long position in corn. With that in mind, history would suggest that we are on the precipice of a short covering event from the fund manager.
This Tuesday, Jan. 30, corn, soybeans, and wheat all forged an outside reversal higher on the session. This is characterized by trading below the previous day’s low and then settling above the previous day’s high. In the case of corn, that day’s low was also a new contract low. All three products have managed to hold Tuesday’s lows, and the longer that remains the case, the better the argument that a short-term bottom has been made.
Wheat structurally looks the best, having made lows in late November that remain intact. While corn and soybeans both made new lows for their respective moves this week, corn has a potential double bottom at $4.3675 and $4.365. A move above last week’s high of $4.5325 would confirm the double bottom and would measure to $4.6975 for an initial upside objective.
If you are sitting on basis contracts, this is a realistic goal to price those contracts prior to First Notice Day on March corn at the end of February.
While soybeans seem to be struggling the most, it is worth noting that soybean meal has formed a weekly reversal to the upside this week, having traded below last week’s low and now looking to close the week above last week’s high. Perhaps a bottom in soymeal would go a long way in helping soybeans recover, and this week’s export sales for soymeal suggest we have reached a price where world users find value.
All it takes for the funds to cover is a shift in the narrative and for prices to break through a little resistance. Once that happens, managed money will likely liquidate their short position, and perhaps if history repeats, go long for a short period of time. Should this come to fruition, it will likely lead to a bear market rally that we discussed in my previous blog, and you must find ways to take advantage of that rally.
For hedge ideas, price targets or to just shoot the breeze about the market, feel free to contact me directly at 815-665-0463 or anyone on the AgMarket.Net team at 844-4AGMRKT for assistance. We are here to help.
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The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
Technical analyst, AgMarket.Net
Brian began his career in the financial services industry with expertise in insurance products, stocks, bonds, mutual funds and annuities. Brian studied technical analysis and migrated to commodities where he has built a successful career. As a technical analyst with AgMarket.Net, he utilizes prior price or volume action or trends to predict future price moves and break down agricultural balance sheets. Brian is a decorated combat veteran of Operation Iraqi Freedom as well as a member of a Gold Star Family.
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