It has been a quiet few weeks for grain futures as prices hold firm awaiting fresh fundamental news in order to provide new price direction. Cattle futures have slowly recovered higher after the coronavirus sell off, and now are waiting for cash and demand news before committing to the next price objective. Corn futures are in a timid uptrend. Soybean futures continue to consolidate in a firm, sideways trade pattern. Wheat futures have tested recent price lows, and look patient to wait for events that could dictate the next price movement. Here are the top 4 items that we will be monitoring over the next month:
June 1 begins a new month for the fund traders. Often times we see a surge of either buying or selling in the early days of a new month, as positions are reallocated. As of the most recent Commitment of Traders report, released every Friday afternoon, the funds are long 12,000 contracts of soybeans, short 16,000 contracts of Chicago wheat, long 13,000 contracts of live cattle, and short 245,386 contracts of corn.
It is a normal tendency for the fund traders to be short this staggering amount of corn this time of year. Comparing to history, a “normal” short position consists of a total of 200,000 to 250,000 contracts short. Last year was the exception as funds were short a whopping 324,000 contracts. What you will also notice is that for the past five years, they eventually build a long position in the market into summer months. When they go long, they need to buy back short contracts, and then buy additional contracts to gain length in the market. For a historical perspective over the past five years, when the funds have gone long corn, they typically peak their buying near 100,000 to 200,000 contracts long.
The reason it is important to track the positions of the funds is because it can help us to anticipate when pricing highs or lows may occur in the marketplace. With a rather large short position in corn right now, any weather issue in the coming weeks might be reason enough for the funds to exit short positions.
Of course, weather can change on a dime. Currently two major weather forecasters are looking at a potential high pressure ridge heat dome that is expected to hit the western Midwest early in June. If realized, crops and livestock may show signs of distress. Top agronomists warn that exceedingly high temperatures (even with rain) can do significant damage to crop development. Upper 90 degree heat in the forecast for early June is definitely something to monitor. However, as you also very well know, if this heat dome does not occur, and instead if timely rains and 80 degrees occurs instead, the market will perceive that to be highly beneficial to crop development and would keep a lid on any significant price rally.
June 11 USDA Crop Production Report
Only 2 weeks away, this report has the potential to add some fresh supply and demand data. On this report, if deemed necessary, the USDA will update producer data from North Dakota. Specifically on their harvested acres of corn and soybeans. (Yes, we are still talking bout this!!) As you probably have seen on social media, some North Dakotan farmers were still harvesting corn over Memorial Day weekend, with planters at the ready nearby. If anything, the USDA data may adjust yield or harvested acres slightly. Also on this report, traders will watch demand data especially for corn use for ethanol, as well as exports.
June 30 USDA Quarterly Grain Stocks and Planted Acreage Report
On the March 31 Prospective Plantings report the USDA thought that farmers would plant 97.0 million acres of corn, and 83.5 million acres of soybeans. This data will be updated on the June 30 Planted Acreage Report, and will likely be more of a succinct number this year due to the overall timely pace of U.S. spring planting. Traders are already thinking and acting like the corn acres will be closer to 96 million, while soybean acres will be closer to 84.5 million acres. If the data on the June 30 report is significantly different than the above, that could drastically alter balance sheets going forward.
Also significant that day is the Quarterly Stocks report, which shows how much grain has been used during the first half of 2020. Usually this report has a dynamic price reaction tied to it, along with whatever weather forecast is present heading into the Fourth of July holiday weekend. Be ready for volatility!
In closing, there are plenty of fundamentals to monitor during the month of June. Add to it that we are again potentially at odds with China regarding trade deals. There will likely be a price spark for grain futures in the coming weeks due to a seasonal rally, weather scare, or short covering by the funds. Do your part to be thinking of how you will partake of any rally that may come. Start your planning now. Get your orders in place at your elevator. Get open orders ready to buy puts on unpriced bushels. Often times a summer bump in price is the best opportunity you may see for prices until late in the fall. Start your planning now, because once a market rally occurs, emotions get excited, and sometimes the best marketing plans get thrown out the window, because “it has to keep going higher!” Markets go up. Markets go down. They always do.