- Harry Bennett
- November 21, 2022
- 2:23 pm
- 10 min read
Are the funds heading for the exit?
Indices
Futures
Forex
– March Corn’22 (ZCH23) – March Corn futures find support at the 50 day moving average around 566.00 basis ZCH23. The effective front month traded within a 23.60 cent range between 653.40 and 677.00. A narrow trading range as the market bounces between the 50 & 61.8% Fibonnacci retracement levels (660.40 and 682.30 respectively).
– The market seems to be trading within a contracting triangle but looks to be favouring the upside. Either way a move above or below the short term support and resistance levels will set the stage for a break out.
– The front month March contract traded within a 23.60 cent between 653.40 and 677.00. Futures volume diminished throughout the week with a daily average of just 369,804 contracts. Open interest has also declined as we approach December expiry, total open interest now stands at 1,397,090 contracts.
– The CFTC commitment of traders report revealed the managed money had reduced their net long position by 60,831 contracts. Their position now stands at 176,831 contracts net long which is their smallest long position since the 16th August 2022 (see table below).
– U.S. Corn export sales surged last week, for the period between November 4th – 10th 2022 sales totalled 1.169 million mt. Mexico were once again the leading buyers (919,800mt) followed by Canada (91,300mt) and Saudi Arabia (65,000mt).
– In its daily reporting the USDA also announced that private exporters had sold 1,866,900 mt of corn to Mexico on the 16th November 2022. This was the 5th largest daily export sale on record, a full list of the largest daily export sales has been provided here.
– Corn use estimates for ethanol total 779 million bushels so far this year which is down by 67 million (7.9%) from last years pace. However, ethanol production rose for the fifth consecutive week to 1,040k barrels a day last week.
– CFTC Commitment of Traders – Hedge funds appear to be heading for the exit as the managed money reduce their net long position by 60,831 contracts, their overall position now stands at 176,831 contracts net long.
– U.S. corn and soybean harvest is nearly complete, 93% and 96% respectively. Both are ahead of normal pace for this time of the year.
– Drought and heat has taken a toll on the 2022 Corn crop, the USDA estimates yields will be down 12% in the Mid-South. You can see from the map below the significant stress that is see in the high plains region. A link to the full interactive map has been provided at the bottom of this email.
– Grains and beans were higher on Friday as dry weather persists in much of the U.S. Southern plains. It is reported that Winterkill is possible in certain states like Nebraska as temperatures drop far below zero and winds pick up.
– However, despite the drought prices may come under pressure as the Black Sea grain initiative which was meant to expire on Saturday has been extended by four months. This is positive news for the Asia-pacific region as they would be facing much higher prices and lower availability of meat without this extension.
– US Drought monitor (November 17th 2022) – High stress in major growing areas, in particular the high plains. Nebraska state showing exceptional drought in certain locations across the state.
– Ukraine are expected to export 11 mmt of wheat this year along with 15.5 mmt of Corn. If the USDA are correct in their predictions the figures would be down from 18.8 mmt of Wheat and 27 mmt of Corn from the prior season.
– Argentina has seen decent rains over the past week which has been a boost for the corn crop. However, over the next two weeks the country is expecting to see a shift back to drier weather over the next two weeks with 40-60% of normal precipitation expected to be seen.
– Patchy rains will keep corn and soy healthy in Brazil, whilst the more vulnerable Southern regions will be mostly dry which poses a risk to planting and germination (map below). Brazilian corn is still reportedly trading at a $1.00 discount to the U.S. on an FOB basis.
– Brazilian exporters have finally received permission from Chinese customs to supply corn to the country which will directly impact the export of corn from Ukraine & the U.S. The Chinese government updated the list of approved Brazilian corn exporters which includes over 130+ entities.
– 6- 10 day precipitation model – Rains shift Northeast this week and towards the rest of country what will this mean for planting?
Conclusion
The weather premium for U.S. market is firmly in place as yields may be reduced further due to persisting droughts. We may see more downgrades and reductions in both the U.S., China and Europe if the adverse weather continues. The funds have really axed their long position which could be the catalyst to move this market lower. The extension of the Black Sea grain initiative is not supporting the bulls as export flows look to be sturdy. A decisive move above key resistance levels and contracting triangle is needed to bolster this bullish tone.
Written by:
Harry Bennett
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