Headlines:
- The USDA will release Dec 1 Grain Stocks and the final 2016 crop report on January 12th at noon eastern
- Grain Futures Rise at the Start of a Big Week
Traders buckled in for a big week, with index fund rebalancing, and a major data release coming later. “Grain traders this week will have several major events to deal with”. Firstly, is the rebalancing of index funds, which started on the Monday session. Funds are expected to be big net buyers of wheat and corn, with a touch of soybean buying as well. Although this movement should be mostly priced in, it will support grain volumes. And the other big news will be a slew of data to be released on Thursday, by the US Department of Agriculture. Thursday will see the release of final US production figures for 2016-17, as well as quarterly stocks figures, winter wheat seedings, and the monthly supply and demand estimates. Analysts are expecting record large corn and soybean stocks.
- Hedge funds pull out of ag selling – ahead of index fund purchases
Hedge funds entered 2017 in a more bullish spirit, pulling out of selldowns in the likes of corn and most soft commodities, as the index fund re-weighting process, expected to bring buying to most contracts, approached. Managed money, a proxy for speculators, lifted its net long position in futures and options in the top 13 US-traded agricultural commodities, from cattle to sugar, by 5,591 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows. The increase in the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – reflected a recovery in particular in sentiment on New York-traded soft commodities, such as cocoa and sugar. Hedge funds raised their net long in softs for the first time in 10 weeks, so bringing an end to a spell of bearish positioning which matched the longest on records going back a decade. And the, modestly, more bullish positioning came ahead of an annual index fund rebalancing process, this week, which will bring buying to most agricultural commodity contracts, on Societe Generale calculations. “
Summary:
The “front-running” of Index Fund rebalancing is largely accounted for but Corn, Wheat and Beans were not immune to post holiday gains today. Wheat has been the biggest winner over the past 2-3 weeks. Last week it had double digit gains once again and today alone it was up another 3.75 cents. Corn and Wheat have been the beneficiary of most of the buying but even Soybean was able to stabilize a bit today rising 10 cents of its own. Corn round out the day with only a 1.50 cent gain. The January USDA Report has a history of setting the tone for the Corn, Wheat and Soybean trend. We expect that the upcoming report in a few days will do just that. Be prepared for the initial volatility that the report will in all likelihood bring.
So far, this year Wheat has been on solid ground rallying from key support. Short positions have subsided because of concern of winter kill in the US. Fear of winter kill in the Black Sea region has also recently surfaced setting up the perfect storm for strength in Wheat futures. Crop weather in Brazil was perhaps largely responsible for the gains in Beans today. It has been week for much of the new year but continues to post big spikes on surprise news events. The last 2-3 events have failed to garner follow through. We will look to see if today’s gains have any legs.
