Moving into WASDE, corn looks a dangerous place for shorts to overlinger
June 12, 2024
Key Observations:
At 8:30am ET, BLS plans to publish U.S. CPI data for May-24. Conventional thinking asks policy makers and professional investors to look past the effects of food and energy prices on headline inflation because those prices are “volatile”.
At noon ET, the USDA plans to publish its monthly WASDE* report. Its updated supply and demand projections are likely to put a spotlight on food prices just three hours after the BLS scrum tells investors to ignore food prices.
Our focus is on the potential for a breakout in corn prices. At June 4, investors owned 521K lots long (84%-ile) against 734K lots sold short (98%-ile). This short bias is among the most extreme in decades relative to gross risk, which is itself at about the highest ever by bushel count.
The short case stands on solid fundamental dirt. USDA’s first estimates for 2024/25 project U.S. corn stocks will rise from high to higher.
But it’s in the price. Take note: USDA attaches a $4.40 average farm price to its bearish outlook, down from $4.65 this crop year and $6.54 last year. The M1 price has been finding firm support at and above $4.45 this week despite the bloated stocks projection and the heavy investor positions.
If there is even a mildly bullish shift in projections, short-covering alone might spur a significant price rally, like the one that occurred in wheat yesterday. Odds favor the punt long. Tight stops are prudent.
Source: CBT, Bloomberg, CFTC, USDA, Blacklight Research. * WASDE = World Agricultural Supply and Demand Estimates.
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