Commitments of Traders Analysis – Corn and Soybeans

By: Jeff Kaprelian

Corn

It was an interesting week, as commercials were net buyers on declining open interest. They sold out of 2,878 longs and bought back 38,531 shorts. Funds were net sellers on a pretty big increase in open interest. They added 38,834 new shorts and 4,329 new longs. Small specs (the dumb money) were active on the sell side as well.

COT indices rose on the commercial buying/fund selling. This now creates a short-term index sell signal. What’s interesting is the pace at which the index is moving. The velocity is similar to the buy signal we had a few months ago that turned out to be a bust. Will this sell signal be a bust as well? It’s hard to imagine it won’t be based on the fact that we’re already in new lows. It’s important to consider the commercial buying at these levels. They obviously see value in what is presumably them lifting hedges (coming out of shorts). Perhaps they don’t see a lot of risk at these prices. While I’m on commercial activity I want to note that it’s a bit discouraging to not see new longs coming in. If this were truly a point of value we would theoretically see a lot of new buying, not just the closing of shorts.

The rate of change of the index is fading and should turn positive next week. You’ll notice how this cycles in intervals of almost equal duration. If that cycle continues it would suggest we should be on the upswing soon enough and there is light at the end of this tunnel.

Commercial shorts are still the largest part of open interest, though that figure has been coming down recently. The fund “long share” is at levels that indicate the market has probably peaked for the year (tell us something we don’t know).

The bottom line is while it doesn’t look like sunshine and rainbows, we probably have limited downside.

Soybeans

Position changes were relatively small for soybeans. Commercials were net buyers of 7,736 contracts. That came from 5,151 new longs and closing out 2,585 shorts. Funds were net sellers of 8,127 from 16,489 new shorts partially offset by 8,362 longs.

The COT indices were slightly higher for the week, but this is after they’ve already been tracking higher. We had a nice setup for a buy signal, but recently started seeing the indicators behave analogously to January, at which point we moved lower.

The best thing soybeans have going for them right now is commercials aren’t overweight on the short side. As you can see, they are 50/50 with their positions so that could change at any time.

The bottom line for soybeans is we have the potential for a large rally, but stay more on the neutral side. I don’t think we’re at any immediate risk of a sustained bear market.