US corn futures continue to be stuck in a fundamentally driven downward trend that is influenced by a large, and seemingly intractable, managed money (MM) short position. We have been writing about the domestic and growing global surplus of corn supplies and how these variables are pressuring futures prices. With old-crop corn futures touching their lowest level since April of 2021, we see value in examining the role of the MM component of the financial trade and how the category can influence price direction.
According to the Commodity Futures Trading Commission (CFTC) the managed money component of the futures trade “is a registered commodity trading advisor (CTA); a registered commodity pool operator (CPO); or an unregistered fund identified by CFTC. These traders are engaged in managing and conducting organized futures trading on behalf of clients.” On 2/13/24 the MM net position in CME corn futures is -305,000 contracts. Seasonally this is the largest net short position for the category in 25 years. MM short traders on 2/23/24 totaled 101 registered entities that are short corn. Seasonally, this is the largest number of MM traders that are short corn in 25 years. The composition of the MM traders are fundamentalists, technicians, and system traders which are a combination of math and computer scientists.
Our fundamental work shows that the MM position of the corn futures trade has ample reasons to be short. The US ending stocks figure is large, the US dollar is strong against other corn exporting countries (like Brazil and Argentina), ethanol stocks are seasonally at a record level, and US wheat values (which can influence the price of US corn futures) have been trending lower on weak fundamental data. All of these inputs are helping to push corn prices lower which are influencing technical aspect of the trade and is driving the daily price action. Our machine learning-based work which has backtested the price of US corn futures using 50 different technical strategies, over thousands of data points covering 10-14 years of history. This has helped us discover which momentum based technical strategies systematic traders on a daily and weekly time frequencies that MM traders are deploying.
In essence, US corn fundamentals have been bearish for futures prices. The 2.1 bbu ending stocks have suggested that corn futures for MY 23/24 over $4.50 were overvalued. We continue to see inputs that suggest that fair value for July’24 corn futures resides between $4.12-4.50/bu. The range is attributed to the quality and volume of Argentina and Brazil’s crop, along with US acres, planting pace and soil moisture levels/production estimates of new crop, MY 24/25, corn.
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Contact Scott Strand
Direct 612-486-4624 | scott.strand@hilltopsecurities.com
On the date of publication, Scott Strand did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Disclosure Policy here.
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