Put It All On Red, No Black, No Red

30/04/13 -- The overnight market sees some follow through from last night's strong gains with corn up 6-8 cents, beans up around 12-13 cents and wheat flat to 2 cents firmer in our first real weather market of 2013.

Heavy fund buying last night, particularly in corn where they were estimated to have picked up around a net 30,000 contracts, sent prices sharply higher. The USDA added fuel to the fire after the close by saying corn planting had only advanced from 4% complete to 5% done in the past week. The trade had been anticipating planting at 8-10% complete. Reuters this morning say that 5% complete matches the record slow start to corn planting for the last week in April set in 1984.

The USDA also cut 2 points off winter wheat rated good/excellent and added two points to the poor/very poor category (it was to the very poor actually to be specific). Reuters say that these are the worst winter wheat crop ratings for the last week of April for 17 years.

So where do we go from here? Iowa, Illinois and Indiana probably will probably end up having their wettest April ever, according to T-Storm Weather. Yet at the beginning of the month Iowa growers claimed that just 16% of soil moisture was adequate, while 49% was short and 35% very short, according to Martell Crop Projections.

As ever it's all about money flows and what the fund money wants to do. With one or two exceptions, like last night, the answer to that has largely been to get out of grains since the turn of the year.* Take a look at this from SaxoBank CFTC: Commodity Managed Money Positioning, which charts the net fund position in not just grains, but also metals and energy over the past three years.

The most important things to look at are the black (net fund position long/short) and red (price) lines. The correlation between the two is striking. Essentially when funds are buying and building longs the market goes up, and when they are selling it goes down.

In CBOT corn, as of last week, they held more or less their smallest net long of the last three years. In CBOT wheat they are net short, although not in unfamiliar territory. Whilst in beans they hold their smallest long in more than a year. They've been heavy sellers in all three since Christmas, and guess what, the price of all three has come down sharply during this time.

So the six million dollar question is this. Is the recent liquidation phase over, and fund money is just waiting for the right time (like a volatile weather market) to come back in and make a quick buck? Or is it part of a longer term disillusionment with grains? Have they taken their ball away to go and play elsewhere? If we knew that then we could all be in for an easy buck of our own.

*Note: they've been getting out of metals too, and the price action there has been very similar to that of grains.