Brokers, citing hedge fund positioning and the firm US cash
market, offered hope of at least a temporary lull in the selling in US corn,
even as prices staged a small rebound from their weakest close in four months.
Societe Generale said that it was mulling a switch to "bullish"
from "neutral" in its rating on corn futures, given their "disconnect" with the
relatively firm US cash market.
Indeed, basis, the discount of futures to cash prices, has
risen both inland, as measured in Iowa, and at Gulf of Mexico ports over the
past month, a dynamic the bank attributed to resilient demand.
"Corn demand remains stronger than expected in both the
export and ethanol markets," SocGen analyst Christopher Narayanan said.
"Feed demand, too, through the first two marketing quarters
of 2013-14 suggests higher-than -expected demand when compared to the
historical percentage use by marketing quarter."
'Poised for a modest
The outperformance of the cash market could well "suggest
that nearby corn prices are nearing a bottom and poised for a modest rally", Mr
If upward pressure from cash markets "continues for a
sustained period of time, one can expect flat price to eventually rally".
The bank - which last week forecast corn futures averaging
$4.87 a bushel in the July-to-September quarter, well above the futures curve -
added that it was biased towards long positioning in nearby contracts until
more was known on new crop prospects, which currently appear good.
A much-watched US Department of Agriculture report on US
sowings, released on June 30, is seen as giving an updated view on harvest prospects,
and the day will also see the release of estimates for domestic grain stocks as
of June 1, giving an insight into demand for last year's crop.
Longs vs shorts
Separately, Brian Roach at US broker Roach Ag Marketing
flagged the potential for the reports to trigger a rally in corn based on the
growing number of short positions that hedge funds have taken out in Chicago
futures and options.
Latest regulatory data showed managed money, a proxy for
speculators, reducing its net long in Chicago corn futures and options by
120,000 contracts, to 146,436 lots, in a little over a month.
However, this shift has been driven overwhelmingly by
investors taking out fresh short positions rather than cutting net long
positions – by a ratio of 3:1.
"Outright corn longs are not far from the May high water
mark but new short positions have increased," Mr Roach told Agrimoney.com,
adding that this kind of behaviour often reflected the same investor taking out
"This spreading of margin risk - establishing a new short
offsetting position - is not uncommon as it allows losses on paper to co-exist
with profitable positions without adding further margin money."
As for how this dynamic plays out, that "depends on the
weather and how the USDA sees demand in the June 30 stocks report
"A short-covering rally would ensue if traders are caught
off guard," he said, adding that the acreage report could also prove "friendly"
to corn prices in showing sowings "much smaller area than currently thought".
Another technical sign that has attracted investor attention
is the ratio between new crop November soybean futures and December corn which,
even while a touch lower at 2.75: 1 on Wednesday remains high by historical
"What levels the November soybean-December corn spread needs
to trade, or should be trading, is debatable, but current values are
historically very rich," Brian Henry at Benson Quinn Commodities said.
"Corn is trading near contract lows while soybeans are still
at lofty prices, due to heavy intra-commodity spreading of corn vs soybeans,"
another US broker said, adding that this was true for contracts heading into
The distant premium of soybeans to corn "is almost
erroneously high this far out considering the large gain in soybean acres we
have in this country this year and the price incentive to plant soybeans in
South America and in the US again in the spring of 2015".
Corn futures for July 2014 and December 2014 delivery both
stood at $4.41 ¼ a bushel at 05:40 Chicago time (11:40 UK time) up 0.6% and