So was the late-August surge in corn futures a turning
point, or merely the temporary interruption of a bear market?
Futures in the first weekend of September have built on the rally,
looking poised for a second successive winning week, after a streak of five successive
However, the gains for this week are hardly substantial, standing
at less than 1% in morning deals on Friday.
And there is much comment a further "seasonal" pullback
into, say, October, when the surge in corn supplies brought by the US harvest
is seen as often bringing a low, eg in 2014.
Third year running?
Still, that pattern has certainly not held the last couple
of years (and has actually proved relatively infrequent in recent history).
Both 2015 and 2016 witnessed September rallies, although in
the former strong early headway quickly proved unsustainable.
And, according to Brian Roach at Florida-based broker Roach
Ag Marketing, we could be in for a third year of prices having set a low in
"History never repeats itself exactly, but there is reason to
think we could be in for market strength," Mr Roach says.
'Ending stocks will
One prop to prices will be reduced selling pressure from
producers, whose marketing-year-end selling was a big cause of the drop in
futures to a contract low last week, he believes.
"Corn fundamentals tighten at the crop year turn," with
2016-17 ending last week.
"With US corn demand and world coarse grain demand up 6%
over the past three years, ending stocks will tighten and with that, prices normally
follow a higher pattern."
Now that producers have "largely wrapped up bin cleaning,
new farmer sales will be nil at today's prices which leaves buying to lead
But buying from who?
Hedge funds have seemed far more interested in selling the grain,
turning from a net long of more than 106,000 contracts in Chicago corn futures
and options as of late July to a net short of nearly 65,000 lots a month later.
However, Mr Roach also flags the extent of gross long positions
held by commercial operators, what he calls the bets of "well-heeled corporate
America", which topped 486,000 contracts late last month.
"The commercial long is reaching about its theoretical
maximum," he says.
And that can be bit of a buy signal, he says.
'Not run away from a
Certainly, in 2014 and 2015, the rally in corn prices
followed a mid-August highs in the gross commercial position.
And the peak of the commercial position in April this year
too preceded a modest upswell in values.
Is this more than co-incidence?
Mr Roach believes that the power of the "big processors",
which are "not going to run away from a margin call" is a better indicator of
pricing potential that the hedge funds and speculators, which have "all kinds
of stops, and run away from trend reversals.
"The well-heeled commercial will run the speculator through
One potential fly in the ointment is the possibility of a
surprise in next week's US Department of Agriculture Wasde crop report, which
could, if giving an upbeat corn yield estimate, put the market on course for a
The rises in prices in the past two Septembers have come "without
any bullishness from the USDA".
But whether bearishness could press values lower…