PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 16:28 UK, 8th Sept 2017, by Mike Verdin
Corn market 'could see September rally' - again

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 losing ones.

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 late summer.

"History never repeats itself exactly, but there is reason to think we could be in for market strength," Mr Roach says.

'Ending stocks will tighten'

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 prices higher".

'Theoretical maximum'

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 margin call'

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 the market."

USDA factor

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 further low.

The rises in prices in the past two Septembers have come "without any bullishness from the USDA".

But whether bearishness could press values lower…

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