NAPERVILLE, Illinois, Jan 2 (Reuters) - Speculators have entered 2024 with some of their most bearish-ever views toward Chicago-traded corn, though in years past, that positioning has rarely proven sustainable in the months that followed.
As of Dec. 26, money managers held a net short position in CBOT corn futures and options of 177,626 contracts, their second-largest year-end net short on record after 2017.
Funds’ corn views have not materially changed in at least a couple of months, and prices remain under pressure. CBOT March corn slid more than 3% over the last four sessions, notching contract lows on Tuesday. Tuesday’s settle of $4.63-3/4 per bushel is most-active corn’s lowest for the date in four years.
In the last decade, money managers’ year-end corn views have been split evenly between bearish and bullish. In the bearish years, funds were eventually forced out of their shorts, ranging between January and August for timing.
Some of the more prominent short-covering rallies, including 2014 and 2018, occurred in the first three months of the year. Notable commonalities between those two years include South American weather concerns, strong U.S. corn export demand and the expectation for U.S. corn supplies to rise year-on-year, the latter of which is usually a bearish factor.
The 2024 corn market is facing all of the above factors, though to varying degrees. U.S. corn export demand has been very respectable lately, but the beginning months of the year can present additional opportunity, which was the case in 2018.
Other 2014 and 2018 themes include the relatively strong price ratio of new-crop CBOT soybeans versus CBOT corn and big fund shorts in CBOT wheat. Soybeans’ premium over corn has narrowed in recent weeks but remains above average, and although they remain short wheat, funds removed a considerable portion of gross short positions last month.
SOUTH AMERICA
The 2018 comparison is especially interesting given the extent to which funds were heavily bearish both then and now, though the South American weather story is a bit different today. Extreme drought in Argentina was the problem in early 2018, though rains have recently returned after last year’s once-in-a-generation drought, and crops are mostly in good shape.
Brazil would offer this year’s catalyst for a South American weather market in corn, but it might not play out for at least a few more weeks or even months since the heavily exported second crop is not yet planted.
Rainfall over the last two months in Brazil’s top corn and soybean state of Mato Grosso was less than half of normal and temperatures were unusually scorching. This has tamped down industry expectations for Brazil’s soybean harvest.
Brazil’s second corn crop was somewhat troubled in 2018 due to problems in the south, but recent weather issues for Mato Grosso in the center-west are more analogous to 2015-16. Mato Grosso’s second corn yields were about 20% below expectations in 2016, the worst result in at least a couple of decades.
That led funds to rapidly abandon big CBOT corn shorts in April 2016, though bullishness faded by early July when it seemed certain that a big U.S. crop was in the works.
Mato Grosso handles two-thirds of Brazil’s corn exports annually versus 30% for soybeans, so a failure in the top state could be felt more severely for corn. Forecast models as of Tuesday show decent rain over the next two weeks in Brazil’s center-west region, which had CBOT soybean futures pulling back heavily on Tuesday.
However, it is noteworthy that January 2016 was Mato Grosso’s wettest January of the last decade by a wide margin. But the state’s corn crop was still a disaster that year, as January’s precipitation spike was not sustained through the corn growing season. Karen Braun is a market analyst for Reuters. Views expressed above are her own.
(Reporting by Karen Braun Editing by Matthew Lewis)
