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Todd's Take
Wednesday, September 20, 2017 11:14AM CDT
By Todd Hultman
DTN Analyst

After USDA disappointed many again with a corn yield estimate of 169.9 bushels per acre, my first thought went directly to commercials, wondering if they would be buying corn as December prices dipped near their August lows. After all, securing cheap corn supplies that can be moved profitably is the primary interest of commercial grain firms, and we are near that time of year when seasonal lows typically occur.

I was somewhat satisfied to see Friday's Commitments of Traders report say that commercials turned net long in corn for the first time since late June. Corn had 4,831 net long positions, which is small, but it's a start and supports the notion that corn prices are nearing support after the demoralizing month of August, when December corn dropped 27 cents a bushel from prices that were already low.

That does not mean that corn cannot trade lower, and we have yet to see what harvest will hold. However, knowing that spot prices are below the cost of production for producers that have land expenses, and seeing the companies that know the grain market best take long positions on the board, we can reasonably expect that corn's lows should be near.

Corn was the most recent crop of interest for commercials, but not the only one where commercials are finding attractive values in the grain market. After a brief absence this summer, commercials returned to the long side of Chicago wheat on Aug. 8, and as of Sept. 12, were holding 33,995 net longs.

In the case of Chicago wheat, it is not unusual for commercials to be net long when prices are cheap, but it is a sign of support nonetheless. In 2016, the DTN SRW Wheat National Index fell to its lowest level in seven years. Technically, noncommercial longs as a percent of total holdings hit a bearish 36% last year, low enough to make 2016 a candidate for a possible multi-year low. But there is still no bullish argument on the horizon, while USDA is estimating 933 million bushels of U.S. ending wheat stocks for 2017-18.

Readers of this column will not be surprised to hear that soybeans continue to have the most active demand interest of the three crops. Friday's CFTC data showed commercials net long 32,292 soybean contracts on Sept. 12, the same day that USDA predicted a record high 4.43 billion bushel soybean crop. That is not an especially large position, but it is unusual to see with a record harvest supposedly on the way, and the DTN National Soybean Index is already trading above its estimated cost of production.

Brazil's new planting season is starting out dry, but it is still early, and they have overcome dry starts before. Thursday's DTN article from Senior Ag Meteorologist Bryce Anderson, "NOAA Issues La Nina Watch," explained that cooler ocean temperatures are possibly setting Brazil up for drier weather in early 2018. You can be certain DTN will be monitoring that situation in the months ahead.

For producers wanting better prices in 2017, the August sell-offs in corn and wheat were disappointing, but at least here in mid-September, the sector of the market that knows the value of grains the best is giving us clues that support should be near. For corn and wheat, commercials' price sensitive buying is not exactly bullish, but for now, they are the best market clues grains have to show.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1


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