By Gavin Maguire
CHICAGO Dec 10 – Large speculative traders have finally started to unwind their mammoth short bets in the corn market, cutting their net short exposure by over 16,000 contracts last week to its lowest level since September.
But with the non-commercial short position still nearly four times larger than the average for this time of year – and long positions the smallest since 2008 – it is clear that investors are in no rush to get long again in this market any time soon.
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Given that there are fewer than 15 trading days left in the year, it is safe to assume that non-commercial traders will end 2013 with a net short stance in the corn futures and options market for the first time since 2008. By the same token, they look set to start the New Year with a short bias for the first time since 2009.
But the assessment of non-commercial positions on a net basis tells only part of the story, and does not reveal the true extent of how bearish speculative traders remain in this market over the final days of 2013.
For a fuller appreciation of just how bleak corn market sentiment is among the speculators, it is important to track the non-commercial short position in futures and options, which is up more than 200 percent since the start of the year. At more than 380,000 contracts (more than 1.9 billion bushels), it is the largest total ever accumulated by non-commercials at this stage in the year, and only recently swelled to an all-time high of close to 450,000 contracts in early November.
The previous high for this time of year came in 2011 at just under 160,000 contracts, which came amid a more than 50 million metric ton rise in World corn output even as U.S. corn production struggled amid less-than-ideal growing conditions.
This year, speculators have been encouraged to dial up their short stance even higher by projections for record corn crops at both the United States and World levels, as well as the highest level of World corn inventories since 2000/01.
CROP COMPETITION
Corn speculators are also banking on higher output levels of rival crops to undermine corn price potential over the near to medium term.
Production of other crops such as wheat, rice, barley and sorghum is projected to hit an all-time high in 2013/14, thereby offering grain consumers with a potential embarrassment of riches over the coming year.
At the very least, the higher supplies of other grains are expected to threaten corn with demand attrition should corn prices push much higher from current levels.
Indeed, the extent of potential oversupply of all grain types in 2014 might keep grain speculators favoring the short side of the corn market for the foreseeable future.
But in order to convert what are currently only paper profits in futures accounts into actual profits traders must exit some or all of their present short positions in the corn futures market.
This profit taking has likely been the chief driver of the roughly 20 percent reduction in non-commercial short positions since the start of November and could well lead to more over the final 2 weeks or so of the trading year.
But given the extent of the projected supply overhand going into 2014, traders are not likely to be in a hurry to reverse their stance in the corn market entirely, and will likely prove content to start out 2014 with a heavily bearish position in corn as well.
