The Bears Have the Upper Hand.

Greg Mockenhaupt ProEdge Risk Management Consultant 

by Greg Mockenhaupt
ProEdge Risk Management Consultant

It seems negativity in the market has become the norm, as many of us wait for the “summer rally” even just a bit of bullish news, or a weather scare to provide a selling opportunity. Unfortunately, the bears continue to win the battle and push grain prices even lower, as there are clearly more sellers than buyers. The ’14 summertime rally was caused by the funds coming into commodities with a net long position. The story is the opposite for this summer with the funds currently holding a significant short position in grains. As many say, “The trend is your friend.” The funds continue to add to their short position as the market trends down. As long as this strategy continues to make money, it is likely to see this trend to continue, in fact nearly 23,000 new shorts entered the market just last week. Short-lived rallies are possible in a bear market, usually in the form of short-covering.

Planting progress continues to remain on track. Traders are keeping an eye on this afternoon’s crop progress report likely showing around 90% for corn and 71% planted for beans that are right at the five-year average. Rain amounts have been plentiful and Midwest temps have been cool.

Fundamentally we keep circling back to the amount of grain, carryout, South American crop, and good conditions throughout the Midwest. There seems to be a lack of Bullish news. What would it take to cause a market bounce, or better yet a market turn around? It seems the news would have to be very substantial. Developing a marketing plan and the discipline to execute that plan is going to be important to the overall success of most operations this year.

’15 Dec CornDec Corn

Looking back, December corn made three new contract lows in the month of May and starting off the month of June with a new contract low of $3.65. As long as we continue to make new lows in search of solid support, we will continue the trend. For December, $3.50 is a mental line for some, and it is possible to find some support at that level at least for a while.

’15 Nov Beans

Nov Beans

Beans continue to drive downward at a pace that is hard to keep up with. Making new contract lows twice a week in the November contract, and again to start off the month of June with a new contract low of $8.96 ¾. The market doesn’t seem too afraid to go down. Especially with the $9.00 barrier officially now broken and beans now trading in 8’s, I am concerned that come harvest $9.00 will be just a dream that hopeful producers are waiting for. I hope I’m wrong, and we rally back to ’14 harvest prices, but the trend is currently telling us otherwise. With 84 million acres almost planted and Brazil increasing their acreage in 2015/16 for the 9th consecutive year, the news remains bearish.

Risk Disclosure -The risk of loss in trading commodities can be substantial and past performance is not necessarily indicative of future results. Therefore, you should carefully consider whether such trading is suitable for you or your organization in light of your financial condition. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. Neither the information, nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts.