15 August 2016 at 10:17 GMT
- Corn and soybean crops set to be biggest ever
- Corn hit 7-year low on the news but recovered
- Net short rose 31% ahead of WASDE report
- December corn is trading higher again today
2016 will be a record year for corn. Pic: iStock
By Ole Hansen
Grain markets traded quietly last week ahead of what could be the biggest crop report of the summer. The World Agriculture Supply and Demand Estimate report (WASDE) from the US agriculture department released on August 12 was the first for this season to include spring crop yield data from surveys, instead of just weather observations.
In the end the report sprung some major surprises with the both the projected corn and soybean crop exceeding expectations after good weather in July. The harvest of the two major crops will be the biggest ever according to the USDA and the above shows how the result, especially on corn far exceeded analysts’ estimates.
After hitting a 7-year low on the news, corn subsequently managed to recoup its losses to finish higher on the day. In order to understand why we have to take a look at how hedge funds had positioned themselves ahead of the report. Eight weeks of continued selling had seen the net corn position fall from a long of 252,000 lots or 1.26 billion bushels to a short of 137,000 lots (685 million bushels). During the final reporting week ending August 9 ahead of the report the net-short rose by 31%.
December corn is trading higher again today on continued short-covering. Negative momentum has been slowing in recent weeks despite of the continued fund selling. The initial target should this bounce continue would be $3.44/bushel but it will take a break above $3.58 to trigger a major short-covering acceleration.
– Edited by Clare MacCarthy
Ole Hansen is head of commodity strategy at Saxo Bank