Cattle feeders and ethanol blenders have been the primary beneficiaries of the corn market’s near 40% decline this summer. Cattle farmers are finally able to rebuild the smallest U.S. herd in over 50 years thanks to declining feed costs and ethanol blenders are having their most profitable year in ages. The corn market is already the cheapest it has been since 2010 and end line feed corn users have begun stocking up in earnest to guarantee their cheap supplies well into the future.
The commercial corn traders in the CFTC’s weekly Commitment of Traders report have absolutely nailed this year’s crop. They collectively sold 370,000 contracts between $4.40 and $5.25 from February through the April pre-planting jitters. These forward production hedges are now being matched by the forward consumption based hedges. Commercial trader momentum has become positive thanks to the 120,000 contracts they’ve repurchased over the last two months’ decline. We’ve also seen the commercial trader’s buying setup a bullish momentum divergence. See the commercial trader chart below.
Both the corn and soybean markets have begun to attract strong buying. We believe their value hunting is well supported on the macroeconomic scale between the growing need for animal feed and the profit margins this is creating in the ethanol market. The commercial traders’ net position is now long about 54,000 contracts. This doesn’t even bring them back to their beginning levels of this year. In fact, commercial traders could add another 100,000 contracts to their position very easily. We believe the oversold nature of this market as it approaches a primary value area will lead to further purchases and support the market. We’ll continue to place protective sell stops accordingly but at this point and time, we believe the odds are beginning to favor the bulls.
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