Commercials are at 52-week net-short lows in corn and beans. What does this mean to you as a trader?

COT Data

To get a better picture of how the “elephants in the markets” are moving around, you would want to view the new Disaggregated COT report which pulls swap dealers out of the commercial positions and shows managed money along with other reportables. The charts from Trends in Futures (below) are the perfect view to show why I view the new report. Producers (true commercials) in beans are actually net-short 320,125 contracts, swap dealers are net-long 116,865 contracts, managed money are net-long 142,575 contracts and other reportables are net-long 83,013 contracts. (The difference between producers and swaps make up the commercial number in the older COT report above). Even more shocking is corn where producers (true commercials) are net-short 668,817 contracts, swap dealers are net-long 272,605 contracts, managed money are net-long 367,369 contracts and other reportables are net-long 112,350 contracts. Since these groups make up 75%-80% of open interest in pretty much all markets, seeing how they are posturing is vital to catching major/minor trends.

Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

If you need help understanding how to understand how to use the COT report to your benefit, please email me at Gary@crbtrader.com and put COT report in the subject line. Please include your name and telephone number in the email.

Proceed to Page 3 for this week's detailed fundementals charts...

Fundementals

Corn prices extended their seven-month rally to a 2-1/2 year high.

Bullish factors include:

1. The United States Department of Agriculture’s (USDA) action on Jan. 12 in which it cut its 2010 U.S. corn crop estimate to 12.447 bln bushels from a December estimate of 12.54 bln bushels, cut its 2010-11 U.S. and global carry-over estimates with global inventories falling to a four-year low, and raised its estimate for corn for ethanol use to a record 4.9 bln bushels.
2. The surge in gasoline to a 2-1/3 year high, which benefits ethanol prices and corn demand.
3. Drought concerns in South America that threaten Argentina and Brazil's corn crops, the second and third-largest producers in the world.

Bearish factors include:

1. The prediction from Argentina's corn association that Argentina's corn output this year may rise to 22 MMT, higher than government estimates of 20.5 MMT amid "exaggerated" fears about drought.
2. The prediction from National Australia Bank Ltd. that "roughly half" of Australia's 25 MMT wheat crop will be sold as feed because of downgraded quality this season, which will reduce global demand for U.S. corn as animal feed.

Weekly Corn Exports (week ended Jan. 6): 515.7 MT; 2009/10 (September- August) cumulative exports are up +1% y/y.

Fundamental Outlook — Medium-term Bullish — The medium-term trend remains firmly bullish after the USDA cut its U.S. and global production and carry-over estimates on Jan. 12. South American weather concerns also are benefiting prices along with record U.S. ethanol production (and the recent one-year extension of the ethanol tax protection measures). The stocks/use ratios are extremely tight with the U.S. stocks/use ratio at 5.5% and the world stocks/use ratio at 15.2%.

Soybean prices continued their seven-month rally to a fresh 2-1/2 year high.

Bullish factors include:

1. The USDA’s action on Jan. 12 in which it cut its 2010-11 U.S. soybean production estimate and cut its global soybean production estimate to 255.5 MMT from a December forecast of 257.8 MMT after recent drought conditions in South America prompted a reduction in its Argentine soybean production estimate.
2. The USDA’s Jan. 12 cut in its U.S. and global soybean carry-over estimates.
3. Drought concerns in South America that threaten the soybean crops in Argentina and Brazil, the largest soybean producers after the United States.
4. Strong Chinese demand for soybeans after China's customs office said China's soybean imports surged +29% y/y in 2010 to a record 54.8 MMT.
5. The USDA’s Dec. 10 hike in its U.S. soybean export forecast to a record 1.59 billion bushels.

Bearish factors include:

1. The action by Chinese soybean crushers to cancel several cargoes of soybean imports because of losses as the price of imported soybeans has risen more than local price increases, that may lead to reduced Chinese demand.
2. Weakened U.S. demand for soybeans after the December NOPA soybean crush fell -2.2% m/m to 145.54 million bushels on decreased demand for cooking oil and animal feed.

Weekly U.S. Soybean Exports (week ended Jan. 6): 950.2 MT; 2009/10 (September-August) cumulative exports are up +4% y/y.

Fundamental Outlook — Medium-term Bullish — The medium-term trend is firmly bullish on the USDA’s cut its U.S. and global production and carry-over estimates, concerns about South American weather and continued strong Chinese demand. The U.S. stocks/use ratio is very tight at 4.2%, but the world stocks/use ratio is near average at 22.8%.

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