Grains: Grain markets have gotten exciting. Soybeans should be hitting their anticipated seasonal peak by July 1. Commercial bean traders are the most short they’ve been since July of 2012. Even more impressively, this comes with the confirmation of a record total position in excess of 970,000 contracts, handily surpassing the 2012 high. In spite of the South American issues, soybean producers are indicating that they’ll clear their existing beans above $10.75 per bushel in the old crop and contract for all they can grow above $10.50 in the November contract.
Soybean oil is up less than 3% for 2016 while soybean meal is up nearly 50%. Recent commercial action suggests this spread will finally begin to narrow. Commercial traders have sold nearly 100,000 contracts in bean meal in the last seven weeks. Furthermore, their total position size is now three times as large as the speculative position. Keep in mind that the bean oil contract is approximately half the face value of the bean meal contract for spreading purposes.
Commercial corn traders are selling forward production above $4 per bushel and their total position is now the largest in five years. Throw some Chinese selling into the mix and we feel corn is likely to have the toughest summer of the grains. While not quite as bearish as beans, we don’t expect December corn to trade above $4.50, and perhaps not above the 120-week moving average at $4.30.
Interest Rates: Eurodollar support continues to hold along the long-term trend higher. Commercial traders nearly doubled the size of their long position in the last month in renewed faith in the trend that has supported this market in 2011, 2013 and 2015 and now, again, in 2016 at 99.05.
The commercial trader bullishness on the short end of the yield curve is further confirmed by their actions in the five- and 10-year Treasury notes. Both of these markets are now within easy striking distance of their net long record positions, which were just set this past February.
However, this is not extending along the yield curve to the 30-year Treasury bonds. The Bond market has born the brunt of commercial selling where they are the most short they’ve been since December of 2004. The extreme nature of their combined position, long the short end of maturities and short the long end, is a clear indication that they expect the yield curve to steepen here in the U.S. This carries many implications.
Metals: Metal miners sold a tremendous amount of forward production in April and May. As expected, their persistence has beaten prices back from the recent highs. Given the month’s declines, commercial long hedgers have begun to chase prices, now buying silver at $16 per ounce, gold near $1,200 per ounce and platinum around $925 per ounce.
Most importantly, if the anticipated yield curve steepening translates into greater economic activity, anxious miners may have found they’ve overhedged. It’s quite possible that the year’s lows have been made. This could cause the platinum/gold spread, currently at a $260 discount to finally begin to narrow and move toward parity after making a new, historic low at a $323 discount this February.