Spec Funds are long… are they wrong?

Commitment of trader’s report today showed funds are long 193K contracts of corn. Today’s trade watched profit taking as the weather forecast took out the premium. New crop corn (CZ) snapped to a low print of 389 1/4, 20 3/4 cents from last Tuesday’s 4 month high CZ at 410. Support lies at 384 1/2, 376 1/2 and then 368 1/2. Any one of these should be a good entry point for a trade, looking for a 5 to 10 cent bounce off of those levels. Will new crop challenge the 415 March highs? It depends on the weather forecast and the steadfastness of the funds who are long this long position. Where is the exit point for these guys? My guess is 350-340 support band.
On the bull side, there is a ton of resistance beginning at 410, then 415, and then basically every nickel up until 450. On a cautionary note, 410 was a 62 percent retracment of the longer term, 1.06 break down in CZ from the 1/13 high at 449-1/2 down to the June 29th contract low at 343 1/4. 409 was the exact Fibonacci 62% retracement, suggesting that the rally, may indeed, be behind us.

I anticipate a pull back, and then depending on the weather, one more run at the 415 level. I find it hard to believe that we rallied from a contract low and could not go back and try for the March highs at 415. That chart point is just too tempting a target.

Beans will prove to be more resilient, I believe. We still have all of August to make that crop. We should be able to kill it at least once between now and harvest in November. Key resistance remains 10.00. A 1.15 rally, while impressive, is nothing to get excited about. A run through 10.00 opens up the sky to 10.34 and 10.53 and then 11.00. That would be a rally worth selling into, perhaps into the 2011 crop as well.

One caveat, a 30 year seasonal chart overlayed against corn and beans looks, quite frankly, very bearish.

Seasonally, it suggests, barring a weather scare, our highs may be in and our harvest lows may be looming up ahead like a train coming at us through the tunnel. If you are a producer, still time to unload your bushels. For an end-user, you may get a chance in the next 7 weeks to lock in some lower operating costs, especially if you expend a considerable amount on feed for your livestock.

Wheat, however, remains interestingly bullish. On a seasonal chart, far from bearish, it just looks like it got an early head start on its rally. About 5 weeks ahead of schedule. However, consider the massive short position the funds had on for the last 7 months, as well as the drought story from Russia, it looks interesting, and all in all, just a bit early on the 30-year seasonal for wheat. The fundamentals are all wrong, with a huge supply, large yields looming at this harvest. Talk of low protein wheat being docked 30 to 50 cents every point below 12, has not stopped a lot of farmers from selling their wheat to the elevators, who, quite frankly, look to be giving credit card companies and pay day loan offices a run for their money on the ethical scale. Most farmers, if they have the storage, would be better off storing the wheat, buying a cheap put below the market, and playing the waiting game. The carry is there to take advantage of. I believe sometime in the next 24 months, the tables will turn on these elevators who are now giving insulting basis quotes to their captive audience farmers.

Bottom line, the price action for wheat, especially high protein, KC or Min wheat, makes it very enticing to be long wheat, even at these levels. The market is telling us something, especially on a long term weekly chart. It looks very bullish.
Will we have corrections? Absolutely, I think those are corrections worth looking at as buying opportunities.

AS always, trade with your stops. Its nice to be right. But its nicer to be able to live to fight another day.

Good Trading

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