Historic Drop in the Corn Market

Tuesday, 02 Apr 2013 07:40 AM

By Rick Pendergraft

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I have not written about corn futures since last September, when the grain was at the tail end of a three-month rally that saw prices jump over 50 percent in three short months.

During the rally, large speculators increased their net long position from just under 100,000 contracts in June 2012 to almost 350,000 contracts in August. These positions were added as the price increased, which is normal during a bull market.

Since that article in September (which was a bearish article) the price of corn has fallen over 23 percent, as large speculators lightened up on their holdings throughout the downswing.

This is where it gets weird. Just five weeks ago, large speculators were net long 138,633 contracts and the price of corn was up around $700 a contract.

We saw large speculators building their net long position from the end of February through March 26 (the date of the last Commitment of Traders report) ahead of the crop report.

Last week, when the stockpile came in much larger than anticipated, corn saw its heaviest selling in almost a year and the price has dropped to the $65o area.

Corn was down over 12 percent between last Thursday’s session and the Monday session.

This is what happens when the sentiment is building toward the bullish side and then the crop report shows just the opposite of what is expected.

My guess is that we will see a huge drop in the net long positions when this week’s Commitment of Traders report comes out.

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