Record Corn Bearishness Keeps Growing

Friday’s Commitment of Traders report released by the Commodity Futures Trading Commission (CFTC) showed that speculators have the most negative view on corn prices since data was first collected in 2006. Their so-called net short position increased by nearly 36,000 contracts in the week to 307,529. Corn prices closed at $3.86 per bushel on Thursday.

On April 9, the USDA’s World Agricultural Outlook Board cut their US corn demand estimate for the 2018/19 crop year by 200 million bushels. Demand was lower across the board with corn export, ethanol, and feed use all reduced. This came after consecutive cuts in the prior two months, with the total reduction now near 500 million bushels. Ending stocks are estimated to be above the psychologically important 2 billion bushel level. To make matters worse, a glut of US soybean supplies has driven farmers to increase corn planting for the upcoming season.

Analysts calculate speculators’ net position by subtracting their total short position from their total long position. The data aggregates futures and delta-equivalent options positions of the “Managed Money” group to show combined exposure. From the beginning of 2019 to April 16th, speculators have gone from 154,000 contracts net long to 308,000 net short. The current net short position is a full third larger than the previous, pre-2019 record net short of 231,000.

As speculators have sold corn futures, positions in the CFTC’s “Producer/Merchant/Processor/User” (PMPU) category have taken the other side, implying end users may have extended their forward coverage to record levels to take advantage of low corn prices. End users buy futures contracts to manage risk, limiting the impact of price fluctuations on the cost of their inputs. The PMPU category has moved to a net long for the first time ever. Historically, the group’s position, on average, has been around 300,000 contracts net short.

CFTC data shows speculators setting new record net short positions in four of the past six weeks. The breadth of the current position underlines strong conviction that corn prices will continue to drop but also indicates there may not be many players left in the market to sell.

The chart on the left below shows CFTC Commitment of Traders Managed Money (blue) and Producer & Merchant (green) net positions currently at record levels. The chart on the right shows declining CBOT corn futures prices.