Be advised that all my comments are my OPINION and that OPINION is based on my long term in-house model that I dubbed LAWG 647. The prices I use in my model are week ending prices, usually Friday.BTW, trading commodities is risky and not meant for those that faint at the sight of blood.
July 1, 2020
WILL CORN SHORTS GET GORED BY THE BULL
Even though the Model I developed and rely on is purely a technical tool in the end in my opinion it takes a change in fundamentals to reverse a major trend. On Tuesday (yesterday) the USDA report may have provided the Corn market with the fundamental change that will reverse the bearish trend to bullish, and the Model is pointing to an extreme likelihood.
Let’s begin our discussion with looking at the key fundamental points that are impacting the Corn market. I enlisted the help of my partner Tom Fritz who in my opinion is one of the best fundamentalists in the business. He authors the report “In My Opinion” that appears on Inside Futures daily. If you have questions regarding the market fundamentals involving grains and oilseeds give Tom a ring at 312-384-1166, or email him at Tom@efggrp.com.
Below are the Fundamental points that Tom considers important.
USDA cuts planted acres by 5.0 million and harvested by 5.6 million
The new total acreage number includes 2.2 million acres that hasn’t been planted yet
If yield stays at the current 178.5 bushels per acre production is cut by 997 million bushel.
If the last 2.2 million acres are not planted production will come down another 350 million bushels
Carry-in may increase by 200 million bushels if ethanol production doesn’t catch up
Projected new crop carryout could come down to the 2.5 billion bushels if not lower and that’s contingent of yield staying at 178.5 bushels per acre
Be mindful there will be good competition from Brazil’s 2nd season corn crop
Wild cards one must watch for: Speculators (funds) remain grossly short, the weather conditions going forward, and potential Chinese buying
The Model
The Model tells us that while December Corn is in a downtrend a close this Thursday (usually use Friday but market closed due to 4th of July celebration) at or above $3.36 3/4 will reverse the trend to bullish. As of this writing December Corn is trading at 357.
As of last Friday’s close the Negative Indicator used by the Model was above the first standard deviation of the long term average, which suggests that the trade was getting shorter yet. Is there anything better than catching funds grossly over positioned? Oops!
The market could still break below the trend turning value of $3.36 ¾ but …..No. If the trend turns as I expect it to I will be looking for values to trade from the long side.
If you are interested in our trading ideas give us a call or drop me an email.
Lee Gaus is a founding partner of EFG Group founded in 1992 which specializes in servicing Introducing Brokers. Prior to founding EFG Group Lee Gaus, Tom Fritz and Steve Erdman all began their Commodity Futures careers with ADM. Collectively Lee, Tom and Steve have over one hundred years of experience in the industry.
International Futures Group (IFG) founded in 1994 is a sister company to EFG Group specializes in serving institutions, professional traders and individual investors.
We believe our experience and the development of the Model provide our clients, Introducing Brokers and individual clients a unique perspective. If commodity trading is what you do drop me a line atLee@efggrp.comor give me a call at 312-384-1166, or 1-877-304-1369. We will be glad you called and are confident so will you.