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Tech Guy Weekend Update 9/10/23

As was mentioned last week, open interest has been increasing in corn and beans for the last 5-8 trading days. Open interest is the number of contracts that are held overnight, and this number fluctuates from day to day.

It represents new money coming into the market - new interest. Folks are interested in having new positions in a market because they feel like there is an opportunity. On Thursday I stated that the open interest increased in corn and beans over the previous 5 days - Wednesday - Wednesday.

Furthermore, I postulated that this increased open interest was likely new long or buying interest because of the charts - corn is resting on very solid weekly support and soybeans had been having a small correction in an uptrend.

Taking a look at the Commitment of Traders report that came out Friday, some of the details of who represented the new open interest was revealed - was there buying or selling going on, or both?

Also, we are focusing on the non-commercial trader category because they are what moves the market, for the most part. It turns out that there were more new sellers than buyers in the long or short categories.

However, the bulk of the new buying interest was probably in the spreading category. I took a look at the November vs. March soybean spread and the December vs. March corn spread. The corn spread has sold off to a couple of cents below full carry from June till now.

The November/March bean spread has sold of similarly to below minus 20, between June and now. Is this new money searching for a buy or sell opportunity? It is more likely committing to a long opportunity spread - buying the front month and selling the back month.

We believe this based on the spread charts, the flat corn and bean charts and the lack of rain in the last 21-30 days. The crops have more likely dwindled because of this historic lack of precipitation.

Regarding the corn spread chart, Lance was helping me understand what full carry means. Can it sell off more than full carry? Would there be much opportunity for corn to sell off considerably below full carry? Probably not much in this environment. Maybe a little, but full means its full, it can't get much more fuller.

Therefore, from the perspective of the spread chart alone, the path of least resistance is higher - the informed money is likely betting on the long side. The December/March corn chart closed at minus 14 on Friday.

The supply/demand balance points are between -9 and -4. Check out the chart.

Therefore, if we believe the corn spread is going to rally, then we also believe the flat December Corn is going to rally - more likely than not.

The supply/demand balance line in the November/March soybean spread is from about plus 12 to north of plus 20. Friday, it closed at minus 20.75. Here is a look at that chart.

Again, there were buyers, sellers and spreaders who came into corn and beans from August 29th to September 5th, but the balance of new open interest was likely on the long side with the spreads.

Take a look at the most recent futures only commitment of traders report to see the details.

Finally, we know from the rain maps that the heart of the cornbelt has been historically dry for at least 3 week, going on 4. Also, we know that the drought monitor has worsened during this time.

We don't have physical evidence, but therefore it is more likely that the crops have not maintained and/or become smaller, rather than become larger during this time interval.

With all this that is being said, the USDA report is Tuesday, so this is always a wildcard with there math on the balance sheets.


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