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Weekly Basis 5/6/22

The Dow Jones Industrial Average settled at 32,899.37, down 77.84 points for the week.


Crude oil settled at $110.62, up $6.21 for the week.

The dollar index settled at 103.66, up 0.49 for the week.


Below is corn, soybeans and wheat basis situation this week.


 

Corn


July corn settled at $7.84¾, down 28¾ cents for the week.


Dayton, Ohio Cargill is paying $7.85 for corn, even with July futures, which is a 10 cent firmer basis than a week ago. Their fall delivery basis is steady at 30 under the December futures.


Poet at Iowa Falls is paying $7.90 for corn, 5 over the July futures, which is a 5 cent firmer basis than a week ago. Their fall 2022 delivery basis is steady at 30 under the December futures.


The CFTC’s Commitment of Traders Report (COT) is issued every Friday afternoon. It reports open interest as of the close of business the previous Tuesday.


The big spec funds added 4,589 contracts to their corn position to bring them net long 276,831 contracts of corn. The index funds cut 3,469 contracts from their position to leave them net long 482,184 contracts of corn.


Corn open interest increased by 15,340 contracts to 2,172,898 contracts.


Eastern Corn Belt ethanol crush margin is $2.33 today compared to $2.55 last week and $2.06 a year ago. The price of corn subtracted from the value of processed products = ethanol crush margin.



 

Soybeans


July soybeans settled at $16.22, down 62¾ cents for the week.


Sidney, Ohio Cargill is paying $16.37 for beans, 15 over the July futures, which is a 19 cent weaker basis than a week ago. Their fall delivery basis is steady at 25 under the November.


Iowa Falls Cargill is paying $15.22 for beans, $1.00 under the July futures, which is steady with a week ago. Their fall delivery basis is also steady at 40 under the November.


The big spec funds cut 17,197 contracts from their position to leave them net long 80,601 contracts of beans. The index funds cut 4,464 contracts from their position to leave them net long 195,011 contracts of beans.


Soybean open interest decreased by 16,072 contracts to 888,673 contracts.


The soybean crush margin is $4.31 today, compared to $4.47 last week and $2.41 a year ago. Crush margin = value of the oil and meal extracted from a bushel of beans minus the cost of a bushel of beans.



 

Wheat


CBOT July soft red winter wheat was up 52¾ cents this week to settle at $11.08½.


The local elevator is paying $10.77 for new crop wheat, 31 under the July, which is a 53 cent firmer basis than a week ago. King Milling in Lowell, Michigan is paying $10.98 for new crop wheat, 10 under the July, which is steady with a week ago.

The big spec funds added 439 contracts to their soft red winter wheat (CBOT) position to bring them net short 37,941 contracts. The index funds cut 2,855 contracts from their position to leave them net long 155,415 contracts of wheat.

Soft red winter wheat open interest decreased by 5,449 contracts to 425,804 contracts.

KC July wheat was up 64¾ cents to settle at $11.70½.

The big spec funds cut 3,779 contracts from their hard red winter wheat position to leave them net long 8,133 contracts. The index funds added 933 contracts to their position to bring them net long 66,336 contracts of hard red winter wheat.

Hard red winter (KC) wheat open interest decreased by 1,609 contracts to 193,800 contracts.

September (U) 2022 spring wheat was up 53 cents this week to settle at $12.06¼.

The Baltic Dry Bulk Index settled at 2,644, up 241 points for the week.

 

What you should have noticed:

After the corn market cut more than 200,000 contracts of open interest last week, open interest had a nice increase of over 15,000 contracts this week. That means traders are coming back into the corn market. As The Tech Guy told us earlier today, there was a very high volume (number of contracts traded in a given period of time) traded at exactly the same 15 minute period when the low for the day was made on July corn. Then corn rallied somewhat and settled 8¼ cents above the low for today. That high volume of 15 minutes of trading was the bears all-out assault to break the line of technical support, but the bears failed to overwhelm the willing buyers defending the support line at the low for the day.

A “bear” is someone who thinks the market should go down; a “bull” expects the market to go up.

So the bulls won their defensive battle today as they stopped the offensive movement of the bears. Will the bulls now go on the offense? Will the bulls win the war by rallying July corn through the contract high, which the bears will be defending? Will the bears be willing to do whatever it takes to successfully defend the resistance at the contract high?

A week ago today, July corn was up 24 cents for that week with open interest down more than 200,000 contracts. I wrote in this report:

The declining open interest means people with futures positions were getting-out of the market. Was it the shorts or longs? The price of corn was up 20+ cents, so the traders with short (sold positions) were buying to offset those sold positions, pushing old crop, new crop and 2023 corn crop futures to new contract highs during this reporting week.

Think about this: Who will be buying after the shorts are finished liquidating? Unless the market can attract new money, there won’t be any buyers.

Prices moving higher as open interest declines is a key technical indication a market is about to turn lower. Will the weather, the war, or the demand bring investors back to the corn market?

And one more thing: 35% of the corn open interest is held by the big funds. The next time you are scared of the corn market collapsing and you are not sold or have not bought puts, just remember those fund traders are net long and they are the big money traders. Do you really think they are going to let this corn market crash and burn while they are long 3.795 billion bushels of corn? The big funds let the price of corn decline enough to induce panic or technical selling just so they can buy more bushels at a lower price. Just think about it. They learned that little trick from the Chinese.


 

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