Corn ‘bull market’ has slow-footed traders bracing for pain

Jeff Macke

Corn (CORN) prices are shooting higher after a Department of Agriculture report predicted farmers will plant the fewest number of acres of the staple grain since 2010. The government says 91.7 million acres of corn will be planted this year, a 4% drop from 2013.

In the attached video Stifel Nicolaus’s David Lutz says many commodity traders are finding themselves poorly positioned, stuck betting heavily on crude and missing corn’s new bull market entirely. “A lot of people are very long crude oil and natural gas. Crude oil longs are the biggest we’ve seen in almost 5 years. There’s going to be a big reversal out of that.”

Adding to the pain in the pits Lutz says there were record levels of shorts piled into wheat and corn at the start of 2014. Like a baserunner caught with too big a lead off first base, traders shorting corn and long crude could be in a pickle. If Lutz is right about the direction of corn (higher) and crude (down), the Pain Trade philosophy suggests the bull market in ‘ag’ could just be getting started.

“Nobody was positioned for a rally in corn. I tend to think we’re going to see a lot of flows rotating from that energy complex towards the agriculture complex.”

Ukraine and Genetic Modification

Adding to the pressure is uncertainty in Ukraine and China’s sudden concern over genetically modified corn. As it turns out Ukraine is almost irrelevant on a global economic scale except for the production of corn and wheat. Ukraine was expected to be the 3rd largest exporter of corn and 5th largest exporter of wheat this year. While that number hasn’t dropped yet political disruptions have hardly abated. With Putin in charge of Russia the only scenario that seems impossible is any form of certainty.

None of which addresses possible impacts on ethanol or grocery store prices for U.S. consumers. The bottom line is traders in the ag belt better buckle up for a rocky summer.

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