I'm Sorry, But Farmers Are Dumb Money

I was very bullish back in Jan, Feb, and March for the grains as people who know me can attest.  This was based on cycles and sentiment, not on fundamentals.  In the long term, fundamentals win, but never forget that the market is run on sentiment and not on fundamentals.  This is why every agricultural marketing service I know of was bearish when I was bullish.  They were all basing their forecasts on fundamentals.

Back in the winter while the fundamentalists were selling any sort of bounce they could get, your large speculators and hedgers were busy accumulating massive long positions.  In some of the contracts, these were record net long positions in contracts like corn, wheat, soybeans, coffee, and hogs.  Because every supply and demand report coming out would show a buildup of stocks, it only made sense that prices would move lower.  The selling was so intense that the market simply ran out of sellers.  There were no players left who were willing or able to short.  The longs were set up for the kill.

The chart below shows the DBC exchange traded fund, and the total net positions held by the smart money traders, aka large hedgers and speculators.  The Commodity Futures Trading Commission tracks these numbers.  You can see that the smart money is not buying into this rally..... they are methodically selling into it and are now net short by one of the largest amounts in history.  The last time they held this many shorts  was in Jan/Feb of 2011 when there was a much larger parabola.  If smart money is selling into the rally, who do you suppose is buying into it?  Yep, dumb money.

This pattern has repeated multiple times over the past 30 years, but not to this degree.  Hedgers build up a net long position, ag contracts take off, the public rushes in and the contracts go parabolic while hedgers are unloading their longs, then the market collapses.

None of us really have the insight on crop conditions, supply/demand imbalances, import/export data, etc. The one thing I can tell you is that according to sentiment trader, money flows are now at an extreme on soybeans, and nearing those levels on corn.  In fact, corn is nearing a level of optimism not seen since corn was over $7.00 back in 2012.  If corn optix (optimism index) can stretch above 70, it would mark a very good time to make your first corn sales.