Hedging

I’m taking today’s price action with a grain of salt as the Volatility Index was spiking to contract highs and traders are hedging and cross-hedging for every possible US/China trade outcome by the end of the week.

No doubt this was not the kind of return from Easter producers were looking for. But, consider the following and perhaps the glass is half full…

Are the sellers finally scraping the bottom in the corn market? In a different environment where funds were not already record short, today’s report could have easily sent the market lower, as analysts again underestimated US and World Ending Stocks. So what does the price action after the data release today tell us and what are the next hurdles to clear?

Corn chart damage was obviously done on Friday, following USDA’s Prospective Plantings and Quarterly Stocks reports delivered bearish surprises. After that drubbing, however, corn has held in relatively well so far this week.

US Dollar strength relative to South American currencies is likely hampering old crop exports in the near term, but managed money funds remain at record short positions combined in corn, soybeans, wheat.

The “SELL” button was getting hit at the 50 day moving average these past three days in corn, throwing some cold water on the short covering party.

As we’ve previously discussed, large speculators have recently built historically large short positions, setting the stage for potentially significant short covering rallies on new risks to production or shocks to demand.

Moving averages are one of the most basic yet most meaningful indicators out there for potential price support or resistance, in my opinion. Another basic tool is trend lines. When they match up together, I’m taking notice.