Trader thinks grain markets could stabilize next month

The bear run in grain markets could be coming to a merciful end, says an analyst.

“The month of March should be a catalyst that should at least start to stabilize things, I would think,” said a canola trader who preferred to remain anonymous.

“Everybody is starting to watch for signs that the balance will start to shift a little bit as we roll through the month of March here.”

The market’s focus is shifting from South America to North America, where there are troubling signs heading into spring seeding.

It is dry in Iowa, parts of Minnesota, eastern Nebraska and portions of the Dakotas. Iowa produces as much corn as Canada’s total wheat and oilseed output, so nervous chatter is surfacing.

Managed money has been “massively short” in grain markets for a long time, even for a commodity such as canola where supplies are not as comfortable as other crops.

The managed money position in the canola market was net short 149,049 contracts as of Feb. 20, according to the Commodity Futures Trading Commission.

Canola futures prices have been trending down since September 2023. There have been little bouts of short covering but nothing that has put a stop to the downward slide.

End users see the speculative money pressing prices lower and are happy to sit back and watch.

“They’re nibbling when they need to get something done, but they don’t see any motive to really oppose this trend,” he said.

“They’ll just back away on the rallies and say, ‘I don’t need to chase this.’ “

However, he thinks that sentiment may be changing as spring approaches and the shorts start “lightening up.”

“They realize they’re not going to get wheat down to $3 or $4, and I don’t think they’re going to get beans down to $7 or $8,” he said.

“Eventually the shorts will quietly start to cover, and we’ve seen little bouts of covering even in the last couple of weeks.”

That could prompt end users to get antsy, decide they can’t take any more chances and start increasing their coverage.

He expects it to be a gradual process where managed money starts taking a little money out of the market every week rather than putting more in.

Some markets have already shown signs of stability. It happened with the Chicago wheat market after China bought 1.12 million tonnes of U.S. soft red winter wheat in early-December.

The change in market direction could also happen suddenly if a major weather event occurs in one of the main grain and oilseed producing countries or if a source of big money that does not normally participate in grain markets decides to throw some funds at corn, soybean, wheat or canola to see if they can scare the shorts.

“I call it predator money,” he said.

That influx could be a catalyst for rapid change in market sentiment.

“It could be fairly abrupt if we can ever trigger a stampede to the exit door for that managed money,” said the trader.

Tags: corn, canola, prices, Oilseed, wheat, futures, output, grain markets