Grains: Corn Bulls Get Mauled!
I’ve been saying it for months now…
Corn was one of the riskiest commodities to be bullish of in 2013.
And what happened last week proves my bearish thesis in a big way.
But before I cover recent corn market trading, let me give you a quick recap of the situation…
The summer of 2012 was incredibly profitable for corn bulls. You see, at the start of last year’s planting season, the United States Department of Agriculture (USDA) estimated that the 2012 crop would be enormous. As a result, the price of this essential grain dropped to $5.50 a bushel in May 2012.
But as you may remember, Mother Nature didn’t cooperate last summer…
Sweltering midwestern US heat and a searing drought turned last year’s corn crop into an unmitigated disaster. By July, investors realized thousands of acres of shriveled corn would have to be plowed under. As a result, the 2012 harvest was going to come in much weaker than the USDA had anticipated just a few months earlier.
Of course, that sent corn skyrocketing. The essential grain shot to $8.40 a bushel in August 2012… a 50% jump from the May 2012 lows. That’s a huge move for any commodity, and corn bulls made money hand over fist.
Now fast-forward to March 2013…
After months of slowly dwindling prices, Commodity Futures Trading Commission (CFTC) data revealed corn bulls were once again growing confident. In fact, hedge funds were net long corn futures and options by 192,000 lots going into the last week of March.
No doubt about it, bulls were betting big that 2013 ending corn inventories would be lower than expected, and the grain would make another run towards last year’s record high.
But then corn bulls got a nasty surprise…
As you can see, corn bulls were decimated the first week of April. Spot corn dropped nearly $1 a bushel in just two days! That’s an enormously bearish move that clearly caught bulls off guard. Without question, this selloff has more than a few hedge funds licking their wounds.
What happened?
The March 28th USDA prospective plantings report revealed US farmers were going to plant their biggest crop since the 1930s… 97.28 million acres.
What’s more, old crop corn inventories fell by a mere 600 million bushels as opposed to 1 billion bushels of shrinkage bulls were expecting. Put it all together and investors realized US corn supplies should be ample come fall.
How can the average investor capitalize on such a move?
Long-time readers know I’m a big fan of commodity ETFs. Instead of complicated futures contracts, commodity ETFs offer a simple and efficient way to invest and speculate in the commodities markets.
For example, the Teucrium Corn Fund (CORN) provides investors with direct exposure to price fluctuations in the corn market. By either shorting, or buying put options on CORN, you could have made yourself a tidy profit last week.
Until Next Time,
Justin Bennett
Category: Commodities
