Are fundamentals — or speculators — impacting corn markets?

By Kelly Brunkhorst, Director of Research for the Nebraska Corn Board. {NOTE: Updated with chart at bottom on 6/24/11.}

Did I miss something?

Have you ever showed up to a meeting late and a decision was made that was completely opposite of what you expected, thus asking yourself if you missed a key piece of information that others must have had.

One has to ask themselves that same question lately as you look at the futures price of corn on the Chicago Board of Trade…did I miss some information? Did we all of a sudden find a large pot of corn we didn’t expect? What happened to try supply and demand fundamentals?

USDA released its updated World Ag Supply and Demand Estimates (WASDE) report June 9 in which it dropped planted acreage, thus having the same effect of dropping production, supply and carryout. This caused the futures price of corn to close up that day. That makes sense.

Of course the trade had expected some of this, and the price of corn closed upwards and it seemed like fundamentals meant something…but since then. Well prices dropped a lot last week. Did we miss something? No additional reports were released.

There is constant talk of the delayed plantings effect on yield, still talk about flooded acres and an updated acreage report won’t be released until the end of June.

So what happened to the fundamentals? Nothing.

So what did we miss?

Well, there has been discussion in the past about the role of non-commercials and the effect they can have on the futures market. Seems like this is the piece of information that one sometimes forgets (or misses) and indications are that non-commercials are liquidating their positions, thus the drop in the market. 

Fundamentals are not in the driver’s seat as they should be…but speculators are. 

NOTE: The following chart was added June 24, 2011. Note that the drop in the long positions over the last week (Tuesday-Tuesday). This is nearly 300 million bushels of liquidation in a single week. A previous chart shows this figure through March.
Click the chart for a larger version.