CHICAGO (Reuters) - Managed money traders have whittled their net exposure to the corn market back to its lowest level in close to two years lately as a near-record-large corn planted area total weighed on market sentiment as the 2012 growing season got under way. Souring economic confidence stemming from economic and political disarray in Europe also sparked a broad shedding of risk by large speculators in recent weeks.
But managed money traders may soon ramp up long-sided bets once again, especially if the hot and dry growing conditions across most of the Corn Belt cause further crop deterioration and the upcoming U.S. Department of Agriculture crop report reveals a tightening in U.S. and world corn inventories.
SETTING THE TONE
While Managed Money (MM) traders are just one of several categories of participant in the corn market, it is arguable that the predictive and fast-moving nature of MM positions makes the MM crowd one of the key barometers of corn market in terms of price potential and speculator mindset.
As the name suggests, MM traders 'manage' money on behalf of clients, and so tend to be focused on securing fairly short-term returns within the markets they trade.
They also traditionally look to establish and liquidate their positions ahead of market turns, so as to conduct a majority of trading transactions amid periods of higher liquidity rather than during the spells of volatility that typically accompany price-trend changes.
This often results in MM trader net positions expanding ahead of market rallies and declining ahead of price declines, and so in effect can often act as a leading indicator of certain commodity market prices. This is particularly true in corn, where MM net positions have consistently increased or decreased ahead of advances and declines in the corn price in recent years.
Even the recent slump in corn values from above the $6.70 per bushel level in March to around $5.50 earlier this month was front-run by MM trader positions, which declined by more than 1 billion bushels (200,000 contracts) between mid-March and the end of May to their lowest level in 2 years. (Graphic of MM positions versus the corn price:
http://link.reuters.com/rez68s )
MANAGED POSITIONS LIKELY TO GROW FROM HERE
Since the Commodity Futures Trading Commission (CFTC) started reporting on 'Managed Money' positions within its weekly Commitments of Traders report in 2006, this category of trader has held a net short position in corn futures and options on only five occasions, most recently in mid-April 2010. The average Managed Money net position since 2006 has been roughly 180,000 contracts, and so the latest net stance of just over 41,000 contracts marks a substantial deviation from that average and is one of the lowest net long positions on record.
Given the rarity of net short positions by MM traders in recent years, and the fact that the few net short stances that have been seen have tended to be small in stature (the largest was less than 21,000 contracts) and short in duration (the longest was three consecutive weeks), it can be assumed that the recent bearish liquidation spree seen by MM traders is starting to lose steam.
Indeed, given the fact that crop conditions across the Midwest have already started to deteriorate amid hot temperatures and limited rainfall, it is quite possible that several MM traders have already begun to rebuild long-sided exposure to corn ahead of the upcoming critical growth phase for the crop. (Graphic of corn crop condition ratings:
http://link.reuters.com/sez68s )
The recent firmer tone to corn prices ahead of the June USDA crop report gives credence to that argument, as MM traders are likely to have been active buyers of corn lately as they position themselves for the important corn growing period ahead and the USDA's latest round of market updates.
But much will depend on the overall takeaways from the USDA's latest corn balance sheet projections. A broadly bullish set of U.S. and world corn numbers will likely spark a pick-up in overall buying interest among all trader groups, but especially amid MM traders looking to capture a majority of any upcoming price advances.
But a bearish set of numbers could prompt a final spell of liquidation among MM traders before more earnest buying interest emerges just before the corn crop enters its pollination and reproductive phase late this month and over the following weeks.
In any event, the recent reduction in Managed Money net exposure to the corn market looks set to slow now that the overall position total has hit its lowest level in two years just ahead of the corn crop's most critical developmental phase. The continuing decline in overall corn crop ratings should also help slow the recent liquidation drive among MM traders, although the upcoming USDA report may still prompt a final burst of selling interest before overall trader interest returns to the long side of the market as we approach the month of July.
(Reporting by Gavin Maguire; editing by Jim Marshall)
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Are the financial markets really Europe’s savior? - Reuters Blogs
If the euro is saved, the much-maligned power of global financial markets will deserve much of the credit.
The conventional wisdom among many on the intellectual left is that unbridled financial players threaten to destroy the European Union, one of history’s noblest, war-ending projects. The truth, however, is something else. To be sure, speculators lack noble motives, and global capital is a blunt instrument that tends to overshoot. But markets are forcing European leaders to fix their fatally flawed monetary union, a union that can only last with deeper economic integration and greater political (and democratic) legitimacy.
Last weekend’s agreement by Spain to accept a bank bailout, based on a European aid package of $125 billion, is a dramatic case in point. Senior Obama administration officials, in a series of urgent conversations with their European counterparts, warned that Spain posed the possibility of a “Lehman moment,” with global reverberations that no one could predict. If European leaders didn’t demonstrate to markets that they would pool their resources to address the banking meltdown of Europe’s fourth-largest economy, the contagion could have spread, what remained of U.S. and global growth could have evaporated, and the European Union itself would have been endangered.
In retrospect, it may have been wiser to build Europe without a common currency, one senior Obama administration official told me, given all the historical and national differences. However, now that the euro is used by 17 countries and has become a global reserve currency, the euro zone can’t be dismantled without unacceptable European and global risk. Thus, U.S. officials had been urging European leaders to settle the Spanish bank crisis before the Greek election next Sunday, June 17, and the G-20 meeting June 18-19, to avoid convening on the brink of financial catastrophe.
In the end, however, it wasn’t President Obama who forced a Spain deal through his lobbying with the top three euro country leaders – Chancellor Angela Merkel, French President François Hollande and Italian President Mario Monti. (Side note: One does wonder whether British Prime Minister David Cameron isn’t beginning to feel left out). Instead, it was the unrelenting pressure of European and global creditors and investors, who were withdrawing in droves from Spain, unsure whether a German-led Europe would provide the financial bazooka required.
The simple fact is that Europe some time ago ceased having a true monetary union. Although no country has withdrawn from the euro, markets have quit treating it as a trusted, common currency. As Irish economist Colm McCarthy writes: “Europe’s single financial market has been sundered through deposit flight and nation-by-nation re-matching of assets and liabilities.”
At an event jointly hosted by the Atlantic Council and Germany’s Suddeutsche Zeitung on Friday, IMF chief Christine Lagarde worried about political cycles running behind economic and market cycles, as “a movie we have watched one too many times.”
It looks something like this. Tensions escalate and, out of necessity, policy makers take action. But just enough for the danger to subside. Then the urgency is lost, momentum wanes, then the policy discourse begins to fracture, too focused on their own backyards and not enough on the big picture. And so tensions start to rise again.
But, with the passing of each cycle, we reach a higher and higher level of uncertainty, and the stakes rise. At this point, stability is at stake. Growth is at stake. In the case of Europe, the cycles are now threatening the very existence of the European project.
Markets tell politicians what they don’t want to hear. Economist Jean Pisani-Ferry says bond markets won’t be convinced until they see Europe has a banking union (Europe-wide banking supervision, deposit insurance, and crisis resolution), sufficient tax pooling (so that EU-level institutions can take charge of financial stability), and mutualization of enough of the costs of the crisis to convince markets that their bets against the euro are in vain.
Markets will continue to test Europe’s leaders until they are convinced they are committed to correcting their system’s flaws. And resisting markets is like complaining about the rain, and this one is a deluge. Global markets have a weight that no one anticipated when the Maastricht Treaty created the single currency in 1992. Since then, global financial stock has quadrupled through 2010 to $212 trillion, from $54 trillion in 1990, according to the McKinsey Global Institute. More stunning yet, Lagarde says the total amount of outstanding OTC derivatives in 2011 was $648 trillion in 2011, compared with just $12.1 trillion in 1992.
Josef Ackermann, former Deutsche Bank chief executive and now chairman of Zurich Insurance Group, said at the Atlantic Council last week that markets have done Europe a favor by forcing upon it financial and structural reforms and greater discipline. “There’s no politician who stood up and said we have to change that – not one,” he said. Without markets shifting credit spreads, he believes Greek profligacy would have gone on for some more years. “We’ve completely changed the discipline of European countries going forward, and that’s a good thing.”
Beyond that, however, he says politicians need to do much more to convince voters of Europe’s value. “A fragmented Europe has no way for self-determination,” he warned. “We will have to accept what the United States, China, India, Brazil and other countries [dictate to] us. This cannot be the future of our children.”
If Europe manages this crisis successfully, Ackermann argues, it will instill a new self-confidence that will express itself globally as Europe jointly conquers a historic challenge. Conversely, it follows that failure could dramatically reduce Europe’s influence and unity for at least a generation to come.
PHOTO: A demonstrator hangs fake Euro notes on her leg during a protest against Spain’s bailout at La Constitucion square in Malaga, southern Spain, June 10, 2012. REUTERS/Jon Nazca
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