Don't Fight the Funds With Joe Camp

[00:00:00]Buy the rumor, sell the fact. Welcome to the Comstock channel. I'm Joe Camp.

[00:00:04]We've got to start with a word on wheat.

[00:00:06]It was the subject of last week's video.

[00:00:09]The saying that buy wheat, sleep in the street. I said it wasn't correct so far this month of July wheat being the best performer of the last now 3 weeks. And that's true then of today as well.

[00:00:22]Another breakout higher. We've got new highs being posted 20 plus cents of gains for the wheat a complex of Chicago and Kansas City. This is something where we know wheat can be a leader. It's such the internationally traded crop here that it garners the focus of much more than just your regular corn and soybean futures traders. So, wheat coming into play here. And this video now an extension then of that saying buy wheat, sleep in the street not right so far.

[00:00:54]How about some other sayings I want to bring up here in fitting with what we see in this latest up move for wheat.

[00:01:02]And namely a question of fighting the trend or in this case fighting the funds. This was the subject of my Comstock article on Friday following the funds and splitting out what one the managed money traders are do are doing like we see here the net short position in wheat now built upon over this last reporting week. Uh but still something that as of last count was not yet net long. And so, short covering an absolute factor here. Still though the question of whether there's fresh buying interest to follow or if it is momentum from these hedge funds getting out of positions, rushing for the exit at any cost, and getting out only to see eventually that momentum wane.

[00:01:53]Uh and when I talk about momentum waning, I think about the discretionary hedge funds, the so-called managed money, and how they're only one piece of the puzzle because we need confirmation then of a broader buying interest from what I'll call the broader investment money. We can talk about the index funds, the so-called massive passives, and how they can park money into the grain space depending on the wider view of commodities and whether or not the financial picture is supportive or negative for commodities and for the grains and livestock included within.

[00:02:31]So, we look at the managed money having certainly been on a buying spree led by soybeans. That's the biggest net long of the three. We see more of that buying and I'll show you a soybean chart shortly. But again, a caution, if you will, to not only focus on the much-talked-about managed money position. Also looking at those swap funds for what they say about the index activity, about the ETFs, the mutual funds, uh and into the other reportables as well. The also retirement pensions, the um family offices, whether or not that confirms conviction to follow the very short-term, very flexible discretionary hedge funds that we otherwise talk about so regularly. So, if I think about don't fight the funds, that's an extension of a another saying, and it's don't fight the Fed. This paints a picture of whether or not we have that supportive, that positive or negative environment for commodities to flourish.

[00:03:42]Lately, we have had that turn around from a much more negative month of June from that aspect, interest rate expectations and monetary policy like we're looking at here in the market implied odds for the September Fed meeting. We do have another Fed meeting here in a week. Widely expected not to change rates, but there is still 25 plus percent chance that the central bank would raise rates by a quarter of a point this month. It's more commonly commonly agreed upon that we would get a quarter point hike to an upper bound of 4% here in the September meeting. You see that 54% likely as opposed to 29% staying unchanged with still another possibility of it being up two quarter point hikes by then and that would include potentially this month's movement as well. One thing I have to say about the the don't fight the funds saying is that you can get into another saying which is do what they do and not what they say or react to what they do and not what they say. And in that sense, we could be in a window where we want to fade the Fed at least their talk, their comments, the hawkish stance against inflation. The comments from Kevin Warsh in front of Congress recently saying there's no tolerance for high inflation persisting.

[00:05:10]You can ultimately though fade the talk and still wonder if the central bank leads leans towards more caution in keeping rates unchanged. And you know, that's a a question I want you to have here whether or not you agree with this chart and expecting interest rates to be raised over the coming months or not because I think that determines what type of environment ultimately will have for a possible continuation of the grain price rally that we're in.

[00:05:40]Not just to mention all commodities as a whole. So, from wheat to corn providing some leadership here.

[00:05:48]Uh we see corn having just this week uh surpassed and settled above its 100-day moving average. We're approaching, but still within room of those last highs from May, about 506 for the December contract. So, I want to bring that up here. We We do have this uptrend, but corn futures uh it should be known lagging behind not only wheat, of course, which has been the best performer, but soybeans in a big way. I leave the 100-day moving average here on the soybeans to show the difference with corn only just having crossed above that blue line. Soybeans having been above it uh now for more than a month, or just about 1 month here. The turn in July much more significant for wheat and soybeans. And similarly, when we talk about room yet for corn to reach its May highs, uh November soybean futures having uh already reached above those levels. One thing I want to bring up for soybeans would be uh this significant level of 1250 next up because of where it would take cash prices. So, just consider two readings of soybean basis uh that I checked on this morning. Both of them from country elevators. One co-op in central Illinois at 35 cents under for fall delivery. Another in central Iowa for 65 cents under. So, an average of the two at 50 cents under. It's a lot of soybeans that can be sold near $12 cash if the board is going to poke around 1250 or a little bit higher. So, I want to bring that up. Conversation I just had uh with a producer in Minnesota said exactly the same thing. That well, hey, over here they're actually 50 cents under. So, yeah, if we got to 1250, I'd love to be selling more at $12 cash. And he won't be alone, right? We think about that with corn. What I wanted to mention would be that $5 resistance level, psychologically important, not just a technical, even money handle that the speculators will look at for potentially taking profit, but also a level that's going to bring out more selling, both on the basis of new crop hedging and still old crop, which we have a window yet of release for and a particular consideration for this year that there is much more corn being carried over than normal, not only because of a record crop last season, but because just proportionally, relatedly to a record crop, but as a proportion of what is normally sold by now, there's more left over for corn to be sold into the price strength, which is something we're going to watch out for if we continue this rally. So, if we continue this rally, we're going to talk about a couple of things in strategy.

[00:08:39]And that's what I call don't kick yourself strategy exploration. I think about minimum price contracts, sell the cash, buy the board. You can keep a minimum price with a long call option or some form of it against your forward sale. You may be more apt to consider a forward sale or this type of hedge if you're reasonably comfortable with your own crop conditions. So, another popular saying is some form of don't assume your backyard looks the same as everywhere else, but you certainly want to have a stock of your own backyard and potential in in order to market accordingly these expected percentages of production. So, the alternative minimum price strategy then is to be long the put in some form.

[00:09:26]And these are strategies that can be carried out in your brokerage account, a lot of times in coordination with your buyer as well. But, what we could have here is a hedge that allows for what can currently be a lack of comfort about exceeding what you'll actually produce.

[00:09:46]So, you still may want to capture prices and have that floor in place, whereas you don't necessarily want to commit to deliver at this point. When I think about the strategies overall though, I'm thinking about when prices might top out and and on the basis of price, but there are other factors too and those include time and events. So, price, time, event. It can be a combination or one or the other that stands out to turn the market and and to act as a pivot. In this case, to turn the market back lower. And as for timing, we talk about this major question to answer whether you think this year is going to look similar to the past and particularly the previous two years when corn and soybean futures made their lows in August. In this case, I think it's probably a good warning not to have recency bias. Instead, it might be warranted then to question whether the highs come in August for corn and soybeans. For one thing, the timing of August can coincide with both the price up near $5, up near $12.50 to $13.

[00:10:58]Uh but also price time and event factors. So, you could get into say beyond the August crop report or right before the September crop report. And these are possible events that we should draw brackets around for this upcoming window of timing and and what might potentially necessitate the action for farmers to make a sale or a hedge. So, when you think about events, there's one more saying I'll bring up to close and this is maybe the most tired one of them all when we hear too often in market talk buy the rumor sell the fact, but it is something that jumps out as a potential market turning event given the current strength that we've had in connection to Chinese purchases. So, one market turner that relates to buy the rumor sell the fact could be China buying US corn, which I think would be immediately positive. If we're not there yet, it could very well send uh corn prices right to or above $5 per bushel, but then I wonder about the next day or or into the next week.

[00:12:10]And uh what could be an opportunity then of farmers to look at prices for hedging their next crop. Risks abound though that prices continue and that you don't want to fight the funds. You don't want to step in front of the trend. That's the current very short-term focus, but it's definitely a conversation that we're having with our farmer customers about well, what are then the prices ahead of the market that would turn us into a seller and potentially a seller then ahead of these possible points of pressure that come not just from price, but from say crop reports or pretty quickly the impending harvest. So, something that we're writing about in the Comstock report again, these targets, these strategy points. We flush into it more specifically with our farmers and when we're talking about strategies and actual recommendations.

[00:13:02]So, check out the Comstock report first.

[00:13:05]Go to comstock.com or contact information's up there. Follow me next time on the Comstock channel. For now, I've been Joe Camp.

[00:13:12]>> Futures trading involves risk. The risk of loss in trading futures and or options is substantial and each investor and or trader must consider whether this is a suitable investment. Past performance is not indicative of future results.