Today we look at how much more bearish the grain complex can get and if some seasonal tendencies will get us off the lows that grain prices are sitting on.
“Whether a top-down or bottom-up investor, the standard analysis tends to judge an investor on the basis of how the bullish or bearish aspects of the cycle were managed.”
– Bill Gross (American investment professional)
Grain markets this morning are bouncing higher from new lows set in yesterday’s trading session (more on that later).
This week we’ll see the fourth round of NAFTA renegotiations happening in Mexico and we put a few thoughts on paper about how farmers in Canada and the US could be affected.
This week, I’m in Winnipeg for the Grain World Conference.
Yesterday, I listened to a pulse market panel. Obviously, all the talk was about India.
The conclusions were concrete: no matter what international governments like Canada do, India holds all the cards right now in the trade for pulses, namely the demand function.
An interesting note is that India owns the largest amount of cropland in the world, according to a new survey by the U.S. Geological Survey. 
The survey suggests that there are 4.62 billion acres of cropland around the globe.
That’s about 15% to 20% more than any previous estimate.
This figure includes more than 444 million acres in India, nearly 415 million acres in America, and more than 408 million in China.
Speaking of acres, as of Monday, farmers have seeded 57% of Brazilian soybean acres. 
AgRural says this figure falls in line with the five-year average of 56%. The forecast for the crop going forward is mostly neutral with little to no risk of drought or damage to Brazilian fields.
I’d like to bring up some bullish headlines in the Breakfast Brief, but the news is only pumping out mostly bearish ones.
Corn Production Shock Needed
As the USDA noted in the November WASDE report last week, the average American corn field will produce a record crop of 175.4 bushels per acre.
This number tops the previous record of 174.8 bushels per acre set last year.
However, did you know that 6 out of the top 8 corn-producing states were drier than last year?
This intuitively leads to the question, “Is the corn seed that good to produce, regardless of the conditions?” Todd Hultman from DTN suggests that science has produced “Super Corn.” 
He also notes that the USDA’s confidence interval over the past 35 years has been about 90%. That means that the November corn yield number of 175.4 could vary by as much as 4 bushels.
Note: That could be minus 4 bushels or plus 4 bushels.
Can Corn, Soybean Prices Get More Bearish?
Garrett mentioned yesterday in Grain Markets Today that corn prices and soybean prices can’t seem to find a bottom.
The January soybeans contract finished below $9.60 per bushel on the Chicago Board of Trade. Soybean prices have fallen 27 cents lower than where it started the day before the November WASDE report last Thursday.
China’s think tank, CNGOIC, has warned that November’s soybean imports by the People’s Republic could fall below 9 million tonnes. The reason for the potential slowdown is two-fold:
1. The Chinese government is cracking down on imports of non-approved GMO strains; and,
2. There are nearly 6 million tonnes in stocks sitting at the port (so not as many shipments may come in)
However, Allendale Brokers noted this morning that the seasonal tendency in the past 15 years is for soybean prices to start rallying in mid-November.
Check the calendar, because it’s November 15!
For corn prices, the March contract is sitting around $3.50 per bushel. This comes as managed money has increased its net short position in corn contracts yet again to 205,625 lots. 
There have only been two other times since 2006 that hedge funds have been more bearish on corn.
However, there are estimates that the position after yesterday’s close is closer to 245,000 short positions.
For wheat, managed money in the Chicago soft red winter contracts are sitting at net short of more than 125,000 lots. That’s the most bearish the market’s been since the record was set six months ago.
Will money managers look to move out of their positions and spur a short-covering rally for corn prices and wheat prices?
This seems logical as the market has moved lower and these bearish profits can be taken to the bank.
Following a move away from these short positions, prices typically move higher (and usually very quickly).
Is It Healthy to be This Bearish in Grain Markets?
What’s certain is that there’s seemingly more liquidity in these the big three crops.
The Commodity Futures Trading Commission data shows that open interest in wheat trading is up nearly 17% over the past year.  For corn, trading is up nearly 12% while soybean activity is almost 6% higher year-over-year.
There’s certainly more activity in the grain markets.
This creates two effects:
First, more volume can suggest more volatility. This, in turn, creates more potential opportunity.
This leads to the second point that bullish or bearish moves may be artificially exacerbated even more than they should be.
I’ve spoken in the past about how hedge funds and managed money will “buy the rumor and profit on the fact.” This means that if there is buzz that the price of a commodity could go up, then the market participant will start buying. If the rumors turn out to be just hot air, they’ll sell and take the profits.
Case in point, the rise of wheat prices this past summer, especially those on the Minneapolis spring wheat market.
The rumors that there was going to be little-to-no American spring wheat got people “buying the rumor.” Eventually, though, the market pulled back as quality and conditions didn’t worsen much and production estimates were not as bullish as everyone thought.
As such, everyone started to get bearish.
Ultimately, this is the game that we call commodity trade. There are hundreds of millions, if not billions of players between all the farmers, grain buyers, and speculators worldwide.
Over the coming weeks though, given some seasonal tendencies, we’ll be looking for a few more players to leave the super-bearish camp.
At 7:30 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2742 CAD, $1 CAD = $0.7848 USD)
Mar Corn: unchanged at $3.505 USD or $4.466 CAD
Jan Soybeans: +3¢ (+0.3%) to $9.708 USD or $12.369 CAD
Jan Soybean Meal (per short ton): +1.10 (+0.35%) to $313.40 USD or $399.34 CAD
Jan Soybean Oil (cents per lbs): +0.08¢ (+0.25%) to 34.24¢ USD or 43.63¢ CAD
Mar Oats: -1¢ (-0.35%) to $2.853 USD or $3.635 CAD
Mar Wheat (Chicago): -1.8¢ (-0.4%) to $4.435 USD or $5.651 CAD
Mar Wheat (Kansas City): -1.8¢ (-0.4%) to $4.435 USD or $5.651 CAD
Mar Wheat (Minneapolis): +1.5¢ (+0.25%) to $6.445 USD or $8.212 CAD
Jan Canola: +3.4¢/bu / +$1.50/MT (+0.3%) to $11.66/bu / $514.10/MT CAD or $9.15/bu / $403.47/MT USD or
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.