Based on data provided by the CFTC (Commodity Futures Trading Commission), it appears that non-commercial players (read: hedge funds) were caught offside with respect to the recent upward move in corn prices. Long positions in corn have declined from a recent peak of 433,003 contracts (10/23/12) to 345,549 contracts in the most recent data (1/8/13). At the same time, short positions have increased from 99,344 contracts to 124,689. Basically, hedge funds spent the winter getting less long corn.
Looking back further, the data suggests that the actions of non-commercial players don’t necessarily reflect well upon their reputations as “smart” money – peaks in bullish position as measured by net long positions as a percentage of net short positions coincide startlingly well with peaks in corn prices. Admittedly, speculation may be driving some of the moves in the commodity, but it doesn’t appear to us as if hedge funds do a very good job of making money trading corn futures.
Our bias is to get short corn at these levels, as we move into a relatively quiet data period over the next couple of months and into U.S. planting intentions. Meanwhile, we will be watching to see what the "smart" money does and, if history is any indication, be prepared to move in the opposite direction.
HEDGEYE RISK MANAGEMENT, LLC