How do you lose 11% of your corn stocks?

Corn just got cheap. Well, at least relatively speaking. After months of prices edging higher on increasingly dismal stock and planting reports, investors got quite a shock today when a monthly report indicated that corn stocks were 11% larger than expected, and corn sowing was 2% above what analysts had predicted. All of a sudden, the fear of no supply pushing prices higher evaporated, and corn tanked quickly, falling -10.89% (the second largest corn move in history from what we can tell).

But corn wasn’t the only grain in freefall. Wheat also took a dive after planting reports came in over 2% above predictions, and stockpiles were found to be over 4% larger than expected.

So, is this just fuzzy math used to taunt investors? How do you randomly forget about over a tenth of the corn stockpiles in the country? U.S. Agriculture Secretary Tom Vilsack had a different take on the situation.

“American producers stepped up,” he quipped.

But did they? It turns out that the data released today in the plantings report was collected as part of a survey in the first two weeks of June that asked farmers what they believed they would plant. In other words, they asked farmers, when corn was hitting all-time highs and before the plains got pounded by flooding, what they intended to plant. When this information came out later in the day, the USDA quickly turned around and said they would be repeating the planting survey in July, perhaps causing the small bounce back at the end of the day in prices.

Actually, you should probably get used to the idea of these numbers being pretty bad. If you read the fine print at the bottom of the reports, you’ll find that that large change in wheat stocks actually falls within the reports margin of error, and that farmers have up to 5 years to change their answers on the surveys. Yes, this mash-up of crystal ball-derived statistical predictions is the report that caused a 10% price drop.

Whether it’s increased planting gusto or USDA miscalculations isn’t really all that interesting to us, as we’re more interested in who does and does not have exposure to the move in the managed futures world. Some longer term programs we monitor, such as Covenant Capital and DMH,  are maintaining their long positions in grains, but a few are taking advantage of the downturn, like Clarke Capital (including Worldwide, whose current drawdown presents an excellent opportunity for some investors), APA Strategic Diversification and Lenapi Advisors. Interested in learning more about these programs? Click on the links above to view their performance.

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