What Happened to Grain Volatility?

(Inside Futures) – Highs were made in June for corn, soybeans and wheat and since then trading volume has slowed down. As traders liquidated long positions in June and the beginning of July there were a few active days, but throughout August and for the first two weeks of September trading has slowed to a snail’s pace.

Since June after the rally in most commodities, large buy side hedge funds are doing very little. For weeks trading volume has been mediocre. There are the sell side funds pushing on corn in China and the U.S., but when funds rolled out of September shorts there wasn’t a big downside push on December.

With any luck before too long the CME Group may try to stimulate trading and one sign of this will be lowering margin requirements.

Could it be that bearish, or bullish news is already factored into the market and the fresh news isn’t powerful enough to stimulate further selling to new lows, or arouse any buying?

The September 12 WASDE report was for the most part a sleeper. Even at the 12:00PM release there was very little action from the timed algorithmic traders. The report showed big soybean and corn crops, along with big wheat supplies. It certainly wasn’t any secret or shock news. With the multitude of pre-report estimates it wasn’t anything new. For corn the USDA added back bushels taken out of the August report for industrial use and slightly lowered yield. For soybeans, maybe a few traders were surprised with a bigger yield, but it didn’t surprise many farmers, or anyone concentrating in grain trading.

But it isn’t just grains that have slowed down.

Take a look at gold. It has slowly slid off the highs since June after shooting up on the Brexit referendum, but within days of Brexit traders took profits and have moved aside.

Crude oil rallied to the June 9th high up to the $53.04/gallon on the October 2016 contract. It has since slowly stumbled lower to $39.96 and has bounced up and down like a bouncing ball running out of momentum since August.

On September 13 it was hard to find a commodity that higher on the day. Cotton, sugar and the U.S. Dollar Index were the few from the list of 20 plus commodities I closely follow that were up.

Could it be with the mere mention that the Federal Reserve may increase rates, traders around the world begin to trade in a deflationary mode versus the Fed’s concern inflation will eventually play a role in the economy. With the lack of trading volume, the big buy side hedge funds are sidelined with the profits after the rally during the first six months of 2016. At some point in the future they will buy again, but for now unless there is a shift in the algorithms, buy side funds will sit on the side.

Grain farmers now aren’t pressuring markets with sell hedges. But grain traders know when harvest actively begins, there is the possibility that pressure will come from large cash deliveries.

Until big funds come back, look for sideways markets to continue.