By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
The panel generally agrees that the grains market, particularly December Corn (ZCZ26), is at risk of a 'long liquidation' event due to crowded net-long positions, despite weak basis and neutral forward curves. However, the extent and timing of the decline are debated, with some panelists citing potential support levels and conditional risks.
Risk: Massive fund liquidation triggering a sharp price decline, potentially exacerbated by commercial selling and weather-driven fundamentals.
Opportunity: Potential support levels, such as the 'ethanol floor' for ZCZ26, could limit downside if energy costs cooperate.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Seasonally, key markets of the Grains sector have reached a bearish turning point.
There are a few key points to keep in mind as we get another week deeper into the Merry Month of May are 1) There is an old adage for US stock markets that says, “Sell in May and go away” and 2) The fund/investment side of the Grains sector, fueled in part by the ongoing rally in global stock indexes, have continued to add to their net-long futures positions nearly across the board and 3) The Poseidon Predicament tells us that when everyone is on the same side of the boat, the ship tends to roll over.
All this came to mind this past weekend as a pored over my weekly charts and studies, all while keeping an eye on my long-term investment positions in the Grains sector based on monthly charts. From a technical point of view there were a number of intermediate-term technical patterns that a long time ago in a galaxy far, far away would’ve been considered bearish, key reversals indicating trends had turned down. But that was back when those sorts of patterns mattered to traders, an idea that has gone the way of the dinosaur in this age of algorithm-driven trade. So, I made note of the patterns and moved on.
But the idea of intermediate-term changes in trend stuck with me as I got into the seasonal part of my analysis. A couple things to remember about seasonal analysis: 1) It is part of Market Rule #3, use filters (seasonality, price distribution, volatility) to manage risk and 2) Watson isn’t overly concerned about seasonal tendencies either. At least not to the degree seasonal analysts are. That being said, though, if markets in the Grains sector start to see increased commercial selling, normal this time of year as well, that begins to change the momentum indicators algorithms DO pay attention to, then it is possible markets could see the seasonal moves we’ve grown accustomed to. Additionally, if Michael Burry (of The Big Short fame) when he said, “the market (stock indexes) today feels like the last months of the 1999-2000 bubble”, then a top in equities could spark long-liquidation in other market sectors were investors hold large positions, including Grains. The more vulnerable markets would be those whose forward curves do not indicate bullish supply and demand situations.
Let’s take a look at seasonal studies for three key Grains markets. As usual, I’ll start with December Corn (ZCZ26).
Last Friday’s Commitments of Traders report (legacy, futures only) showed a noncommercial net-long futures position of 433,384 contracts as of Tuesday, May 5, an increase of 92,644 contracts from the previous week. This included an increase of 72,596 contracts of long futures and a decrease of 20,048 contracts of short futures. This was the largest net-long futures position since the week of February 25, 2025, at 441,161 contracts.
National average basis remains weak while the 2026-2027 forward curve is neutral. Meaning funds do not have a fundamental reason to be adding to their long futures position.
Seasonally, December corn futures tend to post a high weekly close between the second week of May (5-year average, last Friday) and the third week of June (10-year average). From there the contract tends to lose 11% percent through the first weekly close of September.
As for November Soybeans (ZSX26):
The latest Commitments of Traders report showed funds held a net-long futures position of 232,198 contracts, an increase of 38,259 contracts from the previous week. This included an increase in long futures of 44,662 contracts and an increase in short futures of 6,403 contracts. This was the largest net-long futures position since 245,272 contracts the week of December 2, 2025.
National average basis is neutral-to-weak while new-crop futures spreads are neutral-to-bullish, meaning funds have a bit more fundamental reason to add to their long futures positions.
Seasonally, November soybean futures tend to post a high weekly close between the second week of May (5-year average) and second week of June (10-year average). From there the contract tends to fall between 5% and 7% through the end of October.
And then there’s July SRW (ZWN26), good ol’ Poverty Grass.
Fundamentally, the market’s futures spreads (forward curve) covered an extremely bearish level of calculated full commercial carry at last Friday’s close: The July-September at 91% and the September-December at 86%. Yes, this is bearish, but we have to keep in mind SRW is using the CME’s lower variable storage rate of 5 cents per bushel per month. If we changed that to the 8 cents per bushel per month used in HRW those same two spreads would’ve settled last week covering roughly 64% and 62%, still leaning bearish.
Because of this, the latest Commitments of Traders update showed Watson held a net-short futures position of 16,668 contracts, a switch of 17,534 contracts from the previous week. SRW could be a template for other markets, if we see increased commercial selling emerge.
Seasonally, the July SRW issue tends to post a high weekly close the second week of May (again, last Friday) before losing between 13% (5-year average) and 6% (10-year average) through the end of June.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
Four leading AI models discuss this article
"The current speculative net-long positioning in grains is fundamentally unsupported by basis levels, creating a high probability of a sharp, algorithm-triggered liquidation."
The article correctly identifies a classic 'crowded trade' scenario in grains, particularly with December Corn (ZCZ26) net-longs surging to 433k contracts. When non-commercials are this aggressive despite weak basis and neutral forward curves, the risk of a 'long liquidation' event is high. However, relying on seasonal tendencies is dangerous in a climate of extreme weather volatility and geopolitical supply shocks. While the technical setup points to a seasonal top, the 'Poseidon Predicament' assumes a correlation with equities that may break if inflation in soft commodities re-accelerates. I am bearish on the short-term price action for ZCZ26 and ZSX26 as the speculative froth is clearly disconnected from current cash market fundamentals.
A sudden, widespread drought in the US Midwest could force a massive short-covering rally that renders seasonal historical averages and current net-long positioning completely irrelevant.
"Record fund net-longs in corn and soybeans coincide with historical May/June seasonal highs, setting up 5-13% pullbacks through summer amid rising commercial selling pressure."
The article flags a classic seasonal bearish pivot in grains—Dec Corn (ZCZ26) eyeing 11% drop post-May/June highs amid record 433k fund net-longs; Nov Soybeans (ZSX26) 5-7% decline with 232k longs; July SRW Wheat (ZWN26) already topping with bearish 86-91% carry spreads and funds flipping short. Crowded spec longs + potential commercial selling could trigger liquidation, especially if equity tops spill over. But algos shrug off old patterns, and Watson (algos) prioritizes momentum shifts from commercials. Weak basis signals no fundamental chase, amplifying seasonal risk through summer.
Adverse South American weather or surging Chinese exports could tighten supplies, overriding seasonality as seen in past years when fundamentals trumped crowded trades. Neutral-to-bullish soybean spreads already justify some longs, potentially capping downside.
"Corn and soybeans face a crowded-trade unwind risk if equity markets correct, but only if commercial selling accelerates; without that catalyst, seasonal declines are modest (5-11%) and already priced into neutral-to-weak basis."
The article conflates three separate signals into a bearish seasonal narrative without rigorous weighting. Yes, funds are long ZCZ26 (corn) and ZSX26 (soybeans) at elevated levels, and yes, seasonal patterns suggest May-June peaks followed by summer declines. But the author admits technical patterns 'don't matter' to algorithms anymore, then builds a thesis on seasonality—which algorithms also ignore. The real risk is asymmetric: if commercial selling emerges (normal May behavior) and coincides with equity weakness, liquidation cascades. But that's conditional. Current basis weakness and neutral forward curves don't *force* selling; they just remove fundamental support. The SRW short setup (91-86% carry coverage) is the only genuinely bearish signal with teeth.
Seasonal patterns are backward-looking statistical artifacts with declining predictive power in regime-shifted markets. If the 2026 crop faces structural supply tightness (weather, acreage shifts, export demand), funds adding longs now could be rational, not bubble-like—and the article provides zero weather or planting data to contradict that.
"Seasonality alone is insufficient to drive near-term moves; weather, demand revisions, and policy/funding shifts will be the decisive catalysts."
The article leans bearish on seasonality with rising net-long positions and neutral-to-weaker forward curves, implying limited near-term upside unless a surprise occurs. Yet seasonality can be noisy, and current positioning may already price in some risk. A bigger blind spot is the absence of weather-driven fundamentals: U.S. drought risk, planting progress, USDA revisions, Brazil crop conditions, ethanol margins, and export demand shifts can quickly override seasonal patterns. It also treats algorithmic trading as erasing patterns, which isn’t guaranteed. Consider seasonality as one input amid volatile macro and real-time data, not a standalone guide to price direction.
A drought or heatwave in key growing regions could trigger a sharp, self-reinforcing rally that renders the seasonal call moot; likewise, a surprise USDA revision could catalyze rapid upside despite weak forward curves.
"Strong ethanol crush margins provide a structural price floor that will likely mitigate the impact of a fund-driven long liquidation in corn."
Claude is right to call out the lack of structural supply data, but everyone is ignoring the 'ethanol floor.' Even if funds liquidate, ZCZ26 has a hard support level defined by current ethanol crush margins. If margins stay healthy, commercial buyers will absorb the fund liquidation, preventing a total price collapse. The real risk isn't just a 'long liquidation' event; it's the potential for a massive divergence between corn and wheat if energy prices keep inflation sticky.
"Rising natgas costs undermine the ethanol floor, heightening liquidation risks for ZCZ26."
Gemini, ethanol margins offer a floor only if energy costs cooperate—but natgas futures (NGQ26) up 25% YTD erode crush value, per EIA weekly data, inviting commercial sales alongside fund liquidation for ZCZ26. Unmentioned risk: cascading pressure on DDGS exports if prices break $4/bushel, hitting protein bids and amplifying 10-15% seasonal drop.
"Natgas headwinds matter, but crush spreads are a ratio play—corn falling faster than energy rises could preserve ethanol support even if margins compress."
Grok's natgas linkage is sharp, but incomplete. NGQ26 up 25% YTD doesn't automatically kill crush spreads if corn falls faster—the *ratio* matters. Ethanol demand also hinges on RIN prices and EPA blending mandates, not just margins. The real cascading risk Grok flagged (DDGS export collapse below $4/bu) is real, but it's a tail event requiring simultaneous fund liquidation AND energy persistence. That's conditional, not inevitable.
"Ethanol margins do not guarantee a price floor for corn; RINs, mandates, and energy dynamics determine whether the floor holds."
Gemini's 'ethanol floor' assertion is the weak link. Ethanol margins and crush value can fracture if RIN costs swing, EPA mandates change, or gasoline demand softens, even with healthy natgas. A sustained energy shock could drag crush margins down faster than corn prices rise, undermining the floor argument and increasing risk of a sharper corn selloff if fund liquidation accelerates. The floor isn't a floor without energy-policy context.
The panel generally agrees that the grains market, particularly December Corn (ZCZ26), is at risk of a 'long liquidation' event due to crowded net-long positions, despite weak basis and neutral forward curves. However, the extent and timing of the decline are debated, with some panelists citing potential support levels and conditional risks.
Potential support levels, such as the 'ethanol floor' for ZCZ26, could limit downside if energy costs cooperate.
Massive fund liquidation triggering a sharp price decline, potentially exacerbated by commercial selling and weather-driven fundamentals.