1/x CME raised Corn $CORN $ZC margin requirements by 11.8% yda. When CME/others wanted to END the Silver $SI parabola in 2011, they raised margins 5 times in 2 wks by 84% and $SI topped ~$49.8 starting 10+ years bear market. What is similar & diff btw $SI back then and $ZC now:
2/x (Similar): excessive short-term speculative positioning + high volatility + social costs + narrative + China. (Different): LT fundamentals in terms of supply & demand + long-term positioning. Lets review each:
3/x $SI had 24k ($5 bln) long contracts from speculators & 100 mln new ozs added to ETFs 2010-2011 worth ($5 bln), so total ($10 bln) at 26 Apr 2011, $ZC has now 522k ($17 bln) long contracts of specs. Both of these spec positions are at huge profit based on when were built.
4/x $CORN specs, sit at $5 bln+ profits, no wonder CTAs have so outstanding performance lately. Grains are top contributor. The problem is that when margins are raised, they must cut positions. The best choice and historically is to cut winners requiring more margin.
5/x The volatility is part of the decision why exchanges increase margin requirements. Both $CORN and $SI show/ed high volatility. Vol still is not as elevated but CME is taking notice, so they will continue the trend to increase margins if the prices goes up more.
6/x Both Corn $ZC and $SI Silver are important for consumers. Corn is even more important, as grains inflation usually leads to social unrest: According to (NECSI) one standard deviation increase in domestic food prices over the LT mean increased the odds of unrest by 75%
7/x Narrative: $CORN today is in the long inflation narrative due to money printing/gov spending, same as $SI was in 2010-2011. This narrative could be wrong again: 2022 ? Its interesting how many specs hold corn not because of the LT fundamentals but because of inflation fears?
8/x China: Same as in 2010-2011 when China was commodities & silver hungry, today China is corn hungry because of the hogs situation and re-supplying warehouses with new corn and removing the lower quality old corn. But when China will decrease purchases?
9/x Different: $SI back in 2011, had the biggest negative fundamental factor in force without specs realizing it: India spent for $60 bln for its FY12 gold and silver import bill, so they decided to introduce import duties and demand decreased creating the PMs bear market.
10/x But corn has better fundamental story on a 5 yrs horizon. Grain inventories are tight so any abnormal weather make them spike. Planted acreage can't go up at lower prices, yields are maximized and in decline. Also
11/x Demand is increasing because Asia wants to eat meat & despite West's marketing for plant-based meat. I'm super bullish grains LT! The prices will trade at another level (higher) and stick there, but the time for a correction could be near if CME wants + all facts above.
12/x Conclusion: I'm not going to short corn on the CME, spec positioning, other factors because the good LT fundaments and weather unknowns. But if I had long corn positions, I would start taking profits now or plan exit.
13/13 The higher the price goes, the higher the risk. No positive reflexivity to feed it, and decrease risk as price increases. CME margin increase risk + spec positioning and social costs means that any moment needed, corn can go down on the back of specs.

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