April 30, 2019 / 9:34 AM / 3 months ago

Column: Fund versus farmer - the standoff in CBOT corn continues

FORT COLLINS, Colo. (Reuters) - Speculators are closing out April with their most pessimistic views of all time toward Chicago-traded corn and soybeans, and as futures decline, farmers are even more reluctant to sell off their large inventories.

FILE PHOTO: Corn is dumped into a grain cart from a combine during a harvest near Dixon, Nebraska, U.S., October 26, 2017. REUTERS/Lucas Jackson/File Photo

Commodity funds are likely more comfortable than usual in taking massive short positions in grains and oilseeds because of the ample stockpiles, particularly in the United States. They also know that the producers will eventually have to sell, potentially at unfavorable prices, but producers are hoping that funds will be forced to cover shorts first.

In the week ended April 23, hedge funds and other money managers extended their net short position in CBOT corn futures and options to a record 322,215 contracts from 307,529 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.

Prior to March of this year, funds’ record short position in corn was 230,556 futures and options contracts set in November 2017.

Producers also increased their net long position in corn futures and options through April 23 to a record 47,097 contracts from 28,009 a week prior. This was the third week in a row, and third week in history, that producers held a net long in corn.

After ending 2018 on an optimistic note, investors have soured toward the yellow grain as U.S. corn has begun facing stiff export competition from overseas and domestic stockpiles have expanded. South American corn crops are also set to rebound at least 25 percent from last year’s disappointing harvest.

U.S. farmers are seen expanding corn plantings by 4 percent over last year, but they have recently been stingy sellers of their grain amid sinking prices.

Early on Monday, July corn futures were trading close to where they settled at the end of March after a quick dive to fresh contract lows last week. Corn had fallen sharply on March 29 after the U.S. Department of Agriculture stunned the market with a much larger March 1 inventory than expected.

Concerns over U.S. planting delays supported corn futures Friday and early Monday as more rainy weather this week would continue to keep some farmers out of their fields. Typically, close to a third of the U.S. corn crop is planted by the end of April, but only 6 percent was planted as of April 21.


If U.S. corn plantings are delayed too much, farmers may opt to plant soybeans instead, which can be sown later with less risk. This, along with trade uncertainties around the United States and China, the top soybean buyer, have cast a negative shadow over CBOT soybean futures. Large crops in South America have added to the weight on prices.

In the week ended April 23, money managers drastically increased their net short position in CBOT soybean futures and options to 129,566 contracts from 91,400 in the previous week. The new stance is a record short for funds, replacing the previous high of 118,683 contracts set in late June 2017.

The battle between speculators and producers is not as strong for soybeans as it is for corn, but it is getting there. Through April 23, producers extended their net long in CBOT soybean futures and options to 63,510 contracts from 24,378 in the week before.

The producer net long in soybeans has been larger six other times: three weeks in September 2014 and three weeks in June 2017.

Aside from an unexpected disruption in U.S. soybean planting or an unlikely shift to a prolonged, unfavorable weather pattern, a U.S.-China trade deal might be the only thing that could perk up the soybean market in the short term, particularly if it comes with details on China’s future plans to buy U.S. soybeans.

But even that holds a great deal of uncertainty as China’s hog herd, the world’s largest, has been cut down by deadly African swine fever, which has reduced feed demand there. China traditionally accounts for more than 60 percent of global soybean imports to feed its hogs, meaning that lost Chinese demand, if significant enough, would be impossible to replace.

Between Wednesday and Friday, commodity funds were likely net buyers of corn and net sellers of soybeans. Early in trading on Monday, most-active corn futures were up slightly while soybeans were hovering around unchanged.

The opinions expressed here are those of the author, a market analyst for Reuters. 

Editing by Marguerita Choy

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