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Column: Funds boost bullish soy bets, await more U.S. sales to China

FORT COLLINS, Colo. (Reuters) - Speculators’ bets on Chicago-traded corn and soybeans have been diverging for weeks, with the gap reaching the widest in 2-1/2 years last week, as global corn supplies are set to expand over the next year while soybean stocks are seen shrinking.

A worker wearing a face mask works on a production line manufacturing soybean-based food products at a factory in Hefei, Anhui province, China February 4, 2020. China Daily via REUTERS

In the week ended May 12, hedge funds and other money managers boosted their net long position in CBOT soybean futures and options to 32,465 contracts from 8,908 in the previous week, according to U.S. Commodity Futures Trading Commission data.

That reflected funds’ most optimistic view on soybeans since early November, and resulted predominantly from the addition of new long positions rather than a covering of shorts. It was the fifth consecutive week that funds added new longs to their soybean stance.

On the other hand, money managers extended their net short in CBOT corn futures and options to 214,054 contracts through May 12 from 190,152 in the prior week, and the new position was funds’ most bearish in exactly a year.

That was mostly the result of new shorts. Funds added gross shorts to their corn position for six consecutive weeks through May 12, totaling 107,184 contracts.

Trade sources suggest that funds were net sellers of both corn and soybean futures between Wednesday and Friday.

The corn market has been under heavy pressure since the onset of the coronavirus pandemic, as falling oil demand sharply cut ethanol production, which accounts for nearly 40% of annual corn use in the United States. U.S. farmers are also in the early stages of growing what is expected to be a record crop.

The U.S. Department of Agriculture on May 12 issued its first official outlooks for the 2020-21 season that begins Sept. 1 for U.S. corn and soybeans. USDA set U.S. corn ending stocks for the new year at 3.318 billion bushels, a 33-year high, while soybean stocks are pegged at 405 million bushels, a four-year low.

However, some analysts fear that the beginning soybean stocks for 2020-21 could be much higher than USDA predicts because the United States still has an anomalously high volume of beans to sell and ship before Aug. 31 in order to meet the target.

Much of that is likely riding on increased bookings from China, which is allegedly planning to start ramping up U.S. agricultural purchases as outlined in the bilateral Phase 1 trade agreement.

The United States is unhappy with China’s handling of the coronavirus outbreak, and that has placed the Phase 1 deal in jeopardy. However, U.S. officials insisted Friday that the deal was not falling apart.

Soybeans are by far China’s largest annual U.S. agricultural purchase, but market watchers have also been waiting for larger corn sales.

QUIET ELSEWHERE

Aside from corn and soybeans, money managers made very few changes to their views in the week ended May 12. They shaved 858 futures and options contracts from their Chicago wheat net long, bringing it to 2,982 contracts.

Most-active CBOT wheat futures have not settled below $5 per bushel since March 17. Friday’s finish of $5.00-1/4 was the lowest since that date, and the contract has generally trended downward since its recent peak of $5.87 on March 27.

Over the last three sessions, CBOT wheat was down nearly 3%, with most of that coming on Wednesday. Trade estimates suggest that commodity funds flipped into bearish territory late last week, ending on Friday at the most pessimistic levels since early October.

CBOT wheat futures are still relatively elevated compared with the same time in past few years, but global supplies are set to rise over the next year, and export competition is predicted to be especially tight.

Money managers have been mildly bullish toward Kansas City wheat futures and options since late March, though they reduced their net long to 3,895 contracts through May 12 from 7,834 in the prior week.

Funds’ net short in Minneapolis wheat futures and options set a record for the second week in a row through May 12, reaching 24,643 contracts. That compares with 23,893 contracts a week earlier.

Minneapolis wheat futures finished at $5.06-1/4 per bushel on Friday, the lowest mid-May level for the July contract since 2007.

Activity was minimal in the soy products through May 12, as money managers trimmed their net short in soybean meal futures and options by 573 contracts to 11,127. They also extended their net short in CBOT soybean oil to 7,865 contracts from 6,754 in the previous week.

Trade estimates indicate that commodity funds were straight sellers of soymeal futures between Wednesday and Friday, but net buyers of soybean oil.

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

Editing by Richard Chang

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