February 24, 2020 / 10:27 AM / a month ago

Column: Funds boost sky-high wheat longs but dismiss bullish USDA outlook

FORT COLLINS, Colo. (Reuters) - Speculators’ bullish bets in Chicago-traded wheat have been looking top-heavy for at least two months, leaving the market susceptible to a dramatic selloff. But commodity funds stood behind their optimistic wheat views last week, pushing their outright long positions to another record.

Field of ripe wheat ready for harvesting is seen in Corn, Oklahoma, U.S., June 12, 2019. REUTERS/Nick Oxford/File Photo

In the week ended Feb. 18, money managers boosted their net long position in CBOT wheat futures and options to 64,715 contracts from 45,940 a week earlier, according to data from the U.S. Commodity Futures Trading Commission.

Funds’ outright wheat longs shot to a record 143,987 contracts and replaced the high from three weeks earlier, which had toppled the long-standing record from September 2012. Their all-time net long is 80,827 contracts set in early August 2012.

But the enthusiasm did not carry through the end of the week, even as the U.S. Department of Agriculture on Friday painted a relatively bullish picture for domestic wheat, pegging stockpiles to fall to six-year lows by mid-2021.

That outlook assumes that U.S. wheat exports will remain relatively healthy over the next year. Accumulated export sales for the current marketing year that ends May 31 are the highest since 2016-17, the last season in which the United States was the leading global wheat supplier.

Most-active wheat futures fell 2.6% between Wednesday and Friday, and analysts predict that commodity funds were straight sellers of wheat futures during that period.

Money managers also increased their net long in Kansas City wheat futures and options to 14,312 contracts through Feb. 18, up from 10,479 a week earlier. That is funds’ most bullish view on hard red winter wheat since October 2018.

Investors made the opposite move in spring wheat through Feb. 18, as their net short in Minneapolis wheat futures and options surged to 11,891 contracts from 6,854 a week prior. They likely kept that momentum going late last week as the May contract plunged 2% between Wednesday and Friday. K.C. wheat fell 3.6% during that period.

MIXED SOY, CORN OUTLOOK

USDA’s vision for U.S. soybeans was also relatively bullish with 2020-21 ending stocks set to fall 25% to a four-year low. But the market dismissed the numbers, especially the optimistic export target. Most-active soybeans fell fractionally to end the week and funds were pegged as net sellers.

U.S. soybean sales have tapered off, particularly to top buyer China, despite the Phase 1 trade deal suggesting a boost in exports. Coupled with abundant, well-priced supplies out of South America, the U.S.-China agreement has done nothing so far to convince investors that soybean prices must rise.

Through Feb. 18, money managers trimmed their net short position in CBOT soybean futures and options to 89,763 contracts from 92,172 in the prior week. The latest stance is more bearish than at any point in 2018, when the U.S.-China trade war began and the United States harvested its largest bean crop to date.

Funds also continued their selling streak in the soy products in the latest week. Through Feb. 18, money managers lifted their net short in soybean meal futures and options to a record 72,468 contracts from 68,150 a week before. That marked the third consecutive week with a new record meal short.

Money managers slashed their net long in soybean oil futures and options to 39,628 contracts from 52,669 a week earlier. Although they are still bullish about the vegoil, funds have gone on an impressive selling run of more than 73,000 contracts in the five weeks ended Feb. 18.

That is the fourth largest soybean oil selloff over a five-week period behind three others in 2017 (March, April, and October). Funds likely continued selling soy products late last week.

Money managers reduced their net short position in CBOT corn futures and options to 61,461 contracts through Feb. 18 from 72,084 in the previous week. However, trade estimates suggest that commodity funds sold about 31,000 corn futures contracts between Wednesday and Friday, and the most-active contract slid 1.6%.

USDA’s latest figures were favorable for the corn bears as U.S. stockpiles are seen hitting a 33-year high some 18 months from now, and that would be a 39% rise on the year. A recovery in U.S. plantings and a healthy trend yield are seen boosting the U.S. corn crop to record levels.

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

Editing by Daniel Wallis

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