August 19, 2019 / 6:58 AM / a month ago

Column: Funds' bullish corn bets survive USDA's bearish surprise

FORT COLLINS, Colo. (Reuters) - The agriculture market last week severely underestimated U.S. corn production ahead of a highly anticipated government report, but speculators were much lighter sellers of Chicago-traded corn than was predicted amid the dramatic market reaction.

Corn grows in a field near the Ruff Brothers Grain elevator in Leonore, Illinois, U.S., July 6, 2018. REUTERS/Daniel Acker

The U.S. Department of Agriculture on Aug. 12 placed domestic corn production at 13.9 billion bushels, more than 5% greater than the trade was expecting. That was by far the largest miss on either side of the number in August in at least 20 years, potentially ever.

CBOT corn futures plunged the daily limit that same day and followed up with another steep drop the next day. The two-day percentage loss of nearly 10% was the largest for the most-active contract in more than six years.

In the week ended Aug. 13, hedge funds and other money managers reduced their net long position in CBOT corn futures and options to 44,513 contracts from 79,507 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.

The size of that move was consistent with those in the previous three weeks, and just like in the prior moves, it was well-balanced by both an addition of outright shorts and removal of outright longs.

Trade estimates suggested that funds should have flipped to a slight net short in corn after Tuesday’s session. Between Wednesday and Friday, commodity funds were presumed to have sold about 9,000 corn futures contracts, meaning they likely maintain their net long heading into trade on Monday.

Although USDA projected U.S. corn supplies at very comfortable levels over the next year or so, investors know there is still a long way to go on the crop before harvest since it was planted so late. Some market participants think that a much smaller crop may eventually be realized due to the late planting and imperfect weather.


USDA’s forecasts for the U.S. soybean harvest and the resulting supply came in well below market expectations, but the U.S.-China trade war, slowing demand and an already-comfortable inventory have kept investors firm in their bearish bets.

In the week ended Aug. 13, money managers reduced their net short position in CBOT soybean futures and options to 66,450 contracts from 72,813 in the prior week. They are estimated to have been modest sellers of the oilseed in the days since as weather forecasts late last week showed rain for parts of the U.S. Midwest.

The biggest move of the week came in soybean oil, where funds executed their largest weekly buy of the vegoil on record at 47,404 futures and options contracts. That tops the old record of 36,943 contracts set exactly three years ago.

As a result, money managers flipped to a net long position in soybean oil through Aug. 13 of 10,329 futures and options contracts from the previous week’s net short of 37,075 contracts. This is funds’ first bullish soyoil stance since March.

Soybean oil futures surged when China’s commerce ministry on Aug. 7 announced it would remove soybean oil, rapeseed oil and palm oil from its import tariff quota management.

Investors do not share similar sentiments in soybean meal. Through Aug. 13 they trimmed their net short to 36,424 futures and options contracts from 39,063 in the week before.


As of Aug. 13, money managers were still holding on to bullish bets in CBOT wheat futures and options as they trimmed their net long to 4,088 contracts from 6,219 a week earlier.

Trade sources believe that commodity funds still maintain the net long to start the new week as they were pegged as slight buyers of the grain over the last three sessions. Funds have been optimistic in Chicago wheat since early June.

USDA a week ago slightly trimmed global wheat supply and even boosted the U.S. export outlook. But global stocks are still plentiful, and the strong dollar has some analysts concerned that the U.S. product might be less competitive on the world market.

Money managers established a new record short position in Minneapolis wheat futures and options for a fifth week in a row, expanding their bearish view to 18,903 contracts through Aug. 13 from 17,249 a week prior.

They also added significantly to their bearish stance in Kansas City wheat, moving to a net short of 33,272 futures and options contracts from 20,748 a week earlier. That was funds’ largest weekly sell in hard red winter wheat in more than a year.

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

Editing by Leslie Adler

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