February 3, 2020 / 10:19 AM / 4 months ago

Column: Funds' gross wheat longs hit new high while soybean sell-off sizzles

FORT COLLINS, Colo. (Reuters) - Speculators pushed their bullish views on Chicago-traded wheat even further last week, completely against market expectations, though their distaste for soybeans surged over demand concerns.

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

In the week ended Jan. 28, money managers increased their net long position in CBOT wheat futures and options to 48,469 contracts from 41,671 a week earlier, according to data from the U.S. Commodity Futures Trading Commission.

The move was mostly the result of new longs, enough to lift the total number of outright CBOT wheat longs to a new record of 136,325 contracts, replacing the previous high of 134,151 set on Sept. 11, 2012.

Commodity funds were predicted to have eased off their bullish wheat position through Jan. 28 since most-active futures fell 2% during the period. The contract dropped another 2.8% between Wednesday and Friday, and funds were again seen as net sellers during the period.

Chicago wheat prices have been on the downtrend since peaking on Jan. 22, but in the second half of last month, they maintained seven-year highs for that period. Investors have spent a lot of that time focused on Russian export prices, which remain high but have retreated from their recent peak, and logistical problems in France with the ongoing strikes.

Open interest in CBOT wheat declined 2% through Jan. 28, easing from a 10-month high a week earlier.

Funds barely adjusted their Minneapolis wheat net short through Jan. 28, cutting it to 3,532 futures and options contracts from 3,649 a week earlier. They also reduced their net long in Kansas City wheat futures and options to 9,384 contracts from 10,692, ending a six-week net buying streak.

Corn got some love in the week ended Jan. 28 despite a fractional slide in futures. In that period, money managers slashed their net short to 29,476 futures and options contracts from 67,804 a week earlier, almost entirely the result of short covering.

The resulting net corn buy was the largest for any week so far since June, and last week was the seventh in a row in which funds trimmed their net short.

The U.S. Department of Agriculture has announced a daily export sale of U.S. corn in five of the last seven trading days, which has been supportive of prices. But corn futures fell 1% over the last three sessions, so funds may have strengthened their bearish stance.

All global commodity and equity markets have been rattled by the coronavirus outbreak, and that has offered some headwinds to the grains, especially since it creates more uncertainty around Chinese demand. The health of China’s economy is of particular concern as it could limit or alter the need for certain agricultural imports, such as soybeans.

The United States officially declared a public health emergency on Friday, following the World Health Organization’s global declaration on Thursday. Wall Street’s major averages last week had their worst performance in six months, with the virus stoking concerns about global growth.

SOYBEAN DISENCHANTMENT

On top of the coronavirus fears, agricultural investors have also been weighing the implications of the Phase 1 trade deal signed last month, which states that China will substantially boost its purchases of U.S. farm products. But China’s lack of any action since the signing has been particularly frustrating for soybean traders, as the oilseed is by far the largest U.S. farm export to the Asian country.

In the week ended Jan. 28, money managers boosted their net short in CBOT soybean futures and options to 50,955 contracts from 13,735 a week earlier. This was almost entirely the result of new shorts entering the market, and open interest rose 4% on the week.

Most-active soybeans have fallen for nine sessions in a row, their biggest losing streak since July 2014. Futures fell 2.5% between Wednesday and Friday, and trade estimates suggest that commodity funds sold about 19,000 futures contracts during the period.

Soybeans settled at $8.72-1/2 per bushel on Friday, and that is their lowest end-of-January price since 2007. The most-active contract slid nearly 9% last month.

Funds were also sellers of the soy products last week. They increased their net short in soybean meal to 39,719 futures and options contracts through Jan. 28 from 36,696 a week earlier, and they cut their net long in soybean oil to 96,738 contracts from 101,259.

Commodity funds are predicted to have been heavy sellers of the soy products over the last three sessions. Most-active soybean meal futures on Friday fell to their lowest levels since May, bringing the monthly loss to 4.5%.

Funds’ positioning in soybean oil is still very bullish relative to history, but the most-active contract lost 14% last month, its biggest decline since September 2011. The contract dropped nearly 5% between Wednesday and Friday.

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

Editing by Matthew Lewis

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