FORT COLLINS, Colo. (Reuters) - Speculators remain steadfastly bearish toward Chicago-traded grains and oilseeds, but the selling likely paused late last week on friendly U.S.-China trade developments and relatively neutral data from the U.S. government.
The corn market has generally been in sell mode since late June as confirmation began trickling in that earlier doomsday crop predictions were highly overblown. Although the U.S. crop was planted historically late, the weather has been largely supportive of yields ever since.
Aggressively low market predictions and investors’ long positions set up two notorious crashes in corn futures on June 28 and Aug. 12 after the U.S. Department of Agriculture published heavier figures for domestic acres and yields.
Analysts were again too low with U.S. corn production on Thursday when USDA issued its latest outlook, but the market reaction was very different as corn futures rose both that day and the next.
Money managers had expanded their net short position in CBOT corn futures and options to 136,399 contracts through Sept. 10 versus 119,371 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.
Aside from the fact that funds were safely short going into the USDA report, the agency’s new peg of U.S. corn yield was smaller than in August, and that perhaps gave traders a bit of confidence in their general conviction that USDA’s numbers needed to come down.
Trade sources indicate that commodity funds likely bought around 14,500 corn futures contracts between Wednesday and Friday.
Money managers had boosted their bearish bets in soybean futures and options ahead of the USDA publication, moving to a net short of 91,737 contracts through Sept. 10 from 73,127 in the prior week.
USDA’s U.S. soybean yield also came in lighter than the August forecast, though it was still a larger number than the trade predicted. U.S. 2019-20 ending stocks came in below expectations at 640 million bushels, which would be down 36% on the year. It was the smallest domestic soy supply projected by USDA in over a year.
However, increasing optimism on the U.S.-China trade front stole the spotlight late in the week. China reportedly bought at least 600,000 tonnes of U.S. soybeans on Thursday after reports that Beijing would likely make goodwill purchases ahead of the next round of trade talks next month. USDA confirmed some 204,000 tonnes of that sale on Friday.
China’s Xinhua News Agency on Friday reported that Beijing will exempt some U.S. agricultural products from additional tariffs, including pork and soybeans. As of Friday, it was not immediately clear exactly which tariffs were the focal point of the announcement.
U.S. President Donald Trump had talked tough on China in recent weeks and months but seemed to lighten his stance late last week. Although he said he prefers a “whole deal,” he did not rule out the possibility of an interim pact. In the meantime, traders are remaining cautious on these prospects as they have been misled by U.S.-China trade optimism in the past.
Soybean futures surged on Thursday, closing at the highest levels since late July, and funds are presumed to have bought around 18,000 futures contracts over the last three sessions.
Both the corn and soybean markets have also been watching the historically dry conditions in Brazil, which is just now starting to sow its soybean crop. The situation is not forecasted to ease anytime soon, and this could be trouble for both its soybean and second corn crop.
However, analysts polled by Reuters on Friday see Brazil’s 2019-20 soybean crop at a record-large 122.62 million tonnes.
The rosier trade outlook with China, which is suffering a pork shortage due to a massive outbreak of African swine fever that began a year ago, also lifted CME lean hog futures late last week. The four nearby contracts had their largest-ever two-day percentage gain on Thursday and Friday.
Speculators have been bullish on hogs since mid-March, but optimism has faded in recent months. In the week ended Sept. 10, money managers reduced their net long to 19,426 futures and options contracts from 28,133 a week earlier.
Chicago wheat futures continue to move in the shadows of corn and wheat, but dryness in Australia and Argentina has recently offered support. USDA on Thursday trimmed the harvests in top exporters Russia and Ukraine, but the export outlook was unchanged.
Generally speaking, the world wheat supply is comfortable and speculators are bearish, but not aggressively. Through Sept. 10, money managers cut their net short in CBOT wheat futures and options to 14,389 contracts from 21,037 in the previous week. The new stance is much less pessimistic than at the same time in most recent years.
Funds remain staunchly bearish on Kansas City wheat futures and options, though they trimmed their net short to 41,566 futures and options contracts through Sept. 10 from 45,029 a week earlier. They also established another record short in Minneapolis wheat futures and options of 22,805 contracts versus 21,148 a week prior.
Money managers were sellers in the soy products in the week ended Sept. 10. They increased their net short in soybean meal futures and options to 47,606 contracts from 43,528 a week earlier, and they also boosted their net short in soybean oil to 19,106 futures and options contracts from 12,731 a week earlier.
The easing trade tensions between the United States and China also lifted the soy products late last week, especially soybean oil futures, which rose more than 3%. Funds were estimated to have bought nearly 12,000 bean oil futures contracts over the last three sessions but only 1,000 contracts of soybean meal.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis