October 28, 2019 / 2:33 PM / 15 days ago

Column: Funds load up on CBOT soy and wheat as U.S.-China possibilities simmer

FORT COLLINS, Colo. (Reuters) - Speculators continued to expand optimism in Chicago-traded soybeans last week amid easing U.S.-China trade tensions, and they turned bullish toward Chicago wheat for the first time in six years during the month of October.

A combine harvests wheat in Corn, Oklahoma, U.S., June 12, 2019. REUTERS/Nick Oxford

On the charts, both soybeans and wheat were looking top-heavy last week as prices had been above recent averages for unusually long periods. Wheat maintained that trend through the remainder of the week, but soybeans could not hang on.

In the week ended Oct. 22, hedge funds and other money managers extended their net long position in CBOT soybean futures and options to 68,822 contracts from 49,029 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.

That marked the sixth straight week in which funds covered short bean positions, and the new stance is the most bullish since early June 2018, when the trade war between the United States and China had just begun.

China has been back in the U.S. soybean market, although to a lesser degree than before the trade war, but the two countries are reportedly close to finalizing a “Phase 1” trade pact that many expect will boost U.S. agriculture exports to China, particularly soybeans.

However, optimism did not carry fully through the week. On Friday, most-active soybean futures dropped and also closed below its 20-day average, breaking the 31-day streak above that level. That was the longest stretch since February and March of 2012.

Trade sources suggest that commodity funds were light sellers of soybean futures over the past three sessions.

The streak is still alive in CBOT wheat, however, and investors finally turned bullish last week. On Friday, most-active wheat futures closed above its 20-day average for the 35th straight session, the longest such period since mid-2010.

Through Oct. 22, money managers established a net long position of 12,099 futures and options contracts, abandoning the net short of 10,564 contracts they had held a week earlier. Funds had not been bullish in CBOT wheat during October since 2013.

Trade estimates indicate funds may have boosted their wheat long even further late last week, and prices are relatively high for the time of year. Tightening global cash markets and droughts in the Southern Hemisphere have been supportive, but the possibility for China to buy much more than just U.S. soybeans has spread that optimism to the grains as well.

LEFT BEHIND

Investors might be optimistic on soybeans and Chicago wheat, but they do not share the same interest when it comes to corn or the other wheat contracts.

In the week ended Oct. 22, money managers increased their net short in CBOT corn futures and options to 76,055 contracts from 66,141 a week prior. They are expected to have sold even more futures contracts in the days since.

Corn futures are also strong for the time of year. But prices went nowhere last week, and the most-active corn contract on Friday marked its 53rd day below its 100-day average, the longest stretch in two years.

Money managers have been pessimistic toward Kansas City wheat futures and options for almost a year now, and through Oct. 22 they boosted their net short to 25,871 contracts from 23,353 a week earlier. K.C. wheat continues to trade at an extremely sharp discount to Chicago, and that has been the case for most of this year.

In Minneapolis wheat futures and options, money managers trimmed their net short to 8,062 contracts from 9,582 a week before. They have not been bullish toward spring wheat in over a year.

BULLISH OILSHARE

As in soybeans, speculators have been growing more and more optimistic toward CBOT soybean oil in recent weeks, and their view on oil relative to meal is the friendliest in two years.

Money managers boosted their net long in soybean oil futures and options to 67,620 contracts from 43,457 a week earlier, and the new stance is the most bullish in two years. Additionally, the numbers of outright oil longs and shorts are the largest and fewest, respectively, in two years.

This placed funds’ view on CBOT oilshare, the measure of soyoil’s share of value in the soy products, at 88,829 futures and options contracts as of Oct. 22, the most bullish since September 2017.

Not only has the soybean rally helped soybean oil prices, but more recently, palm oil has been supportive of soyoil as they are competing vegoils on the global market. Last week, Malaysian palm oil futures posted their biggest weekly jump in three years, lifted by strong exports.

Money managers remain bearish toward soybean meal, and although they trimmed their net short last week, the move was light relative to that in soyoil. Through Oct. 22, funds cut that position to 21,209 futures and options contracts from 25,070 a week prior.

Commodity funds were pegged as net sellers of meal and net buyers of oil 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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