December 3, 2019 / 12:06 PM / 11 days ago

Column: Funds sell CBOT soybeans at a record clip on evasive trade deal

FORT COLLINS, Colo. (Reuters) - Speculators are losing faith that a trade deal between the United States and China will be signed anytime soon, and that pessimism was reflected in their record selloff of Chicago-traded soybeans last week.

Soybeans in a field on Hodgen Farm in Roachdale, Indiana, U.S. November 8, 2019. REUTERS/Bryan Woolston/File Photo

In the week ended Nov. 26, money managers sold a net 61,393 CBOT soybean futures and options contracts, according to data published late on Monday by the U.S. Commodity Futures Trading Commission.

That breaks the previous weekly record of 60,526 contracts set in the week ended Dec. 19, 2017, and it placed funds’ net short as of Nov. 26 at 42,941 soybean futures and options contracts versus a net long of 18,452 a week earlier.

Most-active soybean futures have lost 1.6% in the three sessions since, ending at $8.70-1/2 per bushel on Monday, their lowest close since early September. Daily trade estimates suggest funds have not been net buyers of soybean futures since Nov. 15.

The lack of resolution over the U.S.-China trade dispute has been a huge weight on the soybean market. China had bought 9.3 million tonnes of U.S. beans for 2019-20 delivery through Nov. 21, substantially more than a year ago but only half of what was normal in previous years, at best.

There are a few moving parts surrounding the trade war, including another round of U.S. tariffs on Chinese goods set to take effect on Dec. 15. U.S. legislation backing protesters in Hong Kong has potentially soured the mood at the negotiating table, but top U.S. officials on Monday said a trade deal could still happen this year.

Meanwhile, improved weather in top soybean exporter Brazil has led analysts to predict a record harvest of 122.7 million tonnes, up nearly 7% on the year. Brazil exported a record volume of beans to China last year, displacing some U.S. business, especially as China’s demand has been hurt by African swine fever (ASF).

ASF has also boosted U.S. pork sales to China to record levels over the past several months, but investors are pessimistic toward hog prices on the Chicago Mercantile Exchange. Money managers flipped to a net short of 860 lean hog futures and options contracts through Nov. 26 from a net long of 6,007 a week earlier.

That is funds’ first hog short since mid-March, and February futures have slipped another 2.5% over the past three sessions.

Money managers were substantial sellers in the soy products through Nov. 26, expanding their net short in soybean meal to 32,308 futures and options contracts from 19,560 a week earlier. They also cut their net long in soybean oil to 66,884 contracts from 82,356. Estimates suggest they have been net sellers in both since Wednesday.

GRAINS

Funds were net buyers of CBOT corn futures and options last week for the first time in six weeks, trimming their net short to 116,072 contracts through Nov. 26 from 123,530 a week prior.

As of Monday, that net short may have shrunk to around 100,000 contracts after two days last week of presumed buying. Most-active futures finished at $3.82 per bushel on Monday, equivalent to the same date a year ago but well above the previous two years.

In Chicago wheat, funds flipped back to a net long of 10,475 futures and options contracts through Nov. 26 from their net short of 2,049 a week earlier.

CBOT wheat futures opened December at the highest level in five years, despite falling 6-1/2 cents to $5.35-1/4 on Monday. That followed a five-month high on Friday, and funds were seen as light net buyers in the last three sessions.

Some of the recent wheat trade has been technical, but fundamentals have also been supportive of price, as crop concerns linger in the Southern Hemisphere as well as in Europe. This week, the Australian government slashed the 2019-20 harvest to 15.85 million tonnes from 19.2 million in September, which would be an 11-year low.

Speculators are less enamored with the Kansas City and Minneapolis contracts, however, though they reduced bearish bets in K.C. wheat futures and options to 16,851 contracts through Nov. 26 from 26,119 in the previous week. That is funds’ least pessimistic K.C. stance since July.

But money managers’ bearish Minneapolis view exploded to 20,579 futures and options contracts from 13,988 in the previous week. The net weekly sale of 6,591 contracts was the second-largest on record behind the week ended April 9 with 7,279.

Chicago wheat continues to trade at a massive premium to K.C. and Minneapolis. On Monday, Chicago wheat finished 96 cents above Kansas City in the March contracts, while the Minneapolis spread was about 24 cents.

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

Editing by Matthew Lewis

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