September 3, 2019 / 9:35 AM / 14 days ago

Column: Funds sell more CBOT corn, unfazed by crop concerns and trade deals

FORT COLLINS, Colo. (Reuters) - Chicago-traded corn futures have largely traded sideways ever since the U.S. government stunned the market on Aug. 12 with a lofty forecast for the domestic corn crop, but speculators have turned sharply bearish on the yellow grain since then.

Grain storage bins in the foreground are surrounded by corn fields on Paul and Vanessa's farm near Colfax, North Dakota, U.S., August 6, 2019. REUTERS/Dan Koeck

In the week ended Aug. 27, hedge funds and other money managers increased their net short position in CBOT corn futures and options to 94,137 contracts from 56,441 a week prior, according to data from the U.S. Commodity Futures Trading Commission.

Just two weeks earlier, funds held a net long in corn of 44,513 futures and options contracts, and that was including the two-day period in which corn futures plunged nearly 10% on the bearish USDA data.

The number of outright corn longs as of Aug. 27 was historically low at just 170,237 contracts. That compares with a recent three-year average of about 230,000 per week. But the shorts are not necessarily compensating as the 264,374 gross shorts as of the same date are fewer than the three-year average of about 276,000.

It is not uncommon for speculators to turn bearish on corn heading into the U.S. harvest, but they have done so despite the uncertainties surrounding this year’s late-planted U.S. crop. Many market-watchers are concerned that cooler weather to start September will keep the crop from reaching maturity, especially in the northern areas.

Investors were obviously not impressed by the Aug. 25 tentative trade agreement between the United States and Japan. A top U.S. official has said that agricultural exports to Japan could increase up to 50% from the current $14 billion annually, which many traders view as a stretch. U.S. President Donald Trump is hoping Japan will buy some excess U.S. corn, as well.

Mixed signals on the trade front between the United States and China have not instilled much hope in the soybean market, either. Trump said on Friday that the two sides were still set to meet in September, but new U.S. tariffs against Chinese goods went into effect on Sunday despite protest from Beijing.

Either way, China’s outbreak of African swine fever has severely dented its need to import soybeans, and this has been a wet blanket on any hopes for a U.S.-China trade agreement.

In the week ended Aug. 27, money managers increased their net short in CBOT soybean futures and options to 76,047 contracts from 72,432 in the previous week. This is more bearish than funds’ stance a year ago when the trade war was still fresh.

Analysts have been just as concerned for the U.S. soybean crop as they are for corn, if not more so, as extremely late planting may not have allowed for a sufficient number of pods per plant. Funds risk being caught offsides if either U.S. crop falls notably short of expectations.

Between Wednesday and Friday, trade sources estimate that commodity funds were net buyers of CBOT corn futures at around 15,000 contracts and outright buyers of CBOT soybeans at around 11,000 contracts.

In soybean oil, funds ended their brief stint in bullish territory through Aug. 27, establishing a net short of 14,523 futures and options contracts versus the previous week’s net long of 2,982 contracts. They also trimmed bearish bets in soybean meal futures and options to 35,017 contracts from 36,162 in the previous week.

As such, speculators remain mildly long in the CBOT oilshare, which measures soyoil’s share of value in the soy products. They may have extended bullish bets over the last three sessions as commodity funds were predicted to have been net sellers of soymeal but straight buyers of soyoil.

LOTS OF WHEAT

Investors have hovered in neutral territory all month when it comes to Chicago wheat but with a mildly bearish trend. In the week ended Aug. 27, money managers increased their net short to 3,056 futures and options contracts from 1,249 in the previous week.

But commodity funds were presumably outright sellers of CBOT wheat futures over the last three sessions, particularly on Friday amid much larger than expected deliveries against September contracts. This sent nearby contracts to the lowest prices since mid-May.

Global demand for U.S. wheat has been decent, especially against year-ago levels, but there is no shortage of wheat in the world. Ukraine’s exports are up 55% over a year ago thanks to slower Russian sales and a larger wheat harvest. France’s harvest is its second-largest in history and up 15% on the year, boosting export prospects there.

Money managers finally exhausted selling in Minneapolis wheat futures and options through Aug. 27, ending a six-week streak of establishing new record shorts. They shaved their net short to 20,290 contracts from 20,338 a week earlier.

Funds’ recent selling pattern in Minneapolis wheat futures pre-empted the contract’s fall to 10-year lows on Friday, as the U.S. harvest is expected to be sufficiently large and supplies are plentiful both at home and abroad. Canada is also seen harvesting more spring wheat than last year, though the durum crop is down sharply.

Funds barely changed their views in Kansas City wheat futures and options through Aug. 27, trimming their net short to 36,651 contracts from 36,956 a week prior. K.C. wheat futures were also a victim of heavier-than-expected deliveries on Friday, with December wheat reaching contract lows and the nearby touching the lowest levels since September 2016.

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

Editing by Matthew Lewis

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