February 18, 2020 / 10:10 AM / 3 months ago

Column: Funds sell more CBOT futures amid thin U.S. ag sales to China

FORT COLLINS, Colo. (Reuters) - Speculators were net sellers of Chicago-traded grains and oilseeds last week as they still await large Chinese purchases of U.S. agricultural products as outlined in the Phase 1 trade deal signed a month ago.

FILE PHOTO: Soybeans are harvested from a field on Hodgen Farm in Roachdale, Indiana, U.S. November 8, 2019. REUTERS/Bryan Woolston/File Photo

But China’s ability to fulfill the trade agreement has been questionable due to the coronavirus outbreak, and the country’s recent slowing of U.S. soybean purchases combined with record crop expectations in top bean exporter Brazil do not paint an optimistic picture in investors’ minds.

In the week ended Feb. 11, hedge funds and other money managers increased their net short position in CBOT soybean futures and options to 92,172 contracts from 82,358 a week earlier, according to data from the U.S. Commodity Futures Trading Commission.

That was funds’ fourth consecutive week of bean selling. The new stance is well off the record short position, though there have been only 15 other weeks since mid-2006 in which funds were more bearish toward the oilseed.

The U.S. Department of Agriculture last Tuesday raised U.S. soybean exports by 3% in a nod to the U.S.-China trade deal, despite China’s recent lack of interest in American beans. Industry estimates for Brazil’s in-progress soybean harvest have been moving upward, and whether the coronavirus will reduce sales of U.S. farm goods to China is uncertain.

However, CBOT soybean futures finished Friday some 25 cents per bushel off February’s low, set in the first trading day of the month. Futures inched up again late last week, so investors may have trimmed their bearishness in recent sessions.

Money managers also continued their selling streak in the soy products, and they extended their net short in soybean meal futures and options to a record 68,150 contracts through Feb. 11, up from the previous week’s record of 64,377.

Funds have cut their soybean oil net long in half since its recent peak around Christmas. In the most recent week, they reduced that position to 52,669 futures and options contracts from 67,885 a week before. Investors have been bullish toward the vegoil since September.

Even though funds are significantly less enthusiastic than before on price prospects for soybean oil, they are still extremely bullish in the CBOT oilshare, which measures soyoil’s share of value in the soy products. That net long consisted of 120,819 futures and options contracts as of Feb. 11, down from the all-time high of 144,631 set on Jan. 14.

GRAINS

Money managers have not significantly changed their feelings toward CBOT corn over the last couple of months, though the general trend in the latest several months has been a gradual reduction in bearishness. But through Feb. 11, they extended their net short to 72,084 futures and options contracts from 55,990 a week earlier.

Export demand for U.S. corn has picked up in recent weeks though it is still largely slow, and the harvests in South America should be sufficiently large. U.S. planting is also just around the corner and corn acres are set to rebound from last year’s problems. Barring U.S. weather problems, next year’s balance sheet is looking heavy, and traders are taking note.

Still, CBOT corn futures are relatively high for the date versus the previous couple of years, and some uncertainty lingers around last year’s U.S. harvest. Brazil’s exportable crop is still being planted so that is not yet in the bag, and China’s intentions under the Phase 1 trade deal in terms of U.S. corn remain a mystery.

Chicago wheat futures have fallen nearly 50 cents per bushel since their recent peak nearly four weeks ago, but investors are not yet ready to scrap bullish bets. They did reduce their net long through Feb. 11 to 45,940 contracts from 52,161 a week earlier, the first net reduction since December.

Through Feb. 11, money managers had reduced their outright wheat longs by less than 3,000 contracts since hitting a record-large 136,325 two weeks earlier. Futures were up fractionally over the last three sessions, and funds were unlikely to have significantly changed their stance.

Kansas City wheat was the only grain or oilseed of which funds were buyers last week, though their views on hard red winter wheat have not really changed in the last month. Through Feb. 11, money managers increased their net long to 10,479 futures and options contracts from 8,261 a week earlier.

But they kept their 17-month bearish streak alive in Minneapolis wheat futures and options, extending their net short to 6,854 contracts from 4,629 in the prior week. Minneapolis futures slid another 1% late last week, and prices are the lowest for the time of year since 2016.

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

Editing by Matthew Lewis

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