April 23, 2019 / 9:51 AM / 6 months ago

Column: Funds set new bearish benchmark across CBOT grains and oilseeds

CHICAGO (Reuters) - Speculators reached record levels of bearishness in Chicago-traded grain and oilseeds last week as global supplies continue to expand in the absence of any serious threats to crops on the horizon. Commodity funds were net sellers across the board last week and they have not changed their minds in the days since.

Farmer Lucas Richard of LFR Grain harvests a crop of soybeans at a farm in Hickory, North Carolina, U.S. November 29, 2018. REUTERS/Charles Mostoller

Traditionally, investors are unlikely to turn too pessimistic on grains and oilseeds heading into U.S. corn and soybean growing season. But the extreme short position holds much lower risk than usual for commodity funds, particularly in corn, because the producers’ bins are still stuffed with the yellow grain.

In the week ended April 16, hedge funds and other money managers extended their net short position in CBOT corn futures and options to a record 307,529 contracts according to data from the U.S. Commodity Futures Trading Commission.

That shattered the old record set in the previous week of 271,746 contracts and was mostly the result of new shorts entering the market, though there was also a slight extension in outright long positions.

On the other side of the coin, producers extended their net long position in CBOT corn futures and options to 28,009 contracts from 2,436 in the previous week. These two weeks are the only ones in records back to 2006 where producers held a net long position in corn.

This greatly reduces the chance for a significant upward move in futures should speculators decide to exit their enormously bearish stance, which is equivalent to 1.54 billion bushels. The U.S. Department of Agriculture predicts U.S. corn supply to reach 2.04 billion bushels by the end of August.

The front three corn futures contracts fell to new lows on Monday on weakness in wheat and improving weather for U.S. planting. Commodity funds are expected to have extended their record corn short even further since Wednesday.

USDA said U.S. corn planting progress had reached 6 percent by Sunday, behind the trade guess of 7 percent and ahead of last year’s 5 percent. The U.S. agency pegs U.S. corn plantings at 92.8 million acres, up 4 percent on the year.

SOY COMPLEX AND WHEAT

Money managers increased their net short in CBOT soybean futures and options in the week ended April 16 to 91,400 contracts from 71,314 in the prior week. The new stance is funds’ most bearish in the oilseed since mid-January 2018, before the U.S.-China trade war began.

Funds also expanded bearish bets in the soy products through April 16. Their soymeal short grew to 11,534 futures and options contracts from 8,615 in the previous week and their soyoil short reached 33,920 contracts, up from 31,609 a week earlier.

Investors have not changed their minds on soybeans in the days since. May soybean futures hit a nearly six-month low on Monday, weighed down by grains and poor weekly U.S. export data. Traders also shrugged off a 105,000-tonne sale of U.S. soybean meal to Colombia.

Record U.S. soybean supplies have made it difficult for market participants to find positive news for the oilseed, but there are some threads of hope, albeit small. The market is still awaiting a trade deal between the United States and its largest soybean buyer, China, which could come with some soybean sales.

Analysts have been worried that excessive moisture would considerably delay U.S. corn planting, potentially to the point that farmers switch over to soybeans instead, but those concerns are easing with improved weather. USDA placed U.S. soybean plantings at 84.6 million acres last month, down 5 percent on the year.

The other major wild card for soybeans as well as corn is the U.S. summer weather, which could reduce yields if unfavorable. Falling prices and stubbornly bearish speculators would suggest that big 2019 crops are already in the bins.

Money managers moved to a new record short position in Kansas City wheat futures and options of 54,295 contracts from 47,793 a week earlier.

They also extended bearishness in CBOT wheat, raising their net short to 63,076 futures and options contracts from 54,269 in the week prior, still well off the record short of 162,327 from April 2017. Funds’ bearish stance in Minneapolis wheat futures and options increased to 10,456 contracts from 9,457.

In the week ended April 18, weekly U.S. wheat export inspections totaled 811,130 tonnes, the largest weekly total since September 2016. But U.S. winter wheat conditions ticked up 2 points on Sunday to 62 percent good-to-excellent, well above the 31 percent from a year ago.

CBOT May wheat fell nearly 2 percent on Monday after dipping to a multi-week low, and contract lows were set across the board in K.C. wheat and in most Minneapolis spring wheat contracts.

HOG SQUEEZE

Money managers extended their net long position in CME lean hogs through April 16 to 58,532 futures and options contracts from 50,482 in the previous week.

That is well off funds’ record long of 97,952 contracts set in September 2013, which was just a few months after the highly infectious porcine epidemic diarrhea virus (PEDV) was first discovered in U.S. hog herds. However, PEDV did not significantly reduce U.S. pork production that year, and one reason was that producers fed healthy pigs to a heavier weight.

But China’s problems with African swine fever, or ASF, is expected to reduce pork production there by 20 or 30 percent this year, which would put a large hole in global pork supply as China produces about half of the world total.

June lean hog futures hit a two-week low on Monday, but the June contract remains at its highest levels since late 2014, and the ASF impact on global pork production could be worsening.

Last week, China confirmed cases of ASF on Hainan island off the country’s southern coast, a region the government assumed had a “natural barrier” against the disease. This discovery suggested that ASF is now “out of control,” according to one analyst.

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

Editing by Matthew Lewis

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