March 11, 2019 / 10:33 AM / 6 months ago

Column: Funds speed toward record short bets in CBOT grains

FORT COLLINS, Colo. (Reuters) - Speculators continued their aggressive sell-off in Chicago-traded grain futures into the first week of March, and they likely increased those bearish positions by the end of last week.

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

In the four weeks ended March 5, hedge funds and other money managers sold 286,707 grain futures and options contracts, including CBOT corn and wheat, and Kansas City and Minneapolis wheat.

That selling total is the second-largest for any four-week period in nearly two years, behind the four weeks ended June 26, 2018.

Corn bears led the charge, despite futures ending the period down only fractionally. In the week ended March 5, money managers extended their net short position in CBOT corn futures and options to 176,777 contracts from 104,459 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.

In the four weeks ended March 5, funds sold about 191,000 corn futures and options contracts. By contrast, they had purchased about 246,000 in the four weeks ended March 6, 2018, which was the peak of the year-ago buying streak.

Investors also sold about 63,000 CBOT wheat futures and options contracts during the four-week period, the most for a four-week stretch since September 2017.

In the week ended March 5, money managers increased bearish wheat bets to 72,449 futures and options contracts from 58,567 a week prior.

This is still well off the record wheat short of 162,327 futures and options contracts set in April 2017, and it is important to remember that commodity funds have the tendency to stay on the short side of the wheat market for extended periods.

Money managers pushed to a new record short position in K.C. wheat futures and options in the week ended March 5 of 44,870 contracts from 41,557 a week earlier, and they raised short bets in Minneapolis wheat to 8,329 futures and options contracts from 8,198 in the prior week.

Speculators increased their net short in CBOT soybean futures and options in the week ended March 5 to 50,302 contracts from 35,982 in the previous week.

Money managers sold about 56,000 soybean futures and options contracts in the four weeks ended March 5, the most for such a period since early July.

In the week ended March 5, funds whittled bullish views in soybean oil to 21,038 futures and options contracts from 23,281 a week earlier, and they also decreased bearish views in soybean meal to 42,200 contracts from 48,616.

MORE PESSIMISM SINCE

CBOT grain and oilseed futures have tumbled even further since March 5. On Friday, May corn and wheat hit new contract lows, while May soybeans sunk to their lowest levels since Nov. 27.

K.C. May wheat also touched new lows on Friday, as did the deferred Minneapolis contracts.

Monthly supply and demand estimates from the U.S. Department of Agriculture on Friday did not help the cause as cuts were made to U.S. corn and wheat exports. Although many market participants feared cuts were inevitable, it left a sour mood over the grain market, and some wonder if these numbers need to be pared even further.

The U.S.-China trade war also has many in the industry losing hope over a nearby resolution. The market had been expecting a meeting between Presidents Donald Trump and Xi Jinping at the end of the month, but it was reported Friday that no date has been set and Beijing officials would not commit to a summit until they are sure of a deal.

This was frustrating for market watchers as the can continues to be kicked down the road on the trade talks. The original deadline of March 1 for the two sides to make a deal passed with very little fanfare, leaving traders with few clues as to when a deal might be coming.

The lack of a trade agreement between the two largest economies is most impactful on U.S. soybeans as China has traditionally accounted for half or more of U.S. exports in the past.

But there has also been hope, albeit fading, in the grains as President Trump has suggested that an agreement might add China to the list of frequent buyers of U.S. corn and wheat. A new customer for U.S. wheat might be helpful in offsetting the stiff competition recently offered by top exporter Russia.

Meanwhile, U.S. farmers will begin planting for the 2019 harvest in about a month, probably without knowing whether China plans to purchase any of the output, and how much.

Trade estimates suggest that commodity funds were net sellers across the board in CBOT grains and oilseeds over the last three sessions. The figures peg funds’ corn short to have surpassed 200,000 contracts by the end of the day Friday, while the wheat and soybean shorts were likely closer to 80,000 contracts.

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

Editing by Diane Craft

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