July 15, 2019 / 9:47 AM / 3 months ago

Commentary: Funds boost CBOT corn long, even after two bearish USDA reports

FORT COLLINS, Colo. (Reuters) - Speculators’ bullish views in Chicago-traded corn futures and options have withstood back-to-back bearish reports from the U.S. government without missing a beat, a sign the market still expects the U.S. crop to fall sufficiently short of expectations.

A patch of wheat that was missed by the combine is seen during harvesting in Corn, Oklahoma, U.S., June 12, 2019. REUTERS/Nick Oxford

Corn futures plummeted on June 28 when a U.S. Department of Agriculture survey showed far more planted acres than predicted. On Thursday, USDA’s monthly supply and demand report raised domestic corn ending stocks for the upcoming year by 20% on a cut to demand, well above the average trade guess.

But by Friday’s close, investors were presumably holding the biggest net long position in corn since June 2016.

In the week ended July 9, money managers increased their net long in CBOT corn futures and options to 187,168 contracts from 181,648 in the prior week, according to data from the U.S. Commodity Futures Trading Commission.

In the days since, trade estimates peg funds as having bought 47,000 corn futures, despite the bearish numbers on Thursday.

Speculators have been unwilling to temper optimism in corn just yet because the market generally believes U.S. corn plantings will come in lower after USDA resurveys producers in 14 major states. Most analysts also believe the agency’s 166 bushel-per-acre yield forecast is too high.

As of Friday, weather forecasts for the next two weeks were very hot for the Corn Belt, supporting the bulls as the heat will coincide with the start of pollination. However, weather models late Sunday suggested a flip to much cooler temperatures in about one week, which will ease stress on the plants entering the reproductive stages.

Bullish wheat figures from USDA also helped pull corn to the plus side on Thursday. The agency unexpectedly reduced global wheat production for 2019-20 by 9.4 million tonnes, led by a 3.8 million-tonne cut in top exporter Russia.

This was the dominant factor for wheat late last week. Commodity funds were predicted to have bought about 13,000 CBOT futures contracts between Wednesday and Friday, with the most-active contract up 4% during the period.

But money managers had eased their bullish bets in the days prior. Through July 9, they reduced their net long in CBOT wheat futures and options to 30,374 contracts from 37,097 a week earlier. That was after nine straight weeks of net buying.

In Kansas City wheat, they trimmed their net short to 17,805 futures and options contracts from 19,341 a week prior. Pessimism grew in Minneapolis wheat futures and options as U.S. crop conditions remain elevated, and money managers boosted their net short to 12,291 contracts from 8,817 in the previous week.

SOYBEANS AND PRODUCTS

Speculators raised bearish bets in CBOT soybean futures and options through July 9 to 41,934 contracts from 36,950 a week earlier. Funds have not really held an optimistic view in soybeans since early June 2018, and the average position over the last year is a net short of about 58,000 contracts.

However, trade estimates suggest funds bought 21,000 futures contracts over the last three sessions as most-active soybean futures rose 3% over the period.

This increase was bolstered by a cut of 1 bushel per acre to USDA’s domestic yield forecast. The agency has changed soybean yield in July only five times in the past 25 years, so market participants took this as validation of their ongoing U.S. crop concerns.

But reduced demand out of China due to African swine fever and the ongoing trade war has kept the soybean market in check. White House adviser Peter Navarro said on Friday that the U.S.-China trade talks are in a “quiet period.” China, the leading consumer of soybeans, has held steep tariffs on the U.S. oilseed for more than a year now.

As of July 9, speculators held their least bearish stance in the CBOT oilshare since late March, with the net short at 10,222 futures and options contracts. Oilshare measures soyoil’s share of value in the soy products.

Money managers continued to reduce their net short in CBOT soybean oil, cutting the position to 30,669 futures and options contracts from 36,283 a week prior. But they increased their net short in soybean meal to 20,447 futures and options contracts from 14,650.

Trade sources indicate that commodity funds bought about 8,000 soybean meal contracts and 6,500 soybean oil contracts between Wednesday and Friday. Those estimates are for futures only.

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

Editing by Matthew Lewis

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