Column: Funds' CBOT wheat, soy longs under pressure after U.S.-China deal


FORT COLLINS, Colo. (Reuters) – Speculators last week cruised past a comparatively mundane U.S. government data dump as they fixated on the U.S.-China Phase 1 trade deal, which is set to boost Chinese purchases of U.S. farm goods.

Field of ripe wheat ready for harvesting is seen in Corn, Oklahoma, U.S., June 12, 2019. REUTERS/Nick Oxford

Investors did not largely alter their positions last week, but uncertainty around the Phase 1 deal and its feasibility leaves grain and oilseed bulls somewhat exposed.

The U.S. Department of Agriculture published a slew of fresh supply and demand numbers during the latest Commitments of Traders reporting period, but none of that data proved compelling enough to change investors’ views toward grains and oilseeds, which collectively were very moderately bullish.

The market is now watching for China to fulfill the promises of the new trade agreement, which indicates a minimum of $36.5 billion in U.S. farm purchases this year, up 50% from 2017. With a quantitative target now firmly in traders’ views, grain and oilseed bulls bear the burden of proof that China will live up to that number.

In the week ended Jan. 14, hedge funds and other money managers trimmed their net short position in CBOT corn futures and options to 78,442 contracts from 80,887 in the prior week, according to data published Friday by the U.S. Commodity Futures Trading Commission.

Funds have been unusually content with their bearish corn stance. In the three weeks to Jan. 14, speculators adjusted their net corn views by the smallest degree for a comparable period in over a decade. However, in the most recent week, there was a sizable addition of both shorts and longs, and open interest jumped 5% over the previous week.

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Thursday and Friday featured two of the biggest daily swings in the corn market within the past year, with futures down hard on Thursday over skepticism that the Chinese could fulfill the promises of Phase 1 trade deal signed the previous day. Corn roared back on Friday, and trade estimates suggest that commodity funds’ selling and buying over the two days mostly cancelled one another, though the ranges of estimates were wide.

Short-covering continued in the soybean market last week, though the pace has slowed significantly since the beginning of the year. Through Jan. 14, money managers extended their net long in CBOT soybean futures and options to 6,290 contracts from 1,159 a week earlier.

However, soybean futures backed off on Wednesday as the Phase 1 deal was signed, perhaps in the style of “buy the rumor, sell the fact.” And if trade estimates are correct, commodity funds ended last week with a slightly bearish stance toward the oilseed.

Funds are still heavily loaded up on soybean oil futures and options, having expanded their net long to 112,911 contracts through Jan. 14 from 110,862 a week earlier. Outright bean oil longs have maintained at or near record levels in the last month.

But they maintain pessimism toward soybean meal, boosting their net short to 31,720 futures and options contracts through Jan. 14, up from 27,914 a week prior. Trade estimates suggest funds were sellers of the soy products late last week, with a heavier focus on soybean oil.

TOP-HEAVY WHEAT

Along with soybean oil, Chicago wheat is the other commodity in which investors are unusually bullish, and CBOT wheat futures recently reached the highest levels in 17 months. Funds built on their net long through Jan. 14, moving to a position of 29,787 CBOT wheat futures and options contracts from 27,687 in the previous week.

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The number of outright CBOT wheat long positions, at 117,055 contracts, is also substantially higher than ever before in January, some 16% more than last year’s record. History indicates that it is difficult to sustain so many longs for an extended period, and the downward correction is often sharp.

But trade estimates indicate commodity funds extended their CBOT wheat bullishness late last week, as futures drifted fractionally higher.

Money managers also increased their net long position in Kansas City wheat futures and options through Jan. 14, to 7,935 contracts from 2,816 in the prior week, though the new position is more modest in historical context than that of CBOT wheat. In fact, the number of outright K.C. longs is notably lighter than in the previous three years.

K.C. wheat futures ended slightly lower over the past three sessions, while Minneapolis wheat ended the week on a more positive note. Money managers recently had a record round of short-covering in Minneapolis futures and options, but the pace has recently slowed.

Through Jan. 14, funds cut their net short in Minneapolis wheat to 3,515 contracts from 4,309 a week earlier, and the new stance is funds’ least bearish spring wheat view in nearly nine months.

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



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