March 20, 2017 / 8:44 PM / 4 months ago

Funds' bullish corn, soy bets crash under weight of South America: Braun

4 Min Read

CHICAGO (Reuters) - Bullish bets in Chicago grain and oilseed futures took a significant tumble last week as enormous South American crops weighed on the markets.

Hedge funds and other money managers scrapped their long position in corn futures and options in the week through March 14, ending a two-month bullish stint. (tmsnrt.rs/2nwFKdz)

The weekly downturn in net position of 103,683 contracts was the funds’ largest-ever for CBOT corn, resulting in a new stance of 23,602 contracts on the short side, according to data from the U.S. Commodity Futures Trading Commission.

Speculators also dropped soybean oil last week, all but erasing the net long that had been alive for nearly eight straight months. The new stance – just 784 contracts long – is a far cry from last week’s 26,364 contracts, but the weekly decline was slightly less than that observed back on Jan. 31. (reut.rs/2nwLT9A)

Money managers backed away from soybeans as well, reducing their net long to 98,354 contracts. The position cut of 29,284 contracts was the largest weekly decline since September. (reut.rs/2mBA11a)

Soybean meal missed out on the action this week as the modest trim of 1,589 contracts off the net long pales in comparison to the rest of the soy complex. Funds now have a 59,944 contract-strong bullish view in soymeal futures and options.

Throughout the most recent CFTC data period, May corn and soybean futures lost 4 percent and 3 percent of their value, respectively. The biggest blow was delivered on March 9 with the release of the U.S. Department of Agriculture’s monthly supply and demand report.

USDA this month cranked up its estimates of Brazil and Argentina corn production by 6 percent and 3 percent, respectively, over the February figures. The new targets are all-time highs for the two major exporting countries and represent a combined output increase of 34 percent over last year, during which Brazil struggled with its second-crop corn.

Additionally, the agency tacked on a massive 4 million tonnes to last month’s Brazilian soybean peg, which now stands at a whopping 108 million tonnes.

A couple of months ago, soybean speculators got bulled up over excessive rains in Argentina’s soy country, but when USDA did not revise its 55.5 million-tonne harvest prediction on March 9, it seemed to confirm that the January rainfall hype was officially dead.

Analysts know that there is a ways to go before South America’s harvest is in the bag – especially as two-thirds of Brazil’s corn crop is still in its infancy – so this will remain a key focus of the corn market going forward.

The next piece of information that is likely to have the biggest impact on corn and soybean futures is USDA’s prospective planting report on March 31, which will set the expectations for U.S. corn and soybean acreage for the 2017 harvest.

Soybean futures – and the bullish fund bets – could be further suppressed following the planting report if farmers ramp up soybean acres more than anticipated based on better profit expectations for the oilseed over corn. Money managers have not held a bearish view of soybeans since early March 2016.

At the same time, speculators’ corn stance could swing back to the optimistic side if soybeans end up stealing acres away from the yellow grain on March 31 – and the market mood would certainly change if late season weather troubles pop up for Brazil’s second-crop corn as was the case a year ago.

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

Editing by Lisa Shumaker

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