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Column: Funds’ bearish corn bets hit seven-month high as futures flirt with $3 mark

FORT COLLINS, Colo. (Reuters) - Speculators increased their pessimism toward Chicago-traded corn last week as unprecedented disruptions in demand had front-month futures dangerously close to a sub $3-per-bushel price, which has not happened since 2009.

Farmer Blake Erwin drives a combine as he harvests corn on his farm near Dixon, Nebraska, U.S., October 26, 2017. REUTERS/Lucas Jackson/File Photo

In the week ended April 21, hedge funds and other money managers expanded their net short position in CBOT corn futures and options to 161,057 contracts from 137,571 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.

The addition of new outright shorts comprised most of that move, though the net selling was much lighter than market analysts expected. Aside from one week in mid-September, the new stance is funds’ most bearish since mid-May last year, right before the severe U.S. planting delays began.

But U.S. farmers are having much better luck this year, as conditions are largely favorable to plant what is expected to be the biggest national corn acreage in eight years. Ethanol and its painful lack of demand has been an even bigger weight on the corn market, as U.S. production and stocks in the latest week combined to hit another record low and high, respectively.

On April 21, May corn futures hit $3.01 per bushel, tying Aug. 31, 2016, for the lowest price in the front-month contract since September 2009. Most-active futures bounced nearly 2% over the last three sessions, but commodity funds are not expected to have trimmed much of their bearishness.

Part of the uptick in futures late last week had to do with the idea that China may be looking for up to 20 million tonnes of U.S. corn to add to its state reserves, but Chinese officials have not confirmed these plans. That report also suggested China’s reserves might take on 10 million tonnes of soybeans and 1 million tonnes of cotton.

China has not purchased U.S. corn since early April, but between Wednesday and Friday it bought 606,000 tonnes of old-crop U.S. soybeans. That did not have a huge impact on soybean futures, which barely moved over that time frame. Investors’ feelings toward the oilseed also did not change much late last week, but they had turned pessimistic just days earlier.

Through April 21, money managers flipped to a net short in CBOT soybean futures and options of 2,864 contracts from their net long of 12,522 contracts in the previous week. Funds’ latest bullish soy position had lasted only three weeks, and the change to bear territory was almost fully due to an increase in outright shorts.

Funds also flipped to a net short in soybean meal futures and options through April 21, establishing a bearish view of just 146 contracts. That compares with a net long of 5,752 a week earlier. They also increased their net short in soybean oil futures and options to 11,557 contracts from 2,096.

Soybean meal and oil futures both slipped between Wednesday and Friday, so commodity funds are likely to have extended their bearish bets by the end of last week.

Speculators still maintain bullish views in wheat, though those took a hit on Friday with CBOT wheat down 2.6% and Kansas City wheat down 2%. This was largely attributed to the removal of risk by investors amid continued concerns for the global economy.

Unlike corn, soybeans and products, CBOT wheat futures have generally been above the levels of recent years, given the time of year, though the price has trended downward over the last month.

Through April 21, money managers trimmed their net long in CBOT wheat futures and options to 24,001 contracts from 25,381 a week earlier. However, trade estimates suggest they sold 14,000 futures contracts over the last three sessions, the bulk of that coming on Friday.

Kansas City wheat was the only grain or oilseed that investors bought last week, as they increased their net long to 10,953 futures and options contracts through April 21 from 5,298 a week earlier.

Funds are not bullish toward Minneapolis wheat, however, and they have not been since early September 2018. Through April 21 they boosted their net short to 17,399 futures and options contracts from 12,495 a week earlier, and that was one of funds’ stronger selling weeks in that contract’s history.

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

Editing by Matthew Lewis