November 12, 2018 / 8:27 AM / 4 months ago

Column: Funds' CBOT views seen little changed after USDA bombshell - Braun

CHICAGO (Reuters) - The U.S. Department of Agriculture’s monthly supply and demand report can often be mundane in November, but Thursday’s update was far from uneventful, with loads of moving parts. However, the new data did not appear to significantly change investors’ minds toward Chicago-traded grains and oilseeds.

FILE PHOTO: Rows of corn wait to be harvested in a field in Minooka, Illinois, September 24, 2014. REUTERS/Jim Young

The report ultimately revealed an expected tightening of global grain supplies into mid-2019 and an expansion of soybean stocks, especially in the United States. However, the adjustment of historical data out of China made it difficult to quickly identify these trends in the grains.

The mood in the days leading up to the report was relatively optimistic. Investors spent the week ended Nov. 6 trimming bearish positions or extending bullish ones. However, they were likely net sellers across the board between Wednesday and Friday, but trade estimates suggest a lighter degree of selling.

In the week ended Nov. 6, hedge funds and other money managers extended their net long position in CBOT corn futures and options to 26,629 contracts from 14,269 a week prior, according to data from the U.S. Commodity Futures Trading Commission.


Open interest in corn futures and options ticked up on the week to 2.139 million, the largest since mid-September. That compares with 2.07 million in the previous week.

Trade sources predict that commodity funds were relatively light net sellers of corn over the past three sessions, one of which featured USDA’s volatile report. December corn settled at $3.69-3/4 a bushel on Friday, above the 100-day moving average of $3.67-1/2.

On Thursday, USDA cut U.S. corn yield by much more than was predicted, which tightened U.S. ending stocks below trade expectations. But the main event for corn was the explosion in 2018-19 world ending stocks to 307.5 million tonnes versus last month’s 159.35 million.

This was based on an adjustment to several years of data for China, which holds about two-thirds of the world supply but participates minimally in global trade. The country’s wheat strategy is similar, and USDA also revised those figures, though to a lesser degree.

The unexpected new numbers led to some confusion in the market over whether the report was bullish, bearish, or neither for the grains.

Had traders completed the task of subtracting the China numbers off the world corn and wheat balance sheets, it would have quickly revealed a predicted shrinking in global exportable supplies of both grains.

But weak export demand for U.S. wheat and strong competition for product out of the Black Sea have recently prevented any substantial rise in Chicago futures. However, net U.S. wheat export sales for the week ended Nov. 1 of 661,241 tonnes was the second largest weekly total of the marketing year that began June 1.

Commodity funds were likely outright sellers of CBOT wheat over the last three sessions, particularly on Friday as the Federal Reserve reaffirmed its monetary tightening stance, setting up for a fourth U.S. interest rate hike this year in December. This strengthened the dollar, which theoretically makes U.S. grains less competitive globally.

But in the week ended Nov. 6, speculators were slight net buyers across the wheat contracts. Money managers had cut their net short in CBOT wheat futures and options to 41,143 contracts from 44,717 in the previous week.


They also cut bearish bets in Minneapolis wheat to 6,046 futures and options contracts from 6,423 in the week before, and they extended their Kansas City net long to 11,143 contracts from 10,444.


Through Nov. 6, money managers drastically reduced their net short position in CBOT soybean futures and options to 45,078 contracts from 71,305 the week before. This was almost entirely due to short covering and was funds’ largest weekly purchase in soybeans since the first week of March.

Speculators’ soybean views have not effectively changed since late June, as the bearish position has oscillated between about 40,000 and 70,000 futures and options contracts.


Since late June, most-active soybean futures have traded in a $1.10 a bushel range, topping out at $9.22-1/4 a bushel on July 31 and bottoming at $8.12-1/4 a bushel on Sept. 18. The contract settled at $8.86-3/4 per bushel on Friday, up 7-3/4 cents on the day, despite a very bearish outlook from the USDA a day earlier.

Export demand for U.S. soybeans is still extremely weak as the U.S.-China trade battle continues, and this was reflected by USDA’s update. The agency reduced 2018-19 Chinese soybean demand by 4 million tonnes to 90 million, which also led to the 4.35 million-tonne slash in U.S. exports.

Despite the much larger-than-expected cut to U.S. soybean yield of 1 bushel, the demand adjustments sent 2018-19 U.S. ending stocks to an unprecedented 955 million bushels, more than double the previous year’s result.

Between Wednesday and Friday, trade sources suggest commodity funds were moderate net sellers of soybeans, but nothing suggestive of an attitude change toward the oilseed.

Traders appear to be optimistically awaiting the scheduled meeting between Presidents Donald Trump and Xi Jinping of China at the G20 leaders summit later this month in hopes the two countries can strike a deal and resume soybean trade.

Contrary to soybeans, money managers were sellers in the soy products last week. Through Nov. 6, they increased their net short in CBOT soybean oil futures and options to 59,166 contracts from 54,999 in the prior week. They also cut their net long in CBOT soybean meal to 19,521 contracts from 23,899.

In the days since, commodity funds are pegged to have been outright sellers of soybean meal and net sellers of soybean oil.

Editing by Diane Craft

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