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Column: Funds dump CBOT soy shorts on shrinking U.S. supply, China optimism

FORT COLLINS, Colo. (Reuters) - Lighter U.S. stocks and renewed buying interest from China had speculators quickly changing their minds about Chicago-traded soybeans last week, as they slashed their pessimism toward the oilseed to an eight-month low.

Meagan Kaiser shows off a Soybean plant around 45-days before harvest on her farm near Norborne, Missouri, U.S., August 28, 2018. REUTERS/Dave Kaup/File Photo

U.S. corn stocks also shocked the market to the downside, but while investors acted accordingly, their views remain steadfastly bearish as Chicago futures are still elevated for the time of year.

In the week ended Oct. 1, hedge funds and other money managers nearly erased bearish bets in soybeans, chopping their net short position to 8,730 futures and options contracts from 41,688 a week prior, according to data from the U.S. Commodity Futures Trading Commission.

This is funds’ least bearish soy view since early February, when basically the only thing keeping the market afloat were hopes that the United States would make a trade deal with China, which would then buy a slew of soybeans and ease the burdensome U.S. stockpiles.

But it seems the inventory situation is starting to fix itself even though China’s U.S. bean purchases earlier in the year did not turn out as large as many analysts had hoped.

Last Monday, the U.S. Department of Agriculture placed Sept. 1 soybean stocks at 913 million bushels, well below the trade range of guesses. That still puts 2018-19 ending stocks at a massive record, but the lower number implies even smaller supply in 2019-20, down potentially 40% or more on the year.

A domestic soybean harvest that could fall by close to 1 billion bushels from last year is the main force behind the slashing of stocks. USDA will update the U.S. and world balance sheets on Thursday, and smaller U.S. numbers are expected.

Analysts predict soybean production down just over 1% from September to 3.583 billion bushels. Ending stocks for 2019-20 are seen at 521 million bushels.

China has also been in the U.S. market lately, having bought more than 4 million tonnes of soybeans for the current year, nearly three times the volume at the same point a year ago. The two countries will continue trade negotiations on Thursday, and the mood heading into the talks has been mostly positive.

Commodity funds were not predicted to have changed their stance in the oilseed between Wednesday and Friday.


In the week ended Oct. 1, money managers cut their net short in CBOT corn futures and options to 126,174 contracts from 159,890 in the previous week.

The move was funds’ largest corn buy since June, and it was mostly motivated by U.S. Sept. 1 corn stocks falling drastically below trade expectations.

The market is now awaiting USDA’s next update, predicting that U.S. corn production will fall less than 1% from last month to 13.684 billion bushels. Ending stocks for 2019-20 are expected to plunge 19% below the September figure to 1.784 billion bushels following the stocks surprise.

December corn futures finished at $3.84-3/4 per bushel on Friday, the highest for the date in four years. Commodity funds were likely net sellers of the yellow grain over the past three sessions.

Investors have been slowly turning more pessimistic toward Chicago wheat futures and options, extending their net short to 21,514 contracts through Oct. 1 from 18,779 a week earlier. The mild selling trend was seen continuing late last week.

Meanwhile, money managers continued to chip away at their net short in Kansas City wheat futures and options, trimming the position to 32,780 contracts from 36,197 in the previous week. K.C. wheat continues to trade at a massive discount to the Chicago contract.

Fear for the North American spring wheat crops had money managers massively covering shorts in Minneapolis wheat futures and options through Oct. 1. They slashed their net short to 12,445 contracts from 19,529 a week prior, representing funds’ largest-ever weekly purchase of spring wheat.

Slow American and Canadian harvests along with associated quality issues led to the price spike late last month. Minneapolis futures underwent a large downward correction on Oct. 1 but they have drifted higher in the days since.

Money managers cut their net long in soybean oil futures and options through Oct. 1 to 11,473 contracts from 22,399 in the previous week, but they may have added that back and then some over the last three sessions. Futures rallied more than 3% over that period.

Investors pared their soybean meal short for the second week in a row through Oct. 1. The position shrank to 39,557 futures and options contracts from 47,983 in the prior week, though funds may have added to that again late last week.

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

Editing by Matthew Lewis