June 24, 2019 / 9:53 AM / 24 days ago

Column: Funds shed more CBOT shorts, though corn bulls should heed the wheat longs

FORT COLLINS, Colo. (Reuters) - Speculators’ optimism in Chicago-traded grains and oilseeds built further in the week ended June 18 as the U.S. corn and soybean crops are off to their latest-ever start, creating high uncertainty over production possibilities.

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

But the market took a breather last week as CBOT corn futures hit a five-year high and traders weighed changes to U.S. weather forecasts, trying to figure out what they mean for the unprecedented growing season.

In the week ended June 18, hedge funds and other money managers increased bullish bets in CBOT corn futures and options to 143,515 contracts from 111,212 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.

Analysts had predicted the fund long to be closer to 200,000 contracts by June 18. But the U.S. government already made a healthy 9% reduction to the domestic corn harvest a week earlier, and that may have set expectations low enough for now as the cut was much larger than the trade thought.

June has been a rainy, cool month for most of the U.S. Corn Belt, and that has held back crop development on top of the late planting. But forecasts for the next week or two suggest that warmer and drier weather is likely for much of the central United States, which had investors selling again late last week.

Normally, a warm and dry trend would not be favorable for U.S. crops heading into July as it could disrupt corn pollination, which is still several weeks away given the delay. Traders will need to rethink their weather strategies this year as the timeline around yield development will be pushed back.

Wheat has been riding corn’s coattails in recent weeks and speculators have expanded their bullish stance in CBOT wheat, despite global fundamentals remaining relatively bearish. In the week ended June 18, money managers increased their net long to 22,713 futures and options contracts from 1,741 a week earlier.

The CBOT wheat longs could pose a problem to corn bulls down the road if the two markets stay coupled. The number of gross shorts in the CBOT wheat market are among the fewest in the past several years, and that could pull both wheat and corn prices down if investors decide to pile back onto the short side.

Speculators have been less willing to reduce bearishness in Kansas City wheat. Through June 18, they trimmed their net short position to 20,744 futures and options contracts from 23,624 in the previous week. Investors have exited outright short positions for seven weeks in a row, but they are also on their eighth week of reducing gross longs, keeping the net short relatively healthy.

Funds did not do much with Minneapolis wheat, trimming their net short to 4,708 futures and options contracts from 4,978 a week prior.

The U.S. soybean crop is also on a very delayed schedule and unattractive futures prices relative to those of corn may have not encouraged U.S. farmers to aggressively plant the oilseed super late or into marginal soil conditions. Domestic soybean stocks are at record levels, but investors are starting to consider scenarios where the harvest is sharply reduced, potentially normalizing U.S. inventory quicker than expected.

In the week ended June 18, money managers cut their net short in CBOT soybean futures and options to 55,307 contracts from 91,155 a week earlier.

They also cut bearish bets in CBOT soybean oil futures and options to 42,746 contracts from 53,803 in the previous week, although they trimmed their net long in soybean meal to just 18 futures and options contracts from 4,665 in the week before.

Profit-taking and improved U.S. weather forecasts weighed on Chicago-traded futures late last week. Trade estimates suggest that between Wednesday and Friday, commodity funds sold around 27,000 corn futures contracts, 9,500 contracts of soybeans and 4,500 contracts of both CBOT wheat and soybean meal. They bought an estimated 6,000 contracts of soybean oil.

The focus of the agriculture market this week will be on expectations for the U.S. Department of Agriculture’s next round of reports that will be published on Friday. They will include U.S. grain stocks as of June 1 and the much-anticipated acreage report, which will reflect farmers’ planted acreage and intentions as of early June.

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

Reporting by Karen Braun; Editing by Peter Cooney

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