CHICAGO (Reuters) - (The opinions expressed here are those of the author, a market analyst for Reuters.)
The U.S. government’s heavy stocks data did not scare investors away from Chicago-traded corn and soybeans last week, as commodity funds covered a total of about 95,000 outright short positions through Oct. 2 in corn, soybeans and soybean oil.
On Sept. 28, the U.S. Department of Agriculture placed corn and soybean inventory as of Sept. 1 above trade expectations by some 138 million and 37 million bushels, respectively.
This was particularly disappointing to the market bulls as the U.S. agency is already forecasting record yields for domestic corn and soybeans this year, and some analysts fear the harvest volumes could grow even larger.
But renewed trade agreements between the United States and its North American neighbors, harvest delays across the U.S. Midwest, and high demand hopes for U.S. grains prevented speculators from plunging further into bearish territory.
In the week ended Oct. 2, hedge funds and other money managers halved their net short position in CBOT corn futures and options to 57,764 contracts from 112,779 in the prior week, according to data from the U.S. Commodity Futures Trading Commission.
Nearly the entire move was composed of short covering, though money managers actually decreased the number of outright long bets on corn by 526 contracts. (tmsnrt.rs/2y1LDmP)
Funds purchased a much larger volume of corn last week than the market expected. This could mean that the Sept. 28 selling was not as strong as predicted following the heavy U.S. grain stocks data, or that enthusiasm over the trade agreement between the United States and Canada late on Sept. 30 was greater than assumed.
The agreement, which should be signed at the end of next month, allows for the establishment of the United States-Mexico-Canada Agreement (USMCA), replacing the North American Free Trade Agreement (NAFTA).
Mexico, along with Japan, is the top buyer of U.S. corn and is usually No. 2 in soybeans. But without China’s presence, Mexico currently has the largest volume of U.S. soybeans booked for delivery in 2018-19.
The corn and soybean harvest across the U.S. Midwest has also been plagued by persistent and heavy rains, and that pattern is expected to continue early this week. This was another factor that supported corn and soybean futures through Oct. 2 and in the days after.
The replacement of NAFTA was also viewed as a positive for soybeans last week, despite domestic supply swelling even further. A 671,934-tonne single-day sale of U.S. soybeans to Mexico also lifted the mood in the market.
Through Oct. 2, money managers cut bearish bets in CBOT soybean futures and options to 44,403 contracts from 58,614 a week earlier, primarily on short covering. (tmsnrt.rs/2y1IVgP)
Funds slashed short bets in CBOT soybean oil futures and options to 51,331 contracts from the previous week’s 85,782, marking the second week of heavy short covering. They extended their net long in soybean meal futures and options to 26,343 contracts from 21,205.
These moves in the soy products brought speculative bets in the CBOT oilshare, which measures soyoil’s share of value in the products, to the least bearish levels since early February. However, the net short through Oct. 2 still stood at a hefty 77,674 contracts. (tmsnrt.rs/2y5gaQv)
Between Wednesday and Friday, trade sources pegged commodity funds as slight net buyers of corn and slight net sellers of soybeans. The wet U.S. harvest and strong export demand for corn underpinned the futures market, but both contracts faced technical setbacks on the charts.
Commodity funds were net sellers of soybean oil and net buyers of soybean meal, particularly on Friday as December meal futures rose 2.4 percent on healthy demand for the U.S. product. USDA reported private sales of 134,000 tonnes of soymeal to the Philippines and data from the U.S. Census Bureau showed August meal exports at 1.2 million tonnes, some 53 percent larger than last year’s record.
The wheat market continues to hang in the same state: monitoring shrinking supplies worldwide while gauging U.S. competition with top exporter Russia.
Although there was temporary excitement last week when it appeared that Russia’s agricultural safety watchdog might suspend grain loading at key ports on a violation of phytosanitary rules, that idea was quashed the next day.
Through Oct. 2, money managers increased their net short in CBOT wheat futures and options to 12,099 contracts from 1,119 in the prior week. (tmsnrt.rs/2y6HFJv)
They also reduced their net long in Kansas City wheat futures and options to 28,425 contracts from 34,030 contracts and extended bearish bets in Minneapolis wheat to 3,917 futures and options contracts from 2,876.
Demand for U.S. wheat has been relatively lackluster, contrary to what many summer wheat bulls had been hoping for, and data from the U.S. Census Bureau on Friday confirmed the weaker outlook. U.S. wheat exports in the first quarter of 2018-19 came in at 5.4 million tonnes, the lowest since 2009 with 5.2 million. The 2009 figure was the smallest since 1971.
However, commodity funds are expected to have been slight net buyers of wheat futures over the last three sessions on hopes that rising global prices may eventually spur sales of U.S. wheat.
(Graphic: Managed money net position in CBOT oilshare futures and options - reut.rs/2y5goaj)
Editing by Matthew Lewis