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Funds view grains and oilseeds more favourably

Investor sentiment has clearly shifted in the past 12 months

Speculators rang in 2019 with a much less pessimistic take on Chicago-traded grains and oilseeds than a year earlier, though trade tensions and the lapse in U.S. government data are providing the market with plenty of uncertainty.

As of Jan. 2, trade sources suggest that commodity funds held a very slight combined net long position of 688 futures and options contracts across CBOT corn, wheat, soybeans and soy products, anchored by optimistic corn bets. That compares with a massive net short of 390,201 contracts across the five commodities exactly one year earlier.

Through Dec. 18, hedge funds and other money managers had extended their net long position in CBOT corn futures and options to 128,177 contracts, according to data from the U.S. Commodity Futures Trading Commission (CFTC). This was funds’ most bullish corn stance since May.

Money managers had also erased their net short in CBOT soybean futures and options through Dec. 18, establishing a tiny net long of 350 contracts, their first soy long since mid-June.

According to trade estimates, commodity funds likely cut down on their optimistic corn views through Jan. 2 to around 95,677 futures and options contracts. Funds were also pegged to have re-established a net short position in soybeans of around 13,650 futures and options contracts through the same time frame.

Due to the partial U.S. government shutdown that went into effect at midnight on Dec. 21, CFTC has suspended publication of the Commitment of Traders report until federal operations return to normal. This means that data for the week ended Dec. 18 is the latest official figures.

Investors’ corn views are drastically different than a year ago, when they opened 2018 with a net short of about 200,000 futures and options contracts. However, the corn bulls still face some potential setbacks, particularly around demand for the U.S. product.

Falling energy prices have eroded margins for ethanol production, which consumes about one-third of the U.S. corn harvest each year. Also, some traders expected China to purchase some U.S. corn late last month as part of the trade war truce, but those sales have yet to materialize.

The government shutdown further complicates this issue, as the U.S. Department of Agriculture is not reporting commodity sales during the closure.

This also delays any possible confirmation of more Chinese interest in U.S. soybeans, which many market participants are expecting. Traders were upbeat about these prospects Jan. 2, with President Donald Trump saying that trade negotiations with China are coming along very well.

The soybean market was also supported on Wednesday by dryness in production areas in central Brazil, which may reduce yields there. The crop is still expected to be large, but as China’s primary supplier, every bit of Brazil’s soy harvest will be keenly watched by traders.

CBOT corn and soybeans have also been loosely bolstered by expectations that USDA may cut U.S. corn and soybean yields in the upcoming Jan. 11 report, which will finalize the 2018-19 crops. However, the shutdown also threatened to delay the release of this information, along with quarterly grain stocks and winter wheat seedings.

CBOT corn futures fared well in 2018 relative to previous years, gaining 6.7 per cent on the year as exportable world supply shrank, particularly in South America. This was corn’s first annual gain since 2012.

But CBOT soybeans dropped 7.33 per cent in 2018, their second annual loss in two years, and this was largely due to disrupted trade between the United States and top buyer China. Through Dec. 20, China had 3.72 million tonnes of U.S. soybeans on the books for delivery in 2018-19, significantly less than the 24 million that had been on order a year earlier.

Money managers were net short 85,506 soybean futures and options contracts on Jan. 2, 2018.

Through Dec. 18, money managers held a net short in CBOT wheat futures and options of just 5,625 contracts, though trade sources estimate that the short position widened to 20,125 contracts through Jan. 2.

Wheat trade has been highly dependent in recent months on demand concerns surrounding the U.S. product, and whether top-exporter Russia will continue to ship wheat at a record pace. Most recently, wheat found strength from excessive rainfall in Argentina, which is likely to downgrade crop quality.

Although prices dropped nearly five per cent in the final two weeks of 2018, CBOT wheat futures recorded their best annual gain since 2012, rising nearly 18 per cent throughout last year as supplies decreased worldwide. One year ago, funds were net short 128,178 CBOT wheat futures and options contracts.

Through Dec. 18, money managers held a net long position in Kansas City wheat of 7,083 futures and options contracts and a net short in Minneapolis wheat of 3,040 contracts.

Reuters does not collect trade estimates for fund activity in the K.C. or Minneapolis contracts, though March K.C. wheat futures fell 4.8 per cent and March Minneapolis wheat fell four per cent in the period between Dec. 19 and Jan. 2.

As of Dec. 18, CFTC data showed that money managers held a net short in CBOT soybean meal futures and options of 4,416 contracts and a net short in soybean oil futures and options of 47,798 contracts.

Trade sources suggest that through Jan. 2, the meal short grew to about 6,416 contracts and the oil short expanded to around 54,798 contracts. Over the nine-day period, most active soybean meal futures rose 1.4 per cent while soybean oil slipped 0.8 per cent.

About the author

Columnist/Reuters

Karen Braun is a Reuters market analyst based in Chicago. The views in this column are her own.

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