There was an idea that hedge funds, having invested heavily
in grain futures at the start of the year, had gone over the top in a March
selling wave, as unveiled by regulatory data on Friday.
This showed speculators slashing their net long in the top
13 US traded agricultural commodities by more than 232,000 contracts in the
week to last Tuesday - the biggest selldown on records going back to 2006.
The shift bearish in positioning was led by grains
(including the soy complex), in which hedge funds cut their net long by more
than 207,000 lots, again, a record amount.
If that looks a bearish signal, it often isn't, with large
swings bearish (or bullish) in holdings seen as creating scope for a reverse shift
in positioning, with consequent impact on prices too.
Benson Quinn Commodities, terming the selldown "massive",
said that the "position change in corn,
the wheats, soybeans and soyoil
looks supportive" to prices.
It always helps these reverse swings in positions, of course,
if there is a story for investors to rally around.
The dollar is
providing support to the bullish cause by weakening, so increasing the affordability
of dollar-denominated exports, such as many agricultural commodities.
Against a basket of currencies, the dollar index fell to 100.02
in early deals, down 2% in a little over a week.
'Not crop friendly'
More particularly for wheat,
worries over dryness in the southern US Plains are continuing to nudge higher,
amid doubts over forecasts for rain.
Managed money net long in top 13 US-traded ags and (change on week)
Mar 14: 384,635, (-232,217)
Mar 7: 616,852, (-51,236)
Feb 28: 668,088, (-122,900)
Feb 14: 796,016, (+118,149)
Feb 7: 677,867, (+30,597)
Jan 31: 647,288, (-90,364))
Sources: Agrimoney.com, CFTC
"The US hard red winter wheat crop's need for rain is
becoming more urgent," said Tobin Gorey at Commonwealth Bank of Australia.
"Forecasters now have a clearer idea" of a rain even
pencilled in for later this week, and the outlook "is not crop friendly.
"The event carries only modest rainfall and will miss much
of the driest areas in the west of the hard red winter wheat region.
"The outcome will be a disappointment and is likely to boost
prices early today."
Soft vs hard
Indeed, it did, with May wheat futures adding 1.1% to $4.41
a bushel in Chicago as of 09:30 UK time (04:30 Chicago time), rising back above
their 100-day moving average.
|Speculators' net long in Chicago grains, Mar 14 (change on week) |
Soybeans: 98,354, (-29,288)
Soymeal: 59,944, (-1,589)
Kansas wheat: 25,230 (-9,875)
Soyoil: 784, (-25,580)
Corn: -23,602, (-103,683)
Chicago wheat: -100,629, (-37,499)
Sources: Agrimoney.com, CFTC
As a measure of the importance of hedge fund positioning in
the move, futures in hard red winter wheat itself, as traded in Kansas City,
rose a more modest 0.7% to $4.56 ½ a bushel.
(Speculators hiked their net short in Chicago-traded soft
red winter wheat by more than 37,000 lots in the latest week, to more than
100,000 contracts, while undertaking a more modest trim of 10,000 lots in
Kansas City, leaving them with a net long of some 25,000 contracts.)
Minneapolis wheat, meanwhile, added 0.6% to $5.52 ¼ a
bushel, amid continued worries over wetness disrupting sowings in the northern
"North/north east North Dakota is at risk for 'major'
flooding according to NOAA's 2017 spring flood outlook," Benson Quinn
Commodities said, if adding that "significant snowmelt in early 2017 has likely
reduced impact on planting".
'Difficult to sustain
Rival grain corn
- in which speculators slashed their net long position by more than 100,000
lots (turning net short) - rose too, albeit less so, for two reasons.
"The current lack of weather issues in South America should
make it difficult for the market to sustain any meaningful rallies," in promising
large harvests in the likes of Brazil and Argentina, CBA's Tobin Gorey said.
And Benson Quinn Commodities flagged the prospect next week
of a key US report on domestic farmers' spring planting intentions, a briefing with
huge implications for prices, and which may deter too much buying for now.
Corn futures for May added 0.7% to $3.70 a bushel, although
this was enough to take the contract back above its 200-day moving average,
after retaking its 100-day in the last session.
'Brazil has sailed
lagged a bit, adding 0.6% to $10.05 ¾ a bushel for May delivery.
Hedge funds made a significant, but less substantial, cut to
their net long in Chicago soybean futures and options in the week to last
Tuesday, of a little over 29,000 contracts, potentially reducing the pressure
for buying now.
Besides, there are some doubts over demand in China, the top
importer, although futures did manage a 0.3% gain to 3,835 yuan a tonne on the
Dalian exchange overnight, taking below 10% their losses over the past month.
And of course South American production looks like coming in
"Brazil has sailed through its growing season and is now
more than 60% of the way through its soybean harvest," CBA's Tobin Gorey said,
with hopes recovering for Argentina's crop too after rain damage.
And then there is the prospect on March 31of the US spring
sowings report which is expected to show a huge swing in area towards the oilseed,
from corn, thanks to price incentives.
That said, the much-watched November soybean: December corn
futures ratio had eased back to 2.55 as of early deals – still in territory
encouraging farmers to prefer soybeans, but below the figures above 2.60 which occurred
even earlier this month, signalling that maybe investors believe the work is
done on this score.
Elsewhere in the oilseeds complex, palm oil dropped 0.8% to 2,780 ringgit a tonne in Kuala Lumpur.
Latest Malaysian export data from cargo surveyor showed a
fall of 3.0% in shipments month on month in the first 20 days of March,
although this represented a deceleration from the 5.5% pace of decline seen as of
the 15-day stage.
And, in a negative for rapeseed
prices, Agritel flagged that crop condition in the oilseed "are improving in
France, after a very dry winter which penalised crop emergence".
In New York, meanwhile, cotton
added 0.2% to 78.50 cents a pound – lacking the help of a large swing short by
hedge funds (which are in fact near record long in the fibre) but linked to
corn and soybeans somewhat by being a competitor in US spring sowings
In China's Zhengzhou exchange, May futures eased 0.1% to 15,225
yuan a tonne.
Latest results from the country's auction programme from
state stockpiles revealed 24,200 tonnes sold at 14,733 yuan a tonne, an
improvement on the 20,900 tonnes and 14,726 yuan a tonne result from Friday.