Speculators' positioning in the main two US wheat contracts has rung alarm bells, with warnings that fast money could close some its hefty net shorts in Chicago wheat, and was "heavily oversold" in Kansas contracts.
Managed money, a proxy for speculators, increased its net short in Chicago wheat futures and options by 10,447 contracts in the week to April 10, according to data from the Commodities Futures Trading Commission, the US regulator.
This change pushed the position - which shows that speculators have far more short bets, which benefit when prices fall, than long positions which profit when values rise - "back into the range that has inspired short-covering recently", Jonathan Watters at Benson Quinn Commodities said.
It also contrasts with the large net long position speculators have in Chicago corn and, in particular, soybeans, in which the net long holding rose again during the week, to a record 242,673 lots.
While it was "hard to get too fired up" about going long in wheat, for which the US winter crop is in good and improving condition, "we have to wonder if those who short the wheat market instead of taking profits on their other ag longs might have a rougher time of it going forward", Mr Watters said.
Australia & New Zealand Bank highlighted that, price wise, Kansas hard red winter wheat has over the past month, in dropping nearly 10%, fallen even further that Chicago soft red winter wheat, down 8% - a dynamic fuelled by movements in speculators' positioning.
Managed money, as of April 10, maintained a net long position in Kansas wheat futures and options, but only of 673 lots – down from more than 50,000 last summer, and one of the lowest-ever net longs for the contract.
Indeed, Kansas wheat looked "heavily oversold", as strong improvements in hard red winter wheat crop condition, fostered by US rains, prompt a particular sell-down in the variety, the bank said.
'Collapse in the spread'
"The liquidation by speculators in Kansas has disproportionately hurt prices relative to Chicago over this period," Pail Deane at Australia & New Zealand Bank said.
"This reflects the starting point.
Speculators' net longs in grains and oilseeds, Apr 10, (change on week)
Chicago soybeans: 242,673 lots, (+7,286)
Chicago corn: 193,832 lots, (-8,970)
Chicago soyoil: 54,263 lots, (+16,330)
Kansas wheat: 673 lots, (-5,600)
Chicago wheat: -42,464 lots, (+2,151)
Data for holdings of futures and options. Change= change in net length. Source: CFTC
"On a historical basis, the net speculative position in Kansas wheat over the last quarter has tended to be only in mild 'oversold' territory, while Chicago wheat speculative positioning has been at or near a record short for much of this period.
"This has meant Kansas wheat prices have been disproportionately influenced by short-term funds, relative to Chicago, helping to explain the collapse in the old crop Kansas/Chicago spread since late March."
During April, Kansas's premium, on a May contract basis, has fallen by some 40%, to 21.75 cents a bushel, as of early trading on Monday.
'Continuing a downtrend'
The CFTC data also showed speculators returning to a significant net short position in New York cotton, of 2,561 lots, reversing the trend of the previous week.
The round of short positions came in the run up to a US Department of Agriculture crop report on April 10 which, while raising the estimate for world inventories of the fibre, cut the forecast for US stocks as of the close of 2011-12, catching investors off-guard.
Speculators' net longs in soft commodities and (change on week)
New York sugar: 107,232 lots, (-11,107)
New York cotton: -2,561 lots, (-9,857)
New York coffee: -9,069 lots, (-760)
New York cocoa: -16,201 lots, (-6,569)
Data for holdings of futures and options. Change= change in net length. Source: CFTC. Week to April 10
Speculators also continued their sell-down of their net long position in New York sugar, and increasing net short position in cocoa.
The negative mood was reflected in markets for agricultural index exchange traded funds, for which cash outflows reached m last week, "continuing a downtrend since early January", according to Standard Chartered analyst Kuon-Ken Lee.