Speculators slashed their net long position in wheat despite concerns over the poor condition of the US crop, beset by dryness which shows no sign of relief any time soon.

Managed money, a proxy for speculators, cut their net long position in Chicago wheat futures and options by more than 18,000 lots to a little over 32,000, data from the Commodity Futures Trading Commission said.

The decline to the lowest net long position – the advantage of long positions which benefit when prices gain over short holdings which profit when values drop – since the latest rally kicked off in June came despite a continued deterioration in the condition of the US crop.

The proportion of US winter wheat seedlings rated in "good" or "excellent" health set a new seasonal low as of Sunday, falling 1 point week on week to 33%, the US Department of Agriculture said.

'Issues merit some attention'

And the dry conditions look set to remain in place, with no significant rain forecast over the Plains hard red winter wheat regions which represent the epicentre of crop concerns, including the likes of Kansas, the top US wheat-producing state

Commerzbank, flagging "overly dry" conditions on the Plains, said that "meteorologists are predicting no change in the weather over the next two weeks.

"If it remains too dry, the risk of soil erosion and frost damage will increase."

'Recovered nicely'

Such forecasts might be expected to encourage increased long positions by speculators, and Commerzbank noted the weather's impact on giving "buoyancy to the prices on the US exchanges".

However, even in the Kansas exchange, which trades the hard red winter wheat most at risk, speculators also cut their net long position.The positioning reflected in part a broader withdrawal by funds of cash from agricultural commodity markets, with speculators historically unwilling to hold on to large net long positions in wheat for extended periods, traders said.

There was also limited evidence yet of import demand switching to the US as Black Sea and European supplies run low.

Also, "it is still early days to be getting too worried about the US crop. It recovered nicely from a poor start last season," a UK grain trader told Agrimoney.com.

'Greatly in need of moisture'

The decline in the condition of US wheat in the latest week reflected broad declines, in seedlings in both Plains hard red winter wheat states and the Midwest, which grows the soft red winter wheat traded in Chicago, but where crops remains in good health.

"In many areas, small grains were greatly in need of additional moisture. Some fields had failed to germinate and others were showing signs of drought stress," USDA scouts said.

In Kansas, "producers experienced another week of warm, windy, and dry weather", while in South Dakota "winter wheat emergence has progressed slowly as some areas lack moisture".

Only 2% of South Dakota winter wheat is deemed in "good" or "excellent" health, with only 60% emerged, compared with 100% usually by now.