A massive sell-off by speculators fuelled a decline in values of US wheat which has left the grain looking amongst the cheapest in the world, challenging Indian supplies on price.
Managed money, a proxy for speculators, cut it net long position in Chicago wheat futures and options by more than 22,000 contracts, the biggest sell-down since January, regulatory data showed.
The data were for the week to December 11 – a day marked by the US Department of Agriculture's 50m-bushel cut to its forecast for US wheat exports in 2012-13, a downgrade which sent prices of the grain tumbling to their lowest since July.
Indeed, by late last week US soft wheat "had become just about the cheapest in the world, possibly even undercutting Indian exports of somewhat dubious quality", grain traders at a major European commodities house said.
State-run trading houses PEC and MMTC last week received offers of about $324 a tonne for Indian milling wheat, equivalent to some $8.80 a bushel.
Speculators also cut their bets on rises in Kansas hard red wheat futures and options - by more 4,000 contracts to the lowest net long position since early summer - although, at 36,715 lots, it represents significantly more optimistic positioning than that in Chicago soft red winter wheat derivatives.
Speculators' net longs in grains and oilseeds, Dec 11, (change on week)
|Chicago corn: 225,538, (-53,472)|
Chicago soybeans: 123,275 (+16,613)
Chicago soymeal: 37,957, (+10,355)
Kansas wheat: 36,715, (-4,682)
Chicago wheat: 11,219, (-23,210)
Chicago soyoil: -28,606, (+14,519)
Sources: Agrimoney.com, CFTC
Many investors are also downbeat on US corn export prospects, with South Korean tenders last week highlighting the competitiveness of Argentine and Brazilian offers, despite supplies there supposed to be running low.
"US corn is still priced at a $30-a-tonne premium to South American offers," Brian Henry at Benson Quinn Commodities said.
Speculators' turn bearish on grains contrasted with a more positive view on soybean futures and options, in which the managed money net long position increased for the first time since October.
Soybean prices, boosted by strong US exports and domestic processing volumes, have continued to recover from November lows below $14 a bushel, and returned back above $15 a bushel on Monday for the first time in six weeks.
And, among soft commodities, speculators continued to rebuild a net long position in cotton, in which the USDA last week reduced its estimate for US stocks at the close of 2012-13 by 400,000 bales to 5.4m bales.
However, they returned to selling down New York raw sugar, in which their net long fell below 10,000 lots, the lowest in five years.
Speculators' net longs in New York softs, Dec 11, (change on week)
|Cocoa: 39,640, (-2,231)|
Cotton: 6,963, (+6,313)
Raw sugar: 6,056, (-12,678)
Coffee: -23,939, (+2,354)
Sources: Agrimoney.com, CFTC
"The perception was that the market was getting oversold," Nick Penney at Sucden Financial said.
However, he added that "we have seen these [investor positioning] induced rallies before and suspect once this is fully digested normal service on the downside will be resumed".