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Funds’ bearish corn bets swell further with low risk to U.S. supply

Speculators continued to sell Chicago-traded corn last week, establishing their most bearish end-of-May position on record with U.S. corn supplies set to soar to 33-year highs.

In the week ended May 26, money managers increased their net short position in CBOT corn futures and options to 276,203 contracts from 245,386 in the prior week, according to data from the U.S. Commodity Futures Trading Commission.

Funds’ corn short has increased over the past several weeks because they have been adding gross short positions. The number of gross longs has hovered around 120,000 contracts during that time, which is the lightest in 11 years and extremely conservative for late May.

The producer position, which behaves very similarly to the commercial position, continues to suggest that U.S. farmers are extremely undersold in corn, especially for the time of year. Producers flipped to a net long in corn futures and options of 15,309 contracts through May 26.

That is only the fifth week on record where producers held a net long in corn. The other four weeks were in April 2019, though farmers got selling opportunities a few weeks later as corn prices rallied on record-late U.S. planting.

Most of the U.S. crop was planted on time in 2020, which has reduced some of the risk to corn supply. But funds were covering short positions late last week as U.S. ethanol production continued to climb back from the virus-fueled slump and hot and dry weather forecasts began to emerge for U.S. crops.

Funds have been very short corn and long soybeans in recent weeks, and that position also began to unravel late last week as tensions between the United States and China continued to build. Trade estimates suggest that commodity funds bought around 21,000 corn futures contracts between Wednesday and Friday.

SOYBEANS, WHEAT
Through May 26, money managers reduced their net long position in soybean futures and options to 5,813 contracts from 12,064 in the previous week. However, the long position may have been completely erased by Friday because of the increasing U.S.-China tensions, which may cause Beijing to reduce U.S. agricultural imports.

U.S. President Donald Trump late on Friday suggested he would begin eliminating special treatment for Hong Kong in order to punish China for breaking its word over Hong Kong’s autonomy, and China’s state-run newspaper called that move “recklessly arbitrary.”

Many agriculture market participants feared that Trump might cancel or derail the Phase 1 trade deal, and although he did not mention anything specific to trade on Friday, it was not yet clear late in the day whether China planned to use trade in a retaliatory move.

Funds continued to build bullishness last week in the CBOT oilshare, which measures soyoil’s share of value in the soy products. They increased their net long in soybean oil futures and options to 3,984 contracts from 2,681 a week earlier, and they boosted bearish bets in soybean meal to 41,775 contracts from 29,404.

Chicago wheat futures last week jumped 2.4%, their best week in two months, as hot and dry weather was seeing threatening the U.S. crop. The U.S. dollar also weakened to the lowest levels since mid-March, which may be supportive of U.S. wheat exports.

But money managers kept their bearish CBOT wheat views through May 26, trimming them to 12,204 futures and options contracts from 16,476 in the week before. Trade sources suggest that commodity funds may have erased their CBOT wheat short by the end of Friday’s session.

Money managers significantly expanded their net short position in Kansas City wheat futures and options to 25,743 contracts through May 26 from 15,038 a week prior.

Funds sold 29,638 K.C. wheat contracts in the two weeks ended May 26, the third most ever and close to the record of 30,209 contracts in the two weeks ended June 26, 2018.

Bearish Minneapolis wheat bets are still in control, though money managers trimmed 2,483 futures and options contracts off their record short through May 26 to 22,918 contracts.

The opinions expressed here are those of the author, a market analyst for Reuters.
Source: Reuters (Editing by Daniel Wallis)

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