Column: Better U.S. Weather Challenges Funds’ Bullish Corn Views

corn

(Reuters) – Speculators were thought to have established their most bullish Chicago corn stance in more than three years earlier this month, but then the weather outlooks quickly and unexpectedly improved for the U.S. crop.

Selling early last week offset the prior buying, and the bearish mood continued through most of the week.

Hedge funds and other money managers as of July 16 held a net long position in CBOT corn futures and options of 187,260 contracts, barely changed from 187,168 a week earlier, according to data published Friday afternoon by the U.S. Commodity Futures Trading Commission.

Heading into Friday’s trade, most-active corn futures were at risk of having the biggest losing week by percentage since June 2017, though futures ended the day up 1.4%. A week earlier, weather forecasts suggested the final two weeks of July would be unfavorably hot and dry for the late-planted U.S. crops.

Forecasts changed early last week, however, suggesting that the very hot spell would last only a few days for the most part. Some areas even received surprise rains.

As of Friday, July was expected to finish mostly normal to cool across the Midwest, though rainfall forecasts were a little spottier.

Soybean futures led the charge on Friday amid short-covering and talks that the United States may be on its way toward mending trade relations with China, the top buyer of U.S. beans.

U.S. Treasury Secretary Steve Mnuchin said he had a “very good talk” with his Chinese counterpart on Friday, and there were hints that officials from both countries could soon meet face-to-face in an attempt to end the trade dispute.

Some traders were even questioning whether China bought U.S. soybeans on Friday, though that rumor was not verified. U.S. President Donald Trump noted earlier in the week how China is supposed to be buying U.S. farm products, saying “let’s see whether or not they do.”

In the week ended July 16, money managers reduced their net short in soybean futures and options to 38,935 contracts from 41,934 in the previous week.

Over the last three sessions, trade estimates suggest that commodity funds bought 1,000 soybean futures but sold 21,000 corn contracts.

U.S. weather is the primary focus in those markets right now, and without an immediate weather threat or confirmation of lower acres or yield, the bulls remain vulnerable.

Money managers barely changed their views in the soy complex through July 16. They raised their net short in soybean meal to 21,014 futures and options contracts from 20,447 in the prior week, and they also increased their net short in soybean oil futures and options to 31,194 contracts from 30,669.

Trade sources peg commodity funds as light sellers of both meal and oil futures between Wednesday and Friday.

WHEAT

Funds’ largest move in the week ended July 16 was in CBOT wheat, as they cut their net long position to 18,751 futures and options contracts from 30,374 in the prior week. This was somewhat unexpected as trade estimates suggested that funds had bought around 11,000 futures contracts during the period.

Money managers also established a record net short position in Minneapolis wheat futures and options of 13,027 contracts, up from 12,291 a week before.

Their views in Kansas City were little changed as they trimmed their net short to 16,156 futures and options contracts from 17,805 a week earlier.

Over the last three sessions, commodity funds presumably sold around 6,000 CBOT wheat futures contracts. Most-active futures fell about 1% over the period, though Friday’s short-covering and bargain buying along with strength in soybeans curbed the slide.

Wheat has been under pressure lately with the ongoing U.S. harvest, which was 57% complete as of July 14 compared with a five-year average of 71%.

But wheat has been supported by uncertainties in both the U.S. corn market and the heavily-exported Black Sea wheat crops. The U.S. Department of Agriculture reduced the Russian and Ukrainian harvests by a combined 4.8 million tonnes earlier this month.