Column: Funds Add To Bullish Soybean Bets With Futures Near 16-month Highs

FORT COLLINS, Colo. (Reuters) – Speculators last week marked their seventh straight week of covering short positions in Chicago-traded soybeans as top soybean buyer China continues to be active in the U.S. market despite the lack of a firm trade agreement between the two countries.

In the week ended Oct. 29, hedge funds and other money managers increased their net long in CBOT soybean futures and options to 72,325 contracts from 68,822 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.

That is funds’ most bullish soybean view since the start of June 2018, and trade sources indicate that commodity funds may have added even more length late last week.

Futures have been elevated relative to prior months. On Friday, soybean futures ended at $9.36-3/4 per bushel, the second-highest settle for the most-active contract since June 12, 2018.

The “Phase 1” U.S.-China trade deal is expected to be signed in the coming weeks, but there has been some skepticism, especially after Chile cancelled the Nov. 16-17 Asia-Pacific Economic Cooperation summit, where the signing was to occur. However, there were signals from both sides late last week that the signing will proceed within the same time frame.

But the soybean market does not seem as bothered by uncertainties surrounding U.S.-China trade relations, because China continues to buy the U.S. oilseed.

Late last month, Beijing announced a tariff-free quota on up to 10 million tonnes of imported U.S. soybeans, and analysts are taking this as a sign that China may continue to waive tariffs in the future whenever they need U.S. agriculture products, which would place less emphasis on a trade deal.

A relatively small U.S. soybean crop and predictions for drastic supply cuts over the next year have also supported futures, but this could be a potential hurdle for bulls late next week when the U.S. Department of Agriculture issues its latest assessments of the domestic harvests.

At 46.9 bushels per acre, USDA’s most recent U.S. bean yield peg is down 7% from last year and would be the lightest national yield since 2013. Aggressively low pre-report market estimates have burned the soybean and corn markets several times already this year, so traders should keep that in mind heading into Friday’s USDA report.

Last Friday, fresh industry estimates were largely in line with USDA’s latest view. Private analytics firm IEG Vantage raised its U.S. bean yield to 47 bpa from 46.5 a month earlier, and commodity brokerage INTL FCStone reduced its yield to 47.5 bpa from 48.1 a month earlier.

Both of those firms increased U.S. corn yield on Friday. IEG Vantage’s number rose to 168.6 bpa from 167.5, and INTL FCStone bumped its forecast to 170 bpa from 169.3 last month. USDA’s latest view is 168.4 bpa.

But speculators feel much differently about corn than soybeans. In the week ended Oct. 29, money managers boosted their net short in CBOT corn futures and options to 85,337 contracts from 76,055 a week prior.

Funds have not been bullish on corn since early August, though they were seen as light buyers of the yellow grain in the past three sessions as wintry weather has bogged down the already-slow U.S. harvest.

SOY PRODUCTS AND WHEAT

Through Oct. 29, money managers expanded their net long in CBOT soybean oil futures and options to 75,353 contracts from 67,620 a week prior, and this is their most optimistic view since September 2017.

However, funds were sellers of soybean meal futures and options, increasing their net short to 29,050 contracts from 21,209 in the previous week.

That boosted investors’ view in the CBOT oilshare, which measures soyoil’s share of value in the soy products, to 104,403 futures and options contracts. That is their eighth most-bullish oilshare stance in records back to 2006. The high is 132,252 contracts set on Sept. 12, 2017.

Soybean oil futures are closely tied to palm oil futures as they are competitors in the global vegetable oil market. Last Thursday, Malaysian palm oil futures reached their highest levels since March 2, 2018, on supply concerns and robust exports.

Trade estimates suggest commodity funds were light sellers of soybean oil and soybean meal over the last three sessions.

In the week ended Oct. 29, money managers cut their net long in CBOT wheat futures and options to 5,042 contracts from 12,099 in the previous week, though funds were seen as light buyers of the grain late last week.

CBOT wheat futures have recently been on the stronger side for the time of year compared with previous years, but that is not the case for the Kansas City or Minneapolis wheat contracts, and investors remain steadfast in their bearish views.

Through Oct. 29, money managers boosted their net short in K.C. wheat futures and options to 29,389 contracts from 25,871 in the previous week. They also expanded bearish bets in Minneapolis wheat futures and options to 9,362 contracts from 8,062 a week earlier.