Column: Funds Extend Bullish Soybean Views with U.S.-China Trade Deal in Sight

October 21st, 2019


Category: Grains

(Reuters) – Speculators boosted bullish views on Chicago-traded soybeans last week as it appears that an official trade deal between the United States and its top buyer China is just weeks away.

Meanwhile, market participants are still unsure on the size of the U.S. soybean harvest, which is underway now. The U.S. Department of Agriculture predicts it will be the smallest crop in six years, down 20% on the year, though some believe the decline could be sharper.

In the week ended Oct. 15, hedge funds and other money managers expanded their net long position in CBOT soybean futures and options to 49,029 contracts from 6,501 a week prior, according to data from the U.S. Commodity Futures Trading Commission.

On the net, funds bought nearly 141,000 soybean futures and options contracts in the five weeks ended Oct. 15, the most in such a period since the Argentine soybean crop was succumbing to drought in March 2018.

Trade estimates suggest that commodity funds continued buying soybean futures over the previous three sessions, and Friday’s settle in the November contract of $9.34 per bushel is only a few cents below the recent five-year average for the date.

But there are some hurdles for soybean bulls to clear in the coming weeks. U.S. President Donald Trump on Friday said he expects to sign a trade deal with China by the time the Asia-Pacific Economic Cooperation meetings take place in Chile on Nov. 16 and 17. Soybeans are likely to face setbacks if those plans are disrupted.

USDA will also publish fresh outlooks for the U.S. soybean crop on Nov. 8, and as always, price is vulnerable if the numbers are larger than the trade estimate. USDA said last week that it plans to resurvey for harvested acres in snowstorm-hit North Dakota and Minnesota, and some analysts took this as a sign that the crop would shrink further.

This reevaluation may also have implications for U.S. corn, though the corn yield has gotten bigger over the last couple of months while the soybean yield has gotten smaller. This has made for a larger-than-predicted U.S. corn crop, which along with horrendous U.S. export demand, has provided some headwind for the corn market.

Still, December corn futures finished at $3.91 per bushel on Friday, the highest for the date in six years. And speculators have recently eased their bearish views.

Money managers cut their net short position in CBOT corn futures and options to 66,141 contracts through Oct. 15. That compares with a net short of 90,668 contracts a week earlier.

Funds were likely net sellers of corn futures between Wednesday and Friday, but overall, investors may be a little hesitant in general to place big short bets in agriculture given the uncertainty around U.S.-China trade.

Earlier this month, it was reported that China had agreed to buy $40 billion to $50 billion worth of U.S. agricultural products as part of a phase 1 trade deal. White House economic adviser Larry Kudlow said on Thursday that this commitment would depend in part on private companies and market conditions.

However, those figures are much higher than China’s previous annual buying record. The United States shipped $29 billion world of agriculture and related goods, including fish and forestry products, to China in 2013, when commodity prices were higher than they are today.


In the week ended Oct. 15, money managers reduced their net short position in CBOT wheat futures and options to 10,564 contracts from 19,138 in the previous week.

But headed into the new week, funds might have a bullish stance in Chicago wheat as they were likely straight buyers of futures over the last three trading days. Funds have not held a net long in CBOT wheat since mid-August.

Chicago wheat futures have recently found strength amid expectations for tightening global cash markets, particularly with faltering crops in Australia and Argentina. Kansas City and Minneapolis wheat have rallied substantially off their early September contract lows, but investors maintain a pessimistic outlook.

Money managers cut their net short in K.C. wheat futures and options to 23,353 contracts through Oct. 15 from 35,076 in the prior week, the largest weekly reduction since early June. In Minneapolis wheat, funds trimmed their net short to 9,582 futures and options contracts from 11,777 a week earlier. That is their least bearish Minneapolis wheat view since early July.

Through Oct. 15, money managers substantially increased their net long in CBOT soybean oil futures and options to 43,457 contracts from 29,723 in the previous week. The new stance is funds most bullish since November 2017, but they may have been light sellers in the last three sessions.

Funds reduced their soybean meal short for the fourth week in a row through Oct. 15, though it remains their most bearish meal view for the time of year. The new net short of 25,070 futures and options contracts was down from 32,740 a week earlier, and funds may have bought more futures late last week.

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