Column: Funds Hit New Record Short in CBOT Corn but Load Up on Hogs

(Reuters) – Speculators established yet another record bearish position in Chicago-traded corn last week, but any short-covering rally in futures that might result is likely to be lackluster.

U.S. corn inventory has swelled to much larger levels than market participants were originally expecting, and the harvests in Brazil and Argentina may be bigger than previous predictions.

In the week ended April 9, hedge funds and other money managers increased their net short position in CBOT corn futures and options to a record 271,746 contracts from 246,735 in the prior week, according to data from the U.S. Commodity Futures Trading Commission.

That surpassed the previous record of 261,326 contracts set in the week ended March 19, and the move was primarily the result of new shorts entering the market. The number of outright corn longs fell to 181,710 contracts, the fewest since the first week of 2017.

Futures are prone to intense short-covering rallies when funds hold such massively bearish views, especially during the U.S. corn and soybean growing season, which is just getting under way.

But producers are holding a very large amount of corn that they can unload onto the market as soon as futures rise, a factor that will limit the upward price movement. Hedge funds will be able to exit their short positions for a very low price.

As of April 9, producers were holding a net long position in CBOT corn futures and options of 2,436 contracts, their first-ever corn net long in records going back to 2006.

Commodity funds are presumed to have been net buyers of corn futures over the past three sessions on short-covering and technical buying, along with concerns that last week’s snowstorm would delay U.S. planting. But disappointing demand for U.S. corn and the healthy South American crops kept buying in check.

HOGS AND SPRING WHEAT

A bullish story has recently developed in lean hogs as global pork supply could sharply decline this year. African swine fever has killed millions of pigs in China, the largest consumer and producer of pork.

In the week ended April 9, money managers extended their net long position in CME lean hog futures and options to 50,482 contracts from 36,791 in the prior week.

The recent buying streak is the largest on record. In the four weeks ended April 9, money managers purchased 54,115 hog contracts, surpassing the four-week total of 43,083 from a week earlier. Prior to that, funds’ four-week buying record in hogs was 41,808 futures and options contracts in the period ended May 30, 2017.

Speculators’ all-time bullish hog stance was 97,952 contracts set Sept. 24, 2013. June lean hogs rose another 3.3 percent between Wednesday and Friday.

Aside from corn and lean hogs, the other interesting move by commodity funds in the week ended April 9 was the record sell-off in Minneapolis wheat futures and options. Money managers’ net short in spring wheat exploded to 9,457 contracts from 2,178 in the prior week, a net move of 7,279 contracts.

The previous record sell-off in Minneapolis wheat was 5,010 futures and options contracts set back in April 2017.

May spring wheat futures rose 1.6 percent over the past three sessions, partially driven by the potential for U.S. planting delays following last week’s snowstorm. But traders have been increasingly bearish in recent weeks due to the trade conflict between Canada and its largest canola customer, China, which may cause Canadian farmers to plant more spring wheat acres this year.

SOYBEANS AND WINTER WHEAT

Investors did not drastically shift their views toward soybeans, soy products or winter wheat in the week ended April 9. Traders continue to await a trade deal between the United States and China, the largest buyer of U.S. soybeans, although domestic supplies are comfortably at record levels.

Money managers trimmed their net short in CBOT soybean futures and options to 71,314 contracts from 74,169 in the prior week. They also reduced bearish views in soybean meal to 8,615 futures and options contracts from 12,417 in the previous week.

Commodity funds extended their net short in CBOT soybean oil futures and options to 31,609 contracts from 26,961 a week earlier.

International demand has improved for U.S. wheat in the second half of the 2018-19 marketing year, which ends May 31, as compared with the first half. But the U.S. winter wheat crop is in good condition and global supplies are plentiful.

Through April 9, money managers cut their net short in CBOT wheat futures and options to 54,269 contracts from 56,439 in the week before. They also trimmed their net short in K.C. wheat futures and options to 47,793 contracts from 49,757 a week prior.

Trade estimates suggest that commodity funds were net sellers of soybeans and soybean oil between Wednesday and Friday but net buyers of soybean meal and Chicago wheat over the same period.