Funds Flirting with Becoming Grain, Oilseed Bears Again

(Reuters) –  Money managers are on the verge of turning back into grain and oilseed bears, and the latest culprit is the optimistic U.S. harvest forecast from the U.S. Department of Agriculture.

In the week ended Aug. 15, the drop in spec optimism – or increase in pessimism – for Chicago grain and oilseed futures and options was the largest since late March, according to data from the U.S. Commodity Futures Trading Commission.

On Aug. 10, USDA’s statistics agency pegged U.S. corn yield at 169.5 bushels per acre and 49.4 bpa for soybeans, both of which were comfortably higher than the highest pre-report analyst guess. The U.S. spring wheat harvest estimate also came in above expectations despite the drought troubles, and this made for a rough day in all three futures markets.

In addition to the larger harvest projections, the favorable weather as of late has not been aiding the original analyst narrative of smaller yields. Although rains have not been plentiful in all the places that need it, August has been a very cool month so far and that has kept crop worries at bay for speculators.

In the days since, both CBOT corn and wheat futures have made new lows for the year. Large supplies and good weather prospects have kept speculators as sellers of grain – excluding Friday when technical buying and short-covering made for a higher close.

However, funds were buyers of soybeans Wednesday through Friday. While the U.S. weather outlook remains mostly favorable, there are still concerns that needed rains could fall short in some key areas. On Thursday, strong export sales amid renewed Chinese demand also provided support to the soybean market.

Beginning Monday, results will start coming in from the highly followed Farm Journal Midwest Crop Tour, which will either support or dispute the USDA’s optimistic forecast for U.S. corn and soybean yields.

Crop scouts will be pulling hundreds of corn and soybean samples in top-producing states. If their observations suggest USDA’s estimates are too high, it might be supportive to grain and oilseed futures this week. But if scouts find big yields, the futures market may struggle again this week.

ANOTHER DOWNTURN

In the week ended Aug. 15, money managers cut their bullish view on corn futures and options to 39,802 contracts from 67,073 in the week before. Most of this move was the result of new shorts, as funds are hesitant to aggressively ditch long positions.

In the soybean market, speculators have become bears for the first time in six weeks. As of last Tuesday, they were net short 14,399 futures and options contracts compared with the 12,913-contract net long in the week earlier.

Funds’ most recent bout of confidence in the soy complex was short-lived and has nearly fizzled out.

Last week they significantly reduced their soybean oil long to 46,030 futures and options contracts from 65,015 the week prior. Money managers had spent nearly two months building the formerly massive bullish position.

They also extended their bearish soybean meal view even further to 25,575 futures and options contracts from 14,357 in the week prior. Funds have not been bullish on soymeal since mid-April, and they also have never before been bearish during the month of August.

Funds built on their bearish Chicago wheat views last week, increasing the net position to 34,236 futures and options contracts from 14,101 a week earlier.

This move largely stemmed from new shorts, which was also the factor that erased more bullishness from the K.C. wheat position. For the fifth week in a row, funds cut that net long, this time to 34,609 futures and options contracts from 48,935 in the week prior.

After four relatively stagnant weeks, money managers finally committed to a less bullish stance on Minneapolis wheat futures and options. However, the move to 8,159 contracts from 10,708 in the week before was almost entirely the result of exiting longs and not establishing new shorts.