Funds Forced Out of Their Bearish Corn Bets by Record Slow U.S. Planting

(Reuters) – Record-slow corn planting in the United States has caused speculators to quickly erase their massive short bets in Chicago-traded corn, and they likely closed out last month with a bullish stance on the yellow grain.

Only 58% of U.S. corn was planted by May 26, well behind the five-year average of 90%, and more wet weather and still-saturated fields likely kept farmers from making a huge push in the latest week. The next slowest May 26 planting pace in the last 40 years of records was 67% in 1995.

In the week ended May 28, hedge funds and other money managers drastically reduced their net short position in CBOT corn futures and options to 20,736 contracts from 116,729 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.

In the two weeks ended May 28, money managers bought 262,182 corn futures and options contracts, the second-most for a two-week period. The most was 267,802 contracts in the two weeks ended July 7, 2015, and coincidentally, both top two periods contained only nine days due to U.S. holidays.

In the last three sessions, trade sources estimate that commodity funds bought about 48,000 futures contracts of corn on the net. If true, funds’ net long in corn at the end of trading on Friday was around 27,000 futures and options contracts, at the minimum.

Speculators have not held a net long position in corn futures and options since early February.

The U.S. planting delays had corn futures extremely close to three-year highs mid-last week, and corn futures rose 19% in May, the biggest monthly gain since June 2015. But both commodity and equity markets faced a setback on Friday as U.S. President Donald Trump tweeted Thursday night that he plans to enact tariffs on Mexico.

According to the tweet, the tariffs are set to begin on June 10 at a 5% rate that could increase over time until Mexico sufficiently addresses illegal immigration at the U.S.-Mexico border.

The United States imports more agricultural goods from Mexico than any other country, valued near $26 billion last year when excluding fish and forest products. Mexico is also the No. 1 buyer of U.S. corn and a top buyer of soybeans and soybean meal, as well as meat products.

As of Friday, Mexico did not have plans to retaliate but instead wished to take a more diplomatic approach in hopes that the issue could be talked through without tariffs.

The corn market now awaits Monday’s crop progress report from the U.S. Department of Agriculture, which may show that wet weather did not allow farmers to plant nearly enough corn, especially considering how late it is.

After Friday, the only states that are still within the full insurance planting window for corn are Illinois, Indiana, Ohio and Michigan. The final planting date for those states is June 5. As of Sunday morning, weather models showed that wet weather is likely to continue for the Eastern Corn Belt states for at least the next week.

WHEAT AND SOYBEANS

CBOT wheat futures have also recently benefited from short-covering and the excessively wet weather in the United States, last week reaching the highest levels since February. Wheat futures rose nearly 18% in May, their biggest monthly gain since June 2017.

In the week ended May 28, money managers cut their net short position in CBOT wheat futures and options to 23,780 contracts from 41,760 in the previous week. This is funds’ least bearish wheat stance since mid-February, though they may have been light sellers between Wednesday and Friday.

Money managers reduced bearish bets in Kansas City wheat futures and options through May 28 to 39,469 contracts from 48,084 in the prior week. The new stance is the least bearish since late February.

Funds have barely changed their views in Minneapolis wheat futures and options in more than a month. Through May 28, they slightly expanded their net long position to 12,280 contracts from 12,175 a week earlier. The U.S. planting delays have not affected spring wheat as much as they have for corn, and more wheat acres are expected in Canada due to a trade dispute with China over canola exports.

Investors are still extremely bearish toward soybeans, but they have reduced their pessimism in the last seven sessions. In the week ended May 28, the managed money net short fell to 129,994 futures and options contracts from 153,131 in the previous week.

Trade estimates suggest commodity funds had purchased another 27,500 soybean futures contracts in the following three sessions. Soybean futures last week reached their highest levels in a month as wet weather continued to delay U.S. planting efforts.

Money managers cut their net short in soybean meal futures and options to 20,361 contracts through May 28 from 35,014 in the previous week. They also trimmed bearish bets in soybean oil to 62,224 contracts from 68,940. Commodity funds were pegged as net buyers in the soy products between Wednesday and Friday.