(Agrimoney) – So just how many short positions in wheat derivatives have funds covered?
One of the big surprises for grain investors this week, sending futures soaring 4% on Monday, was the data showing that hedge funds, in latest regulatory data, had raised their net short in Chicago wheat futures and options by the fastest rate on record, as weather concerns faded in the former Soviet Union and the US southern Plains.
“Probably most important to the rally [on Monday] was the larger-than-expected managed fund short position,” said Tregg Cronin at Halo Commodity Company.
But exchange statistics have stoked doubts that short-covering has taken quite the strong course that investors expected, with forecasts for much-needed rain in the southern Plains perhaps tempting funds to stick with their negative thinking.
(While official data has shown the US winter wheat crop, for the 2016 harvest, getting off to a far worse-than-expected start, many brokers have, after all, urged investors not to read too much into these statistics, as Agrimoney.com reported.)
Defying expectations
What investors have been expecting is for open interest data – showing the number of live contracts – to decline in Chicago wheat derivatives, as funds cover shorts.
But that is not quite how the situation is playing out.
According to the Chicago Board of Trade, open interest in wheat futures rose on Monday, if by a modest 53 lots, and on Tuesday by 1,880 contracts.
While the figure declined by 2,212 lots on Wednesday, that hardly appears firm evidence of the massive short covering that investors had expected.
‘Tough to keep the pressure on’
It was such talk that was seen as a big factor in a late revival in wheat futures in the last session.
At RK O’Brien, Richard Feltes highlighted “concern”, provoked by the “static open interest, that a large managed fund short still exists”.
Mr Cronin, said that open interest data appeared to show “little short-covering so far, or at the very least just as much consumptive buying”.
“The trade has taken notice of the open interest increase despite what appeared to be active short covering on Monday and early Tuesday,” said Brian Henry at Benson Quinn Commodities.
“Absent better evidence that funds have lightened the load in Chicago, it may be tough to keep the pressure on these markets in the near term. ”
Data later
What may be critical later on seeing whether the idea of market resilience proves true is demand data, with the US Department of Agriculture to unveil statistics on US crop export sales for last week.
For wheat, they are expected to come in at 350,000-550,000 tonnes, at least matching the 357,462 tonnes the week before.
And, as an extra indicator into dynamics in the wheat export market, Egypt, the top importer, will unveil the results of the latest tender by its Gasc grain authority, albeit with Russian supplies again seen in with a strong shout.
“Look for the cheap Russian FoB offer on this afternoon’s Gasc tender to be between $199-204 a tonne,” Benson Quinn’s Mr Henry said.
‘Problem with poor establishment’
Weather of course remains an issue, although there is a balance between improved ideas over US conditions for wheat seedlings, and lingering worries over those in the former Soviet Union.
“US hard red winter wheat country will see more rain over the next 10 days, allowing for crop establishment and improvement in wheat conditions, which had a soft start to the season,” World Weather said.
However, for the former Soviet Union, “forecasters also expect wheat to mostly see temperatures below growth thresholds for wheat crops so the problem with poor establishment is likely”, said Tobin Gorey at Commonwealth Bank of Australia.
And there are some ideas of rains in New South Wales too, which might not be so positive now, with moisture encouraging disease and quality reduction, rather than yield increase, in mature crops.
“New South Wales could see too much rain ahead of harvest, something we wouldn’t expect during a strong El Nino,” World Weather said.
Chicago wheat for December stood 0.2% higher at $5.07 a bushel as of 09:15 UK time (04:15 Chicago time).
Dollar factor
It was a help that the dollar failed to extend its gains from the last session, when it was boosted by comments from the Federal Reserve that left the door open to a US rate rise by year-end.
A stronger dollar undermines values of dollar-denominated exports, such as many commodities, by making them less affordable to buyers in other currencies.
And soybeans managed modest gains too in Chicago, adding 0.3% to $8.85 ¼ a bushel for January delivery.
This despite improving ideas over Brazilian sowings, ahead of the country’s early 2016 harvest, as rainfall eases moisture concerns in major growing areas in the centre of hte country.
“Brazil will see rain over the next two weeks across the central and northern growing regions,” said World Weather.
Argentine dynamics
Still, not all South American news is price negative for soybeans, with some ideas of Argentine growers slowing sales (even more) in the hope of opposition candidate Mauricio Macri winning a presidential election run-off next month.
“Looking forward, Argentina producer selling is slowing and there is speculation producers will wait until December to sell soybeans after the new president steps in, amid expectations of a gradual reduction in the 35% [export] tax,” said Terry Reilly at Futures International.
One of the impacts of the tax is to cut farm returns.
“They also look for devaluation,” with the official exchange rate far less generous to Argentinians than the black market one.
‘May be supportive’
And demand is an issue for soybeans too, with another big week expected for US export sales, at 1.60m-2.0m tonnes, compared with 2.03m tonnes last time.
“The prospect for large weekly export sales… may be supportive” early on Thursday, Benson Quinn Commodities said.
Still, the actual export sales “number will need to surprise to the upside to see much follow through” in terms of buying.
Meanwhile, RJ O’ Brien’s Richard Feltes flagged talk that soybean imports by China, the top importer “may swell to 84m tonnes” in 2015-16, following a strong performance of late.
The USDA has the figure at 79.0m tonnes, although that was based on an estimate of 77.0m tonnes for 2014-15 (ending last month) – which was comfortable exceeded.
Producer selling picks up
For corn, however, US export data have not been so hot, although with a forecast 300,000-500,000 tonnes for last week, they are at least expected to show improvement from the 248,017 lots the week before.
As a negative, there has been some re-widening too in the discount of the December 2015 contract to the March 2016 lot, after a narrowing which had been see as an indication of buyers being forced to pay up thanks to farmers holding out for higher prices.
But the “recent rally appeared to encourage some nearby producer movement”, said Benson Quinn Commodities.
Mr Feltes flagged further “reports of big western Midwest corn yields”, besides talk of elevators filled to capacity, and of “aggressive” offers of Brazilian corn for export.
Still, helped by firmness in the other crops, December corn managed to show modest gains, by 0.1% cents to reach $3.76 ½ a bushel.
Haze gains
Elsewhere, Kuala Lumpur palm oil rose by 1.2% to 2,368 ringgit a tonne, looking for a third successive positive close, encouraged by continued concerns over the threat to South East Asian production from El Nino and from the “haze” started by slash-and-burn agriculture and encouraged by dryness.
Indonesia, the top palm producing country, “has not seen much relief from smoke/haze,” noted Futures International’s Terry Reilly.
“Six Indonesian provinces have declared states of emergency on El Nino drought related fires.”
