Funds’ shift to long position feeds crop rally

Crops catch speculator interest | Overseas turmoil and dry, snowless wheat conditions fuel turnaround in prices

Crops are hot commodities again, only a few months after many wrote them off as yesterday’s news.


Speculative investors have piled into a number of crop futures since the beginning of the year, helping drive recent gains but also threatening the market because of the temporary nature of speculative money.


“The speculative longs, when they’re right they’re really right,” said Oklahoma producer Jerod McDaniel, who follows the markets.


“But they’ll also be wrong some time.”


The big three North American crop futures contracts for corn, soybeans and wheat have all risen strongly since January, with wheat and soybeans rising around $1.50 per bushel. Cor n has risen about half as much.


The strong surge has been accompanied by a dramatic flow of speculative money into crop futures, with wheat reversing out of a large short position and now being net positive. Corn has moved from net short to a strong net long and soybeans have gone from moderately net long to heavily long.


Long positions show investors expect rising prices, while short positions are a bet that prices will fall.


Analysts point to a number of reasons for the in-flow of money to crop futures, including technical triggers, news events and a reaction to last year’s severe sell-off.


Rich Nelson of Allendale, Inc. said the crisis between Russia and Ukraine has prompted some speculators to think prices may increase, and they have been trying to get out ahead of that possibility.


Dry and snowless conditions in the U.S. hard red winter wheat area have also helped, as has dryness in Russia.


Mike Krueger of the Money Farm said strong U.S. soybean exports have also helped drive the speculative position higher.


“The fear all along (through the end of 2013) has been that when our exports eventually slow down and we get back to talking about the big crops in South America, we’d see (speculators) liquidate those big longs, but boy that hasn’t happened,” said Krueger.


The bullish surprises in the January U.S. Department of Agriculture reports also helped, he said.


The re-emergence of speculative funds in crop futures brings back a major factor of the post-2006-bull market, but one that some had written off. 


Many thought that the commodity bull market was ending and that speculators were unlikely to remain in commodities such as crops much longer.


There was little reason for speculators to expect many fireworks in crop futures, especially with world markets facing ample supplies of most crops.


However, investors are now starting to think crops could be more exciting this year because of the unexpected combination of Ukraine, logistics problems in Canada and parts of the United States, dryness in world winter wheat areas, a late spring and the potential for a recovery rally from the long 2012-13 selloff.


“They’ve gradually gotten back in,” said Krueger.


Nelson said speculative money has also rushed back into the overall commodities complex as world stock market volatility provoked some to spread out their bets.


Krueger said the big long positions have helped take crop prices back up to levels that growers will be much more comfortable with. 


However, they are a risk to the long-term stability of today’s prices because they’re not likely to remain if anything challenges the bullish hopes.


“The threat (that the funds will bail out of long positions and even go net short again) is still there,” said Krueger.


“If both corn and beans, if they get bearish news in next Monday’s (March 31) USDA report, that could trigger fund liquidation.”


The USDA report is the annual survey of farmers’ seeding intentions. The department will release its quarter grain stocks report the same day.


Private forecasters expect farmers will increase their soybean acreage and trim corn area.

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