Funds were easing their “permabear” approach to wheat futures but have returned to a substantial short position
The latest U.S. Commodity Futures Trading Commission commitment of trader’s report says managed money funds are taking an aggressive bearish position in spring wheat. This has certainly been part of an overall bearish stance by the funds in wheat futures markets.
Funds have been bearish on wheat futures for the past two years but were easing their “perma-bear” position in October. They returned to a substantial short position by the middle of November, an abrupt change.
For the week ending Nov. 12, funds were short 100,923 contracts of U.S. wheat. This equates to 554.6 million bushels or 15.1 million tonnes of a net short wheat position. The wheat short is composed of 51,546 contracts of Chicago wheat, 29,375 contracts in Kansas City and a surprising 30,002 contracts of spring wheat. This is close to a record short position in spring wheat contracts.
Read Also
Green lentil market oversupplied
Farmers in Western Canada can expect price pressure on their new crop of green lentils, as the available supplies among the world’s major lentil-growing nations increase significantly.
The short in spring wheat is the equivalent of 150 million bushels or 4.1 million tonnes. Funds have traditionally shied away from establishing a large position in the Minneapolis contract due to liquidity issues. This seems not to be a concern for funds this time.
The Chicago and Kansas City fund positions are just over 11 per cent of the open interest in both contracts. The Minneapolis fund short accounts for 37.3 per cent of all open interest. This could provide issues for liquidating this short position should the market turn bullish. If the funds decide to exit all at once, prices will have to abruptly increase.
Spring wheat fundamentals appear to be constructive, with solid exports on both sides of the border. Canadian wheat exports are running strong with the Canadian Grain Commission reporting that exports to date (week 15) are running at 5.8 million tonnes, slightly under last year’s record-setting pace.
U.S. spring wheat sales and exports are also strong at 4.79 million tonnes, which is the fastest pace in the past four years. Export demand for spring wheat appears to be very strong.
Temporary fundamental issues may be causing the funds to add to their bearish stance. The Southern Hemisphere harvest is underway in Argentina and Australia. Both countries are expected to harvest a larger crop this year, but the pressure on prices should be short lived.
The funds seem vulnerable to a wheat rally when the harvest in Argentina and Australia concludes in January. Until then, they will likely maintain their bearish stance in the futures market.
