Canola futures have moved sharply higher over the past month, which is partly due to funds covering their short position
Managed money funds have been slowly lifting their short position in grain and oilseed futures markets, according to data from the Commodity Futures Trading Commission’s latest commitments-of-traders report.
During the week ending Oct. 29, funds had bought back a total of 53,756 corn contracts, leaving them with a position of 17,703 contracts net short. The numbers don’t really matter, but the current position of the funds is the closest to neutral since early July 2023.
What is remarkable is that funds are buying back their short position in the face of record yields in the U.S. corn belt.
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The U.S. Department of Agriculture’s crop production and world agricultural supply and demand estimates reports were released July 11 with the main focus on the wheat, corn and soybean estimates.
The U.S. Department of Agriculture will release its latest estimate of corn yields and production next week. What seems to be the driving force behind the change in the fund stance is the strong export sales and domestic use of corn.
Funds didn’t extend their optimism in the corn markets to wheat. Their overall wheat position in the three U.S. exchanges moved even further to the short side for the second consecutive week.
Funds were most negative for spring wheat as they added more to their net short position than the Chicago and Kansas City contracts combined. The wheat market has received positive news over the past month, but funds appear to be unmoved and have maintained their short position.
Canola futures have moved sharply higher over the past month, and part of the gains have been due to funds covering their short position.
In the week ending Oct. 29, funds bought back 32,577 contracts of canola but still held a fund position of 32,503 net short. At the same time, they were selling soybean futures during the past week and increasing their net short stance.
Funds are positive on the vegetable oil market and have moved to a net long position in soybean oil futures. Managed money funds currently have a net long fund position of 37,527 contracts in the soybean oil market.
Funds have held a net long fund position in soybean oil for the past five weeks. This long position is in stark contrast to their net short in the soybean futures market.
The main factor driving soybean oil prices higher has been the fundamentals of the palm oil market. Palm oil markets have been hitting new contract highs since the middle of October. This has resulted in funds looking to reduce their short position in the vegetable oil complex and even go long in some cases.
Managed money funds are still a significant player in the direction of commodity futures markets. The funds have been a persistent negative presence in the markets over the past two years, but that has certainly changed over the past month.
The big question is “do the funds decide to go long in the agricultural markets” or just stay on the sidelines waiting for another trading opportunity? My bet would be that they will be very reluctant to go long anytime soon.
