There has to be an end some time to ag selling by funds – which have so far this week built on their record cut in their net long position.
Will it be on Thursday?
Tregg Cronin at Halo Commodity Company, highlighted that ag markets “have undergone one of the more concentrated selling efforts on record by the managed fund community”, offered hope for bulls.
“The real question is what this group plans to do moving forward.
“Considering funds prefer to trade from the long side of the market, and considering the entire northern hemisphere growing season is still in front of us, it would seem premature for them to embark on a massive short-selling campaign.”
That is, even more massive short selling than they have already done, and of which has been further circumstantial evidence this week.
Open interest (ie, the number of live contracts) in Chicago wheat futures, for instance, has now risen by more than 95,000 contracts this month, with fresh short bets likely driving the increase.
This week, traders estimate that funds have sold 10,750 wheat contracts, and 19,500 corn lots, according to Reuters polls.
The surprise is that this is coming at a time when investors are often pumping risk premium into prices, ahead of the meat of the northern hemisphere spring sowing season, a particularly weather-sensitive period.
But one of the issues is benign weather, primarily in terms of rains in the forecast for the southern Plains, a key winter wheat growing area, but important for other crops too.
“Rain forecasts continue to show a wide range of above-normal precipitation for the Plains hitting the driest areas,” said Joe Lardy at CHS Hedging.
“With wheat breaking dormancy it will be very important for these systems to hit.”
Good weather for corn sowing?
Furthermore, the spring sowings window looks like opening tidily in the Midwest, important in particular for progress in corn, which has a slightly earlier seeding timetable than soybeans.
(In the US, plantings will come into focus on Friday next week, with a much-anticipated report on farmer seeding intentions, besides quarterly data on grain inventories.)
“The US national weather service’s latest outlooks suggest warmer-than-average weather in spring for the bulk of the Midwest,” said Tobin Gorey at Commonwealth Bank of Australia.
Indeed, the “market is now starting to worry that corn planting won’t fall quite as far as the US Department of Agriculture’s current forecast”, assuming early conditions indeed prove as favourable as they are currently looking.
Hence the new crop November soybean: December corn futures ratio has returned above 2.6, boosting the financial incentive for growers to remember the oilseed before ploughing heavily into corn.
Wrong time to ‘get bearish’?
Such talk will come to a head, of course, on Friday next week, when the USDA unveils a much-anticipated report on US farmers’ sowings intentions, besides on quarterly domestic grain inventories.
Both briefings have a history of causing large swings in ag prices.
Indeed, it is not unlikely that many of the funds which have bet, profitability, on lower prices this week may turn to banking some of those gains ahead of these reports.
“The time to get bearish is rarely after a large downdraft and ahead of many market-moving events over the next 3-4 weeks,” Halo’s Tregg Cronin said.
Spring wheat springs
And, indeed, Chicago wheat futures actually managed some gains in early deals on Thursday, adding 0.2% to $4.23 a bushel for May delivery as of 10:10 UK time (05:10 Chicago time) – rebounding from their second-worst close of 2017, and looking for their first positive close this week.
Minneapolis spring wheat futures for May gained 0.4% to $5.40 a bushel, extending to $1.17 a bushel their premium over their Chicago peer, from an early-month low of $0.81 a bushel.
The rains hitting the US, while positive for winter wheat prospects, are not so benign for spring wheat – in potentially adding to snowmelt to cause flooding in the northern areas where it is grown, hampering seedings.
The demand side held some news positive for wheat overall, with China reporting imports of the grain at 229,457 tonnes last month – up 116% year on year.
Soaring Chinese demand
Indeed, the China import data for February were broadly positive for ags, coming in at 182,534 tonnes for sugar, a rise of 70% year on year, with a 104% rise to 164,088 tonnes in purchases from Brazil.
Coffee imports soared 109% to 8,003 tonnes (although that did include a stack of trade shipped intra-country), while cocoa bean buy-ins jumped 139% to 4,566 tonnes.
Back among grains, barley imports rocketed 208% to 806,456 tonnes, while sorghum purchases grew 30% to 735,252 tonnes, and corn buy-ins jumped 129% to 142,556 tonnes.
Not that this could prevent corn futures easing 0.1% to $3.58 ¼ a bushel for May, remaining near 2017 lows.
On top of the benign forecast for US spring sowings, China’s imports of corn-derived distillers grains (DDGs) dropped 62% to 68,860 tonnes, following the country’s imposition of heavy tariffs on purchases from the US, amid dumping claims.
Soybean futures also fell, by 0.4% to $9.95 ½ a bushel for May delivery, with data showing a 23% rise to 5.54m tonnes in Chinese imports having been flagged earlier in the month.
“Brazilian supplies coming on to the market remain the main bearish factor,” CBA’s Tobin Gorey said.
Vegetable oil markets hardly helped either, with palm oil tumbling 2.1% to 2,770 ringgit a tonne in Kuala Lumpur, sending Chicago soyoil down 0.9% at 33.22 cents a pound.
Still, even for the oilseed, the agenda will turn to demand later, with the release of weekly US export sales data, expected to come in at 350,000-550,000 tonnes for old crop, and 100,000-300,000 tonnes for 2017-18.
“Sales need to average 75,000 tonnes a week to reach the USDA forecast for 2016-17, and shipments need to average roughly 395,000 tonnes a week,” said Benson Quinn Commodities.
For corn, export sales are expected to 900,000-1.20m tonnes for this season, and 100,000-300,000 tonnes for next.
For wheat, the figures are seen as coming in at 350,000-550,000 tonnes for 2016-17, and 50,000-200,000 tonnes for next season.
‘Seam of non-commercial buying’
For cotton, Chinese imports came in at 138,642 tonnes, a rise of 146% year on year.
And, indeed, demand is seen remaining strong, a factor expected to show in USDA weekly export sales data.
“The price falls of the previous two sessions appear to have uncovered a seam of non-commercial buying,” CBA’s Tobin Gorey said
“Investors, who hold a record long position in cotton, will be counting on another strong US export sales report later today.”
Cotton for May gained 0.6% to 77.78 cents a pound.