USDA grains report catches speculators leaning wrong way

(Lisa Guenther photo)

Washington | Reuters — Grains market speculators who had built massive short positions in recent months were caught leaning the wrong way after the U.S. government cut its corn and soy harvest views, as well as its wheat planting estimate, in reports released on Tuesday.

Although the overall fundamental picture remains bleak, the bearish bets became a risky proposition when the U.S. Department of Agriculture (USDA) reports provided bulls with a glimmer of supportive data, sparking a round of short-covering.

Speculators, looking to lock in profits on their bets for market declines, keyed in on the lowered harvest estimates as well as the six-year low in winter wheat plantings.

The benchmark Chicago Board of Trade soft red winter wheat futures contract shot up 2.6 per cent following the report. CBOT March soybeans jumped 1.5 per cent, with the front-month contract peaking at a five-week high during the session. March corn rose 1.4 per cent.

“The funds had gotten very, very short going into this report,” said Ted Seifried, vice-president and chief market strategist for Zaner Ag Hedge. “It was not a bearish enough report (to extend the short position).”

USDA also forecast that already-ample supplies of all three commodities will remain robust throughout the marketing year due to murky export demand and plentiful global stocks.

USDA reported corn and soybean supplies as of Dec. 1 were still at record highs despite the lowered harvest estimates. Wheat stocks as of Dec. 1 stood at their highest since 2010.

That supply glut, which has been felt for months as farmers across the Midwest reaped bumper harvests, caused speculators to build their net short position in recent weeks.

According to Commodity Futures Trading Commission data, the noncommercial traders had increased their net short position in soybeans in the four weeks heading into the report. For corn and wheat they boosted their net short for three weeks ahead of the report.

Those moves left them with their largest net short on record in soybeans and wheat. Their net short in corn was the largest since November 2013, according to the CFTC’s weekly commitments of traders report.

The new figures from the USDA provided enough wiggle room for speculators to unwind some of those bearish bets.

“There were three things that could happen today: neutral, bearish or bullish,” said Jim Gerlach, president of A/C Trading. “And when the managed money is that short, two of those three things will be supportive to prices and that’s what you’re seeing today. Neutral is friendly. They didn’t get the bearish number so, hey, take profit.”

Mark Weinraub is a Reuters correspondent covering grain markets, based in Chicago. Additional reporting for Reuters by Julie Ingwersen in Chicago.

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