Funds optimistic as wheat fundamentals position

Funds optimistic as wheat fundamentals position

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The fundamentals for the wheat market remain focused on the conflict in the Black Sea and the resulting impact on export supplies of wheat from the region. Funds have responded to the bullish news and have maintained a long position in wheat futures since the summer.

Managed money funds are pulling back from their record net long position in agricultural futures but still hold a substantial long position in wheat, corn, soybean and canola futures. The fund position in the agricultural commodities is a double-edged sword.

Obviously, the long position in the agriculture commodities is positive for prices. On the negative side is that it leaves the futures vulnerable to a rapid sell off. Wheat futures remain at a record long for late September, with the three U.S. wheat contracts a net of 250 million bushels long (49,996 contracts) combined. There is a substantial difference in fund positioning between the three wheat contracts.

The largest wheat futures contract, Chicago wheat, has a net fund short of 13,100 contracts. The hard wheat contracts in Kansas City and Minneapolis hold net fund long positions. The net fund position in Kansas City is 208.7 million bu. (41,743 contracts). This position has been growing over the past three months and peaked at the beginning of September.

Spring wheat futures also have garnered the interest of fund traders, with the net long fund position at 107 million bu. (21,397 contracts). They remain at a discount to Kansas City wheat, with nearby contracts trading at a 40 to 45 cent per bu. discount. Don’t blame fund positioning for the discount because it remains solidly bullish for both classes of hard wheat.

Oilseed markets

The war in the Middle East has been the primary driver of oilseed markets since the conflict began in February. Oilseed trade has been following crude oil and diesel prices higher during the conflict. The fundamentals of the market are certainly reflected in the fund positioning in the canola market.

Funds hold a near record net long position in canola as of Sept. 22 at 115,206 contracts. This position is the equivalent of 2.3 million tonnes and is the largest managed money fund net long position this calendar year.

The long position in canola has been supported by vegetable oil markets, especially soybean oil. Soybean oil futures have been benefitting from a consistent bullish fund net long position since February. Funds currently hold a net long position of 96,622 contracts of soybean oil, which is the equivalent of 2.6 million tonnes.

Although this position is down close to 73,000 contracts from the calendar year high, it still represents the second largest fund long position for the third week of September. Soybean and soybean meal futures are also at record long levels for managed money funds. This is counter seasonal in the case of soybeans because funds generally don’t maintain significant long positions into the harvest season.

There is no question that part of the support for the oilseed and wheat rallies this year have come from funds building a significant long position. They are likely to remain long agriculture commodities until the Black Sea and Middle East conflicts are resolved.

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Source: Online/GFMM