Managed money, often referred to as “the smart money” in the US Wheat & Corn market has become increasingly pessimistic since the start of October, selling off wheat and corn in spades, even as the future of the black sea grain corridor began to look doubtful- a strong bullish signal.
Long time readers will recognise that the activities of managed money on agricultural commodity markets are something we regularly track here on Mecardo, as who is participating in the futures markets, and to what degree can have a significant bearing on price outcomes. Managed funds also invest a lot of money, and hire many eyes to analyse the marketplace because of their huge vested interests, so taking notice of what they are up to can help.
The latest commitment of traders report issued for last week revealed a strong week on week increase in the net short position in CBOT SRW wheat futures held by reporting managed money traders. The net short position increased by 15% in a single week to the largest short position seen since June 2020. The change was driven by both an increase in short selling; and a reduction in long positions. This trend is not isolated either, as the net short held overall by money managers has existed since July, reaching an interim peak in late August, before receding, then intensifying substantially in the last six weeks or so. (figure 1) Oddly, despite the bullish looking shenanigans in the black sea recently, where the grain corridor’s future looked under threat, money managers kept on selling into the uncertain market.
It is a similar story for US corn- which we know, as part of the global feedgrain complex, has an influence upon wheat prices, including here in Australia. While Money managers have, on aggregate, been holding a net long (bought) position in US corn since 2020, to varying extents, recently, we have seen a turn in the tide emerge, with the net long position plunge 15% in a week, driven primarily by a sharp 31% increase in the amount of short contracts sold.
Since the start of November, nearby CBOT SRW wheat prices have come off around $US30/mt (10%) and corn $US16/mt. (figure 3) Overall, US wheat and corn prices have generally trended downwards since the start of October also, meaning that the sell trade made recently by the funds landed squarely in profit.
What does it mean?
Speculative pressure from managed money interests is a sizable force to be reckoned with. While admittedly, hedge and superannuation fund influence on the market isn’t strong enough to move whole mountains, it can, and will support, or pressure price. At present, the selling pressure on feed grains in the international marketplace being exerted by fund managers is likely suppressing prices. However, if a market event like the black sea deal spectacularly unravelling occurs, depending on the significance, expect prices to bounce strongly, as the funds reverse their short positions and go long.
Key Points
- CBOT wheat managed money short position up 48% in 6 weeks
- Managed money has doubled corn shorts since the start of October.
- Building short positions create risk of increased volatility in the event of a sudden position reversal into long.
Click on figure to expand
Click on figure to expand
Data sources: Reuters
