Speculators prefer wheat over corn for long bets

2nd Jul 2012, by Agrimoney
Corn may have garnered the headlines, for concerns about damage to US crop, but it is wheat that speculators have proven keener to bet on price rises, cutting out a net short position with a vengeance.

Managed money, a proxy for speculators, raised its net long position in corn furtures and options by nearly 38,000 contracts to 108,500 contracts in the week to last Tuesday, as fears continued to grow for the damage that heat and dryness may cause to the US crop.

That represented a more than doubling in two weeks of speculators' net long position – the advantage of long investments, which profit when prices rise, over short holdings which benefit when values fall.

Indeed, the net long position had fallen to its lowest position in some two years, depressed by what Goldman Sachs termed "over-optimistic expectations for the 2012-13 corn yield", after benign spring sowing conditions.

Sweet on wheat

However, investors proved even more keen to pile on bets on higher wheat prices, turning from a net short position of 5,182 lots, to a net long holding of more than 40,000 contracts.

"Managed money increased their net long position by the second largest weekly increase on record," said Rabobank, noting the threat to world production represented by dryness in Russia.
Russia's farm ministry last Monday cut its official forecast for the wheat harvest to 46m-49m tonnes, from a previous estimate of 57m tonnes.

Indeed, the overall rise of more than 45,000 contracts in the net long position in Chicago wheat was second only to a swing in April, when Russian dryness concerns first hit the headlines, creating a price spike.

'Growing downside risks'

The clamour for wheat was reflected in an 11.7% rise in Chicago futures over the week, slightly more than the 10.7% rise in the best-traded December corn contract.

And Goldman Sachs forecast that "markets will continue to focus on the growing downside risks to global wheat production, with hot and dry weather conditions in Russia, Ukraine, China, India and Australia already pointing to lower wheat supplies and ending stocks than currently projected by the US Department of Agriculture.
"This in turn will likely support US wheat exports," the bank said, lifting price forecasts for all three major Chicago-traded crops.

Speculators lifted their net long position in soybeans too in the latest week, by 15,000 contracts, returning back close to a record high.

Sweet on sugar too

Among soft commodities, speculators raised their net long position in raw sugar by more than 10,000 contracts, as concerns grew about damage from excess rain to Brazil's cane production hopes, while a delayed monsoon raised caution over Indian prospects.

However, they returned to betting on falling cotton prices, after a washout of short positions fostered by a surprise Chinese order of the fibre, for delivery by the end of this month, which handed futures sharp gains, before a subsequent collapse.