Financial Traders Sell Futures Ahead of US Planting Season

14 March 2019

Financial traders with speculative interests have substantially reduced positions in the corn, soybean, and wheat futures markets in recent weeks. According to data from the Commodity Futures Trading Commission’s Commitments of Traders report, money manager net positions in the three crops combined were short 313,000 contracts, as of March 5.

Money managers are registered investment advisers, including hedge funds and other asset managers, who conduct trading operations on behalf of clients. These traders tend to adjust positions very frequently in both long and short directions, given that most employ leverage when trading. The current reading is the largest money manager short position for the three crops since January 2018, and the short base has been built rapidly, added almost entirely since the start of the year.

Commodity index trader net positions have also fallen rapidly in recent weeks. Commodity index traders are generally entities seeking exposure to a broad basket of commodities through investment products, either as a hedge against inflation or for portfolio diversification purposes. While traders in this category rarely, if ever, hold a nominal net short position due to the nature of their investing activity, the combined net long position in corn, soybeans, and wheat is now just 473,000 contracts, which is a five-year low and down 102,000 contracts from the beginning of the year.

As grain prices have declined since the beginning of the year, financial traders have sold futures in an attempt to profit on the bearish price momentum. Contributing to the weakness in prices is an expectation of growing global supplies. However, any sign of weather risk heading into the US growing season should force financial traders to rapidly buy back positions that were sold at the beginning of the year. As the chart below on the right shows, the net position of managed money traders usually flips from substantially short to long at least once a year. With the current positioning setup, grain markets are ripe for a similar episode once again in 2019.

Financial traders with speculative interests have substantially reduced positions in the corn, soybean, and wheat futures markets in recent weeks. According to data from the Commodity Futures Trading Commission’s Commitments of Traders report, money manager net positions in the three crops combined were short 313,000 contracts, as of March 5.

Money managers are registered investment advisers, including hedge funds and other asset managers, who conduct trading operations on behalf of clients. These traders tend to adjust positions very frequently in both long and short directions, given that most employ leverage when trading. The current reading is the largest money manager short position for the three crops since January 2018, and the short base has been built rapidly, added almost entirely since the start of the year.

Commodity index trader net positions have also fallen rapidly in recent weeks. Commodity index traders are generally entities seeking exposure to a broad basket of commodities through investment products, either as a hedge against inflation or for portfolio diversification purposes. While traders in this category rarely, if ever, hold a nominal net short position due to the nature of their investing activity, the combined net long position in corn, soybeans, and wheat is now just 473,000 contracts, which is a five-year low and down 102,000 contracts from the beginning of the year.

As grain prices have declined since the beginning of the year, financial traders have sold futures in an attempt to profit on the bearish price momentum. Contributing to the weakness in prices is an expectation of growing global supplies. However, any sign of weather risk heading into the US growing season should force financial traders to rapidly buy back positions that were sold at the beginning of the year. As the chart below on the right shows, the net position of managed money traders usually flips from substantially short to long at least once a year. With the current positioning setup, grain markets are ripe for a similar episode once again in 2019.

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