With planting conditions improving across the U.S. Midwest, hedge funds are betting that harvests this year will compound a global crop surplus and worsen losses for corn, soybean and wheat prices.
Corn seeding is already ahead of last year’s pace, and recent rains that hampered sowing in some areas will give way to drier conditions this week, according to MDA Weather Services. In the Great Plains, winter-wheat conditions are better than they were in 2014. Record crops in Argentina and Brazil are adding to soybean supplies as U.S. farmers are forecast to plant the most acres ever next month.
Bountiful harvests mean that investors are staying away, with money managers holding a net-short position in the three crops for eight straight weeks, according to Commodity Futures Trading Commission data. That’s the longest stretch since 2013. The gluts have driven global food costs to the lowest since 2010, and reducing expenses for meat producer Tyson Foods Inc. and ethanol maker Archer-Daniels-Midland Co.
“There is a heavy inventory surplus in the U.S., and more so globally,” Gillian Rutherford, who helps oversee $20 billion as a commodities-portfolio manager at Pacific Investment Management Co. in Newport Beach, California, said by phone on April 23. “It’s difficult to see upside from current levels.”
Combined positions across the three crops was a net-bearish holding of 209,427 futures and options contracts as of April 21, U.S. Commodity Futures Trading Commission data published three days later show. The net-short wager in wheat is the biggest since the data begins in 2006.
Expanding surpluses have left many raw materials stuck in bear markets. The Bloomberg Commodity Index dropped 26 percent in the past year, and the Bloomberg Agriculture Index of eight farm products slumped 31 percent. The MSCI All-Country World Index of equities advanced 7.5 percent, while the Bloomberg Dollar Spot Index climbed 17 percent.
Corn farmers in the U.S., the world’s top grower, reaped record crops for two straight seasons, filling silos and sending prices tumbling more than 28 percent in the past year to $3.68 a bushel in Chicago. The International Grains Council last week raised its estimate for the next global harvest by 1.1 percent from the March forecast.
Wheat growers in Canada, the top exporter after the U.S., plan to increase seeding by about 4 percent this season, the government said last week. Money managers increased their net- short holding to a record 96,624 contracts from 82,122 a week earlier, the CFTC data show.
While the speculators are betting on price declines for corn, wheat and soybeans, they trimmed their bearish holding in the oilseed. The net-short wager contracted to 47,505 contracts from 81,716 a week earlier.
U.S. soybean processing will rise 3.5 percent this year as crushers turn the oilseed into animal feed and biofuel, USDA data show. Demand for American exports will increase 8.7 percent, the agency forecasts. In China, the biggest importer, demand will climb to a record, USDA data show. The country’s consumption of corn and wheat will also gain.
“There has been a lot of focus on supply, but people should not forget about the demand side,” Sameer Samana, a global strategist in St. Louis for Wells Fargo Investment Institute, which manages $1.6 trillion, said by phone on April 23. “You may have a situation where any shortfalls in supply, whether we run into bad weather or farmers plant less acres, we may see a rebound in grain prices.”
Wheat production in India may tumble by the most in 12 years after heavy rains and hailstorms ravaged farms, according to ITC Ltd., a cookie and flour maker. In the U.S., moderate-to- extreme drought conditions have expanded from a year ago in the High Plains.
While there’s been buoyant demand for U.S. soybeans, exports of corn and wheat are trailing last year’s pace. At the same time, plentiful inventories can help make up for crop damage from possible adverse weather.
Global soybean reserves before this year’s harvest in the Northern Hemisphere will reach a record 89.55 million metric tons, according to the USDA. The agency said world corn reserves will rise 10 percent from a year earlier, while wheat inventories will increase 5.7 percent.
“It’s a positive supply story for lot of the commodities, and that’s true for the grain markets,” Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $126 billion, said by phone April 23. “We may see some volatility, but prices will remain neutral to lower.”