Swelling Global Grain Glut Spurs Biggest Bearish Bet Since June

November 18, 2015 06:00 AM
Swelling Global Grain Glut Spurs Biggest Bearish Bet Since June

Overflowing grain bins prompted money managers to expand their wagers on lower crop prices by almost ten times in the space of a week.

Global inventories of corn, wheat and soybeans will each rise to all-time highs before next year’s North American harvests, the U.S. government forecasts. While grain prices have already dropped to five-year lows, hedge funds are predicting more losses as stockpiles expand. The funds are holding the biggest bearish bet on the crops since June.

Supplies are rising after record prices in 2008 spurred farmers worldwide to increase plantings, while favorable weather in the past few seasons helped spur bigger yields. Even with a slowdown in acreage growth in recent years, gains for global consumption are also easing. A stronger dollar is also cutting the appeal of exports from the U.S., the world’s largest seller.

“We’re negative on the grains right now,” said Paul Christopher, St. Louis-based head global market strategist for Wells Fargo Investment Institute, which oversees $1.7 trillion. “It’s a combination of negative factors including weak foreign demand, record production in some places, and global supplies that are at worst, adequate, and at best, more than adequate.’’

USDA Forecasts

The combined net-short position, or bets on price declines, across corn, wheat and soybeans totaled 131,650 futures and options in the week ended Nov. 10, according to U.S. Commodity Futures Trading Commission data released Monday. The figures, which were delayed after a U.S public holiday, compare with 13,952 the prior week.

The Bloomberg Grains Subindex, a measure of returns, touched a five-year low last week and is heading for a third straight annual loss, the longest slide since 2001. Corn futures have dropped 7.3 percent this year on the Chicago Board of Trade, while soybean and wheat prices have each fallen about 16 percent.

World inventories of soybeans are expected to climb for a fourth year to a record 82.9 million metric tons, as crops rise to the biggest ever in the U.S. and Brazil, the U.S. Department of Agriculture said Nov. 10. Global stockpiles of corn are seen reaching an all-time after the USDA cut its outlook for Chinese consumption, and wheat supplies are also estimated to rise to a peak. The combined stocks-to-use ratio of all three crops is forecast at the highest in 14 years, signaling that supply is outstripping demand.

Money managers boosted their net-short wagers in hard, red winter wheat to the biggest since the data begins in 2006. Rains across the U.S. Great Plains this week should ease dryness in grain areas, and precipitation is expected to aid the crop in the Black Sea region during the next 10 days, Commodity Weather Group said in a Monday report.

‘Robust Supply’

At the same time, farmers in Brazil have sold 45 percent of next year’s corn harvest, a record for this time of year as producers take advantage of a weaker real, according to CGG Trading. That’s increasing competition for supplies from the U.S., as a stronger dollar means that American shipments are already trailing last year’s pace.

“We need to see that pickup in demand to offset really the robust supply that we have right now to see any movement on the upside,” said Lara Magnusen, a La Jolla, California-based portfolio manager at Ategris Investments Inc., which oversees $2.65 billion.

South America

Crops in South America are just being planted, and unexpected weather could change whether corn and soybean output will be as ample as expected.

Brazil had 60 percent of its soybeans planted, below the five-year average for 71 percent, crop forecaster AgRural said in a Nov. 13 report. Rains through the rest of November in Brazil should remain “very active,” reducing dry spots to less than a tenth of the corn and soybean regions, Commodity Weather Group said.

“As we always do through our winter, we look at South America and see what it’s impact is going to be,” said Ed Cowling, the St. Paul-based director of specialty assets for U.S. Bank Wealth Management, which oversees $126 billion. “We’re going to continue to watch weather, and that may have an impact on prices here.”

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Spell Check

flying farmer
nebraska city, NE
11/18/2015 08:56 AM

  That is nice that they trade all this paper grain. But. And I hate to be simplistic here, because I realize most of us farmers need sell grain to cover expenses. I myself am one of them. But. If we as farmers simply DO NOT SELL GRAIN at these prices, no matter what paper grain they sell and trade and short and whatever, in the end, they will HAVE to raise the prices to get the real thing. Paper grain does not feed cows nor people, and guys, we are going to have to buckle down and quit selling in fear. I get that we are at the bottom of the food chain and everyone feeds off us. I understand that despite the fact the cost to produce fertilizer is the lowest it has been since Reagan was in office, since the one company who makes fertilizer in North America owns all the plants, they are going to screw us harder than a $5 streetwalker (my current cost on anhydrous being $595 a ton when with these costs of production it should be an equivalent of $185 a ton, but hey what can you do, thought monopolies were not supposed to be legal, but guess if you have enough pull politically it doesn't apply to you). Can't expect seed companies to take a trim in profits so lets keep buying that $300 a bag seed corn. So much stupid I can't even begin to begin. And all the "farm magazines" keep pushing for ways for us to have higher yields, doesn't matter if it economically feasible or not. Gotta spray this and that and raise 300 bushel corn and 100 bushel beans. Only business in the world where in the midst of a glut, we are told we need to produce more. I am jumping off the merry go round this year. Conventional corn, 2nd year non traited non anything bin run conventional good old normal nothing fancy beans. Not paying for crop insurance (which in 10 + years of having it only paid back enough to pay the premiums ONCE). If every body goes back and tops out bean production at 40 and corn at 135 we will make a crap ton of money. Can't have that can we.

mahnomen, MN
11/18/2015 04:16 PM

  Even though hedge funds are going short the market some 800% it just means some one has gone long the same 800% please keep in mind that these same hedge funds have also given us $7+ corn $16+ soybeans, $20+ wheat (for a short time). Even since times have gotten tough, I,m glad that I,ve seen a few really good years.

Western, NE
11/18/2015 09:07 AM

  Well, that's the nail in the coffin for a chunk of farmers. An 843.6% increase in short positions in the matter of ONE week! That tells me that there is just too much money in the hands of the hedge fund managers and that this country's retirement system is broken. Imagine how bad prices would be if the Social Security of Americans was privatized? Wall Street has greased so many politicians that an effective CFTC will never materialize. Interest rate increases is the only other lever to be pulled to get "short" money out of the commodities. By the way, if you're a buyer of commodities, why would you jump in the market right now and buy? And that's my point. The hedge funds have crashed the market so far that buyers are unwilling to step in and buy today when they can purchase tomorrow cheaper. Key word in the article also--"bet." What's the difference between commodity speculation and Fan Duel or Draft Kings? Not much--only the states of New York and Nevada are closing Fan Duel and Draft Kings down as it's considered illegal gambling.


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