Analyst Insight: US wheat sell off risk?

Monday, 3 February 2020

US wheat sell off risk?

In the midst of a global commodity downturn, US Managed Money speculative funds have increased their number of long contracts in CBOT Chicago SWR wheat futures.

This appears contradictory to the current grain market sentiment, which in current state of affairs, has been on a bearish downward trend.

While the reasons for choosing to own such a large degree of long contracts could be due to a number of reasons, the degree of risk to markets that his has created is not inconsiderable.

At 135K long wheat contracts, US Managed Money funds now hold a record number of long contracts, surpassing the highs of the summer of 2018, 2017 and 2012.

In the current somewhat bearish market, there are no signs of an imminent price hike. Additionally, prospects for an increase in Black Sea wheat production for 2020/21 leaves little significant shifts in fundamentals for a substantial future tightening of global wheat supply and demand. 

As such, with global markets moving against the position of speculative funds there is a real possibility that these positions may be quickly exited.

A selling of the speculative long positions and possibility for entering into short positions could quickly change the US and indeed wheat market at a greater rate of change than recorded previously and with reduced warning.

Peter Collier

Arable Analyst

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