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March 21, 2019

Grains recover on fund short-covering

After falling for 5 straight weeks and hitting fresh contract lows on March 11th, Chicago wheat is bouncing back sharply over fund short-covering triggered by weather issues and trade optimism. The long-awaited US-China trade deal which according to US President Trump is finally ‘coming along nicely’ has pushed speculators to build a record net short position across the US Grain markets* ie selling aggressively wheat, maize, soybeans and its by-products on the financial markets expecting a decline in price. In the week ending Mar 12th, money managers were net short of nearly 258K contracts compared to a long (buy) position of 526K lots last year.

However, US weather condition has rapidly deteriorated with heavy rain and melting snow causing flooding across the Plains and the Midwest. As a result, speculators are now concerned that spring plantings which typically start in April could be delayed or even lower than expected and as such they have started covering their short-position.

In South America, the second corn crop in Brazil is set to benefit from beneficial rain over the next few days but the return of El Niño which historically results in dry conditions for both Argentina and Brazil has to be closely monitored. In Australia, the drought started a year ago is ongoing in the eastern part of the continent whilst plantings are just around the corner.

*US Grains = CBOT wheat/corn/soybeans/soybean meal/soybean oil, Kansas wheat & Minneapolis wheat.