Investors bearish on US crop prices due to rain

Chicago

INVESTORS have turned against three of the largest US crops, betting that timely rainfall will further swell grain supplies and exacerbate price drops.

Hedge funds and other money managers are now holding a record wager on further declines for wheat, increased their bearish outlook on corn and dumped bets on a soya bean rally for a seventh straight week. A combined measure on the big three US crops turned negative last week for the first time in three months.

The Bloomberg Grains Subindex plunged 10 per cent in July, the most since the same month of 2015. While worries of continued heat and dry weather across the US Midwest lifted crop prices in June, timely July rains proved favourable. Corn conditions climbed during the grain's critical pollination period, soya bean ratings stayed high and the harvest of winter wheat added to a global glut.

"The backdrop heading into this year was one where you had adequate grain stocks across the world, particularly in corn and wheat," said Matt Campbell, a risk management consultant at INTL FCStone in West Des Moines, Iowa. "If there wasn't going to be a relatively significant weather problem, this was a year where it was going to be tough to sustain a meaningful rally."

The combined position across the three crops turned net-short to 74,033 contracts in the week ended July 26, according to Commodity Futures Trading Commission data published three days later. That compared with a net-long holding of 7,724 a week earlier, and is the first bearish outlook since mid-April. The Bloomberg Grains Subindex is down 3.5 per cent in 2016.

The US is coming off back-to-back years of bumper corn and soya bean production, and the world is saddled with record wheat inventories. The International Grains Council last Thursday boosted its outlook for combined global stockpiles of wheat, corn and other grains by 1.2 per cent, predicting an even bigger all-time high.

After a late spring heat wave, some traders had worried that it was going to be a hot, dry US summer and crop concerns ramped up. Instead, for farmers, rains came just in time to establish solid crops. BLOOMBERG