Lately we’ve had some choppy trade in the Ag markets. Fundamentals seem to point lower, technicals seem to point higher, demand is sometimes robust and other times questionable, supply is ample, but the trade war looms over all. The market forecast is cloudy at best.
But through it all, we get a glimmer of insight into what funds are doing through the commitment of traders report. Sometimes speculating on the why, or where funds go from here is a little like reading tea leaves, but it is an important tool to keep an eye on.
Recently, funds have closed out their short position which was standing at short 150,000. This COT report shows the short position now at 64,000, we’ve seen estimates as high as short 50,000. The exact number doesn’t matter as much as the fact they funds have been closing the short position almost immediately after the September USDA number that showed a jump in yield. What seemingly should have been a bearish number, was supported by fund liquidation. Buying to close out a position is not necessarily a bullish indication, but its worth noting. Funds could jump back in short aggressively (like their short 250,000 position over all of last winter) or continue to grind their position back to flat. Not terribly helpful insight, but worth keeping an eye on. If trends shift back towards increasing the short position, we would expect it to be prolonged.
Like Corn, the Soybean COT shows funds liquidating shorts. Unlike Corn, the fund position for most of last winter was slightly long. While the prolonged trade war and ample supplies will weigh on prices, it seems likely that funds would want a similar, slightly long position, as there shouldn’t be too much more risk to the downside and most of it can be hedged away with cheap puts.
The Wheat COT doesn’t look like either the Corn or the Beans. Funds have spent most of the year fairly neutral wheat. The only exception to that was the short period over the summer where we saw a run up on prices and funds got long ~75,00. Last year, from this point forward, we saw Wheat funds increase their short position from 50,000 to about 160,000. Funds have been fairly neutral all year, so any big movement should be noted, and trends jumped on.
Take everything we see from funds with a grain of salt. Whispers around the street (some not so quiet) say that ag funds overall had a pretty tough time this year. It’s not all that surprising given the good weather, no crop threat, relatively low summer volatility, trade war, and sometimes unexpected price action. Typically when we hit Q4 and funds have had a profitable year, we see a slowing down of trade and a quiet time as they don’t want to rock the boat and give back the gains. This year, however, we could see some fireworks as funds try to grasp at their last chance of eeking out a profitable year.