Wheat missed out on a return by hedge funds to net buying in agricultural commodities, provoking ideas that the grain may yet return to favour, in a move likely to spur an upswing in prices.

Managed money, a proxy for speculators, raised by 35,622 contracts its net long in futures and options in the top 13 US-traded agricultural commodities in the week to last Tuesday, GrainPriceNews analysis of Commodity Futures Trading Commission data shows.

That ended a selldown which had lasted for two months, the longest such spree in nearly three years, and cut by nearly 60% the managed money net long – the extent to which long positions, which profit when prices rise, exceed short bets, which benefit when values fall.

Funds proved net buyers in all three ag sectors – soft commodities, livestock, and grains and oilseeds – for the first time since March.

Odd ones out

However, wheat missed out on the change in sentiment, with Chicago soft red winter wheat, the world benchmark, and hard red winter wheat the only two of the main 13 contracts to suffer further selldowns.

For both wheat lots, this represented a 12th successive week of net selling – a binge which was for soft red winter wheat the longest on records going back to 2006.

Minneapolis-traded spring wheat, which is not included in the top 13 ag contracts, suffered a 10th week in a row of net selling, also a record spree.

‘Something to watch’

The continued build in short positions in wheat has been attributed to factors including improved expectations for Russia’s harvest, which were borne out by a hefty crop upgrade in Friday’s US Department of Agriculture Wasde report, and the reopening of Ukraine’s ports to grain exports.

Residual pressure from the supply boost provided by the northern hemisphere harvest has also bee cited too.

However, the extent of the selling has raised ideas that wheat futures could be vulnerable to a rapid upswing, on a turn in the newsflow to more supportive news.

Terry Reilly at Futures International – noting that “funds were still short Chicago wheat” on Tuesday, and were when “going home Friday” too – said that this positioning was “something to watch as they can easily add long positions”.

‘More likely to be buying’

A UK-based trader told GrainPriceNews; “There is scope for further selling without testing historical boundaries, but you have to ask whether funds will have much of an appetite, given the risks still flying around,” such as Europe’s drought.

“Their next move is more likely to be buying wheat than selling.”

In soft red winter wheat, hedge funds were as of Tuesday net short by 20,348 contracts, the most since February.

In hard red winter wheat, they retained a net long although, at 8,023 lots, it was the smallest since September 2020.

Sugar precedent?

Ag markets have already this month witnessed a sharp fund selldown being followed by a sharp price recovery, in New York raw sugar futures and options.

Raw sugar futures slumped to a one-year low on August 1, on a spot contract basis – as managed money drew to the end of a fortnight-long selling spree which cut the net long in futures and options by more than 110,000 lots.

Net selling of 78,358 contracts in the week to July 26 was the second largest for any week going back to 2006.

However, the selldown – attributed largely to cuts in Brazil’s gasoline prices, which reduce the appeal to cane mills of making ethanol and thus boost prospects for them producing sugar instead – has heralded a sharp recovery in futures, with prices up nearly 6% since August 2.

The gain is reported to have been fuelled by short-covering, amid reduced expectations for rises in US interest rates, and supported too by some revival in oil prices, in turn boosting prospects for gasoline values.