Hedge funds lifted their net long in agricultural commodities to a three-month high, as soymeal led an increase in bullish betting on grains and oilseeds, offsetting a further retreat in optimism on soft commodities.

Managed money, a proxy for speculators, raised its net long position in futures and options in the top 13 US-traded agricultural commodities by nearly 10,000 lots in the week to last Tuesday, GrainPriceNews analysis of Commodity Futures Trading Commission data shows.

The buying lifted the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – above 700,000 contracts for the first time since June.

And it was led by grains, in which hedge funds lifted their net long by more than 24,000 contracts, taking the total above 500,000 lots.

Corn support

The trend reflected in part an eighth successive week of net purchasing in Chicago corn futures and options, the longest such streak in nearly two years, amid waning expectations for the dryness-tested US harvest, as well as European production.

The US Department of Agriculture a week ago estimated the crop at 52% good or excellent, the lowest September reading since the drought year of 2012.

Corn has been particularly challenged in the central and southern Plains, where the Nebraska crop had a reading of 37% good or excellent and the Texas one a 17% rating.

‘Preferred source of protein’

However, it was soymeal which attracted the biggest buying in the ag complex, of a net 14,454 contracts, the most in 10 months.

The spree lifted the managed money net long in soymeal futures and options to 102,168 contracts, the second largest in four years.

The number of long bets in the feed ingredient reached 106,864 lot, the biggest since May 2018, and fuelling a rise of 3.7% in the price of Chicago’s best-traded December futures lot during the week, setting a contract high.

Soymeal buying has been encouraged in particular by domestic demand, with the USDA saying that market activity suggested that “soybean meal remains the preferred source of protein over alternatives – especially as they consider the amount of protein gained per dollar spent”.

“For these reasons, domestic soybean meal disappearance has continued to expand.”

Data on Friday showed the US feedlot cattle herd expanding marginally in the month to September 1, by 0.4% to 11.28m head, exceeding expectations of a flat figure, and representing the second biggest inventory for that date since data began in 1996.

China rally

Soymeal prices have also soared in China, where Dalian futures two weeks ago, at 4,987 yuan a tonne, set their highest close in 14 years, on a spot contract basis.

On China’s cash market, prices on Friday set a record high of 5,352 yuan, or nearly $798, per tonne according to Reuters, with the gain attributed to strong demand from domestic hog producers, enjoying strong values, at a time when the country’s soybean crushers had been holding back.

Last week, “China soybean meal was up about 10%… on talk of shortages,” said Terry Reilly at US broker Futures International.

“Don’t discount another fresh round of buying by China over the next couple of weeks.”

For soymeal itself, China has not been a significant importer for more than 15 years, after a national strategy of boosting its own soybean processing capacity to capture crushing margins domestically.  The USDA has forecast China’s 2022-23 soymeal imports at 50,000 tonnes, compared with a record 4.20m tonnes in 1997-98.