Hedge funds expanded bearish betting on Chicago wheat to the highest in more than three years, encouraged by the worst US export performance in at least 32 years – indeed with the country said to be, unusually, importing the grain from Europe.

Managed money, a proxy for speculators, cut by 9,899 contracts its net long position in futures and options in the top 13 US-traded agricultural commodities, GrainPriceNews analysis of Commodity Futures Trading Commission data shows.

However, the overall figure disguised differing strategies on grains, in which they cut their net long by 41,000 contracts, than on the soft commodity and livestock sectors – both of which attracted net buying.

The selling in grains, including the soy complex, cut the net long in the sector below 400,000 contracts for the first time in three months, and was led by a seventh-successive week of short-building in Chicago-traded soft red winter wheat.

‘Slow US export demand’

Indeed, managed money expanded its gross short position in soft red winter wheat futures and options above 100,000 lots during the week, to the highest since May 2019.

The net short – calculated by subtracting long bets, which profit when prices rise, rather than when values fall as with short positions – grew by 6,622 lots to 53,402 contracts, also the largest since May 2019.

The shift came in a week in which wheat futures felt pressure from trade disappointment, with Terry Reilly at Futures International citing “slow US export demand” as one cause for selling.

US wheat export commitments, that is completed shipments and unfulfilled orders combined, for 2022-23 stood at 13.30m tonnes as of November 17, down by 944,000 tonnes year on year, US Department of Agriculture data shows.

Imports from the EU?

In fact, that is the lowest total for that date on data going back to 1990, although comes amid low expectations for shipments, following a harvest which proved smaller than investors had forecast, reflecting historically low area as well as some drought-hit to yields.

The tight balance has sparked talk of the south-eastern US poultry and pig industry turning to Europe for wheat for livestock feed, with Mr Reilly noting that “some cited EU wheat exports flowing into the US” as a cause for wheat price weakness.

“The south-east US end-users could benefit from cheaper feed wheat,” with talk of 100,000 tonnes of Polish, or potentially German, wheat being shipped to the US, at prices of around $360-370 per tonne including freight.

The US, over the previous five seasons, imported an average of 8,800 tonnes of EU wheat per year, USDA data show.

US Wheat Associates, which promotes US supplies to foreign buyers, acknowledged that traders believe that “export prices need to soften to attract export business”, although added that “a strong domestic market is keeping basis from softening more”.

Mercantile Consulting said that “the divergence in wheat prices between the US and European origin has led to some unusual trade activity like EU wheat trading into the south-east US market”.

Hard wheat premium

Managed money was a net seller in hard red winter wheat too in the week to last Tuesday, by nearly 4,000 contracts, the most in four months.

However, it retained a net long position in the contract, amid concerns over prospects for the 2023 harvest of the class, following the worst start on record to seedlings in its growing heartland of the central and southern Plains, which remains beset by drought.

Latest official data show 86.1% of Kansas, the top wheat-growing state, rated as being in drought, as well as 97.7% of Oklahoma and 62.7% of Texas.

The premium of hard red winter wheat to soft red winter wheat stood on Tuesday at $1.11 ¼ a bushel – more than twice its level three months ago, as sowings were beginning.

Sugar, cattle appeal

Among New York-traded soft commodities, hedge funds proved a notable buying of raw sugar, lifting their net long in the sweetener to 202,007 lots, the highest in seven months, fuelled by talk of Indian mills defaulting on export deals, forcing fresh purchases from importers.

There is a “growing realisation” that India, which shipped 7.3m tonnes of sugar last season, “will probably only export 2.5m-3.0m tonnes” in this one, Marex said.

Buying in livestock was led by live cattle, which attracted net purchasing of 12,229 lots, amid ideas of tightening US supplies spurred by official data showing the number of animals placed onto feedlots last month for fattening falling by 6% year on year.

The figure, which compared with market expectations for a 3.5% decline, follows cautions from commentators such as Rabobank of a squeeze on supplies of feeder cattle to place on feedlots, with the Plains drought having already prompted producers to run down their herds.