A Bear On The Loose: The biggest short bet in wheat and corn in 20 years

Monday the 26th of February saw US corn futures dropping to a 3-year low, the March contract falling below $4 per bushel. This is mainly due to a strong US supply and export competitors in South America expecting a strong harvest. 

The sharp price decline follows a record crop yield by U.S. farmers last year. Farmers put off sales in fear of failed crops. The crops were instead successful, resulting in record-high amounts of corn in silos. This has caused the futures prices to tumble from their June 2023 peak of $6.30 per bushel. Us farmers still have a lot in storage from the 2023 harvest, and say they regret not having booked more sales. According to a January report written by economists at the University of Illinois, farmers in Southern Illinois could lose up to $160 an acre growing corn this year. In contrast, profits reached about $340 an acre two years ago. 

The US corn futures were on the mend this week, however, perhaps because of the increase in short positions. Traders are now making the biggest short bet on wheat and corn in 20 years, suggesting the slump could continue. Corn led the selling with the net short hitting a record high at 341k. 

Midweek, the prices of US winter wheat made an uplifting shift, diverging from other grains. The main reason for this is reduced selling pressure upon option expiration for wheat and a rebound from new contract lows. The wheat futures reached a two-week high of above $5.8 per bushel, as investors evaluated dry weather conditions in the southern Plains of the United States. In the same period, Ukraine had a decrease in their cumulative 2023-24 export, from 41.8 metric tons (Mt) in the same period last year, to 28.6Mt. 

Russian FOB (free-on-board) wheat prices dropped in week 9 to their lowest since 2020. However, Sovecorn, an agricultural consultancy firm, reports the export prices are still not competitive to European export prices. While competing as a global supplier in foreign markets, farmers in the US and Europe had to lower their asking prices to stack up against full silos and a growing large-scale production in Russia. These occurrences are a contributor to the bearish slope. 

Wheat continues the trend of expressing high volatility, and ends up with a significant 4.4% drop in May HRW as we enter March. At midday, other KC futures were down 20 to 25 cents.

Compared to corn and soybeans, the increased demand and decreased carry for deferred contracts can represent a shift in the market sentiment towards wheat. It looks like last week’s trend will be in line with Trading Economist’s expectations of being able to trade wheat for $5.61 per bushel by the end of the quarter, in spite of the fluctuating waves the market represents. 

Let’s finish and cross the Pacific to Australia, a major exporter of agricultural commodities, where meteorologists have predicted the third hottest summer in a row with a drier-than-normal period from March until May. Dry weather can have a crucial impact on the quality of the crop and livestock markets.