Hedge funds are betting that the rout that took wheat prices to the lowest in a decade is far from over.
World inventories of the grain are forecast to expand for a fourth straight year, US government data show. The supply cushion underscores why money managers have their biggest-ever bet on price declines.
Wheat futures have slumped for four straight months, reaching the lowest since 2006 at the end of August. Rains in Europe left fields soggy, prompting some hope that prices would bottom. Instead, big supplies from the US and Russia are making up for the smaller crops elsewhere. While the US Department of Agriculture probably will cut its global stockpile estimates on Monday, the figure will still be a record, a Bloomberg survey showed.
“We still have plenty of wheat in the world,” said Arlan Suderman, chief commodities economist at INTL FCStone Financial Inc. in Kansas City, Missouri. “When you look at the longer-term impact, all it did is keep the fundamentals from being more bearish than what they are,” he said, referring to the lower European output.
Hedge funds and other large speculators expanded their net-short holdings in wheat to 132,577 futures and options in the week ended Sept. 6, according to US Commodity Futures Trading Commission data released three days later. That’s the most since the data begins in 2006. The bets have been net-short since August 2015, the longest streak ever.
World wheat inventories before the 2017 Northern Hemisphere harvests will probably total 251.4 million metric tons, according to the average estimate of 16 analysts surveyed by Bloomberg. While that’s lower than the 252.8 million predicted by the USDA last month, it would still be the highest ever and 3.9 percent larger than last season. The agency will publish its monthly supply and demand report at noon in Washington Monday.
A “continuous upgrade” in production estimates from key exporting nations has offset declines in Europe, Rajesh Singla, a Societe Generale SA analyst, said in a report e-mailed Sept. 7. A strong dollar coupled with a lower ruble also remains a headwind for US futures as sellers compete on price amid the glut, he said.
December futures traded in Chicago touched $3.8675 a bushel on Aug. 31, the lowest for a most-active contract in 10 years. Prices fell as much as 0.9 percent Monday before trading at $4.005 at 3 p.m. in Sydney.
It’s not just the wheat market that’s stuck in the doldrums. Corn and soybean prices both fell in August after the USDA predicted that domestic farmers would harvest record crops. With bumper harvests on the way, there are signs that farmers and elevators won’t have enough space to store all that grain.
