Bearish speculators challenged by China’s US wheat-buying spree
U.S. wheat prices tumbled to three-year lows a couple of months ago, giving U.S. exports a competitive advantage and luring seasoned grain buyer China into the market, which caused a rare run-up in futures.
Most-active CBOT wheat Wv1 on Thursday settled higher for an eighth consecutive session, the first such instance since July 2012. Wheat also notched eight-session gains once in both 2010 and 2011, but the last winning stretch that was longer occurred in April 1986 at 11 sessions.
Most-actively traded March wheat WH24 on Thursday failed to top Wednesday’s high, but Thursday’s finish of $6.42-1/4 per bushel is the highest settle on a most-active basis since Aug. 8, up almost 19% from the late September low.
Eight-session gains of 14.5% are similar in magnitude to the July 2012 and December 2011 runs, and the December 2010 run was significantly stronger, though speculators were positioned differently in all three cases: one bullish, one bearish and one neutral.
Money managers are extremely bearish toward CBOT wheat with a net short near 120,000 futures and options contracts as of Nov. 28. That is not a record net short, but money managers’ gross short positions account for a record 43% of total open interest in the market, surpassing previous maxes around 40%.
Daily CBOT wheat trading volume between Monday and Wednesday averaged around 180,000 contracts, an all-time high for the month of December. This, combined with speculators’ unusually strong short exposure, likely ejected many bears from the market.
However, funds are not necessarily turning into wheat bulls, either. An even stronger runup in price coupled with strong volumes back in June was good for only a halving of money managers’ bearish wheat position to a net short of around 50,000 contracts.
China’s import intentions are often unknown but offer extensive possibilities, and this can swing trader sentiment more easily than other fundamental factors. But speculators have been bearish toward CBOT wheat since mid-2022, despite the ongoing Black Sea conflict between wheat exporters Russia and Ukraine and an expected tightening of available world supplies through mid-2024.
CHINA MOMENTUM
Although China’s 2023-24 wheat production is advertised as near-record, extreme rainfall likely took a toll on wheat quality, which is perhaps why China has been sniffing around the global wheat market lately.
As of Nov. 30, U.S. exporters had sold 1.075 million metric tons of wheat to China for shipment in 2023-24, a three-year high for the date. Some 73% was of the soft red winter (SRW) variety.
The U.S. Department of Agriculture between Monday and Wednesday announced three daily sales of U.S. SRW wheat to China, totaling 1.01 million tons and placing China’s 2023-24 U.S. wheat haul above 2 million tons so far.
U.S. Census Bureau data published on Wednesday showed wheat exports to China at about 392,000 tons between June and October, the first five months of the 2023-24 marketing year. That volume is smaller than in the last three years, but the latest bookings should ensure that full-year exports to China are above the recent average.
Within the last 20 years, the largest U.S. wheat shipments to China came in 2013-14 at 4.25 million tons, and the second-largest occurred in 2020-21 with 3.45 million tons. China’s share of total U.S. wheat exports in those years was 14% and 13%, respectively, though otherwise the annual average has been around 4%.
Recommended for you
