Dry Spell in US Corn Belt Trims Yields; Soybean Optimism Rises
The second half of August brought exceptionally dry conditions to the US Corn Belt, causing concerns about reduced yields for corn and soybeans. Late-season moisture is crucial for the growth of these crops, and the lack of rainfall has triggered speculators to adjust their positions in the market. As a result, bullish bets on Chicago soybeans, which have been held for over three years, have increased, while bearishness in corn futures has eased.
Money managers responded to the dry spell by reducing their net short position in CBOT corn futures and options. In the week ending August 29, they cut their position to 87,348 contracts from 106,135 the previous week, which had been their most bearish view on corn since May. This shift in sentiment was accompanied by the addition of gross corn longs for the first time in four weeks and the covering of shorts for the first time in five weeks. Despite a 1.5% increase in most-active CBOT corn futures during this period, prices remained below $5 per bushel throughout.
In contrast, CBOT soybeans experienced a significant jump of 3.5% in the week ending August 29. Prices reached a one-month high on Monday, touching $14.09-1/2 per bushel, which represents a 10% increase from the August low. The soybean-corn ratio also rose, with the most-active November contract trading at 2.8 times the price of December corn, the highest ratio since 2016.
The relative strength of soybean futures compared to corn is evident in the positioning of money managers. Through August 29, they added nearly 33,000 soy contracts to their net long position, reaching 90,985 futures and options contracts. This marked their biggest net buying week since mid-June. The optimism in oilseeds extended to soy products as well, with CBOT soybean meal futures increasing over 4% and soybean oil adding 2.5%. Money managers increased their net long in soymeal to 73,753 futures and options contracts, the second most bullish position since data collection began in 2006. However, short covering slightly outweighed the addition of new long positions. They also raised their net long in CBOT soybean oil to an eight-month high of 58,317 contracts.
While soybeans saw positive gains, most-active CBOT wheat futures experienced a decline of over 4% in the week ending August 29. Money managers have been net sellers of CBOT wheat futures and options for five consecutive weeks, expanding their net short position to a 10-week high of 79,881 contracts. This trend continued as CBOT wheat dropped an additional 1% over the last three sessions, reaching its lowest close since May 31.
Weather forecasts indicate scattered rain possibilities for parts of the US Corn Belt this week, but it may come too late for some fields. The dry spell has already impacted crop yields, and although the US Department of Agriculture announced daily export sales of US soybeans for six consecutive trading days, Brazilian supplies continue to pose a threat to US shipments. Brazil recently authorized farmers in the state of Mato Grosso, its largest producing state, to start planting soybeans earlier than the usual September 15 start date.
In conclusion, the dry spell in the US Corn Belt has led to concerns about reduced yields for corn and soybeans. However, optimism in the soybean market has risen as speculators adjust their positions. The impact of the weather conditions on crop yields and the ongoing competition with Brazilian supplies will continue to shape the outlook for these agricultural commodities in the coming weeks.
