Funds in Focus - Conflict-induced buying interest shows signs of fading
- Upward momentum in commodity indices slows
- In the US, funds long in corn and soy, but return to net short in wheat
- In the EU, funds are particularly long in rapeseed
- The course of Iran war a key influence. For grains, China, El Nino also key
The rise in energy prices has led to a surge in buying interest from speculative investors across a broad range of commodities futures.
The two key commodity indices (CRB and BCOMM) have increased dramatically since March adding to support for prices, triggering systematic (algorithmic) trading systems and encouraging bets on prices needing to rise further over the medium term.
However, this momentum is showing signs of fading, with speculative investors proving to be highly sensitive to headlines around a potential peace deal and the full/partial reopening of the Strait of Hormuz. This means agricultural markets face further volatility.
Longer term, fundamentals will still dictate prices.
Tighter global 2026/27 grains and oilseeds production, Chinese demand, higher input prices and the potential for a super El Nino developing later in the year all remain factors that need monitoring, and could cause funds to maintain or build on current long positions.
US funds: Speculative investors bullish corn & soy but less so for wheat
Managed money’s combined net position in US wheat, corn and soybeans now stands at approximately 380,000 lots long.
For corn, the funds had held the largest net long position in nearly four years in early May and although it has since eased to 211,000 lots long, the gross long positions held by managed money is excessive/ overbought for this time of year.
For wheat, the funds now hold a modest net short position, but have plenty of buying power should sentiment shift once harvest surpluses are absorbed.
From a price perspective, CBOT corn is at most risk of a correction should the funds start to cash in on the significant long positions they have built up since early March. Fund positions in wheat are more neutral.
EU Funds: Strong support across the board among managed money
In Europe, the combined net position held by managed money in Euronext wheat, rapeseed and corn stood at 137,000 contracts by the end of May.
Speculators hold net long positions in all three commodities, but rapeseed markets stand out, with the net long position sitting at the highest level since at least 2019.
For prices, the fact that all three main grain and oilseed markets have built up a net long position points to less of a structural incentive to be short as seen through 2025, also underscoring the risk price pressure throughout harvest as was seen in the past three years.
Conclusion
The conflict in the Middle East has attracted a significant amount of interest from managed money into agricultural commodity markets.
This puts prices at risk of falling sharply if a peace deal is reached and the Strait of Hormuz reopens, given the nature of managed money’s ability to quickly take profits and reverse course.
However, there are significant headwinds to global agricultural production brewing, partly because of the conflict driving up fertiliser prices, which will take time to resolve and unlikely to happen before growers begin securing supplies for the following season’s crops.
Moreover, weather is a major concern, as seen through the dry conditions in the US over the past month, heat waves across Europe in late May and the growing probability of a super El Nino weather event.
