February 1, 2011

US speculative wheat wagers at its highest since 2007

US speculators' bets on mounting wheat prices arrived at their highest since 2007, with their net long position in Chicago wheat soaring to 21,000 lots, according to an analysis from Australia & New Zealand Bank (ANZ).

Speculators' net long position in Chicago wheat - that is the balance of investments which gain on rising prices over the short positions which profit when values fall - jumped by 12,000 lots to 21,000 lots, the ANZ analysis of weekly regulatory data showed.

This level of long interest was the highest since June 2007, when grain prices were on their way to the last price spike.

With the data compiled as of January 25, the increase implied a role of funds in a seven-day run of rising grain prices, which ended on January 27.

Indeed, large long interest from managed funds can be, from farmers' perspective, a mixed blessing, providing support for prices while the position is being run up, but creating a large overhang of potential sellers in the process.

And speculators have typically been net short in wheat in recent years, a position often balanced by purchases of corn or soy contracts.

Even eight weeks ago, they held a net long of 49,000 lots on ANZ's methodology, which includes the "net other" and "net non-reportable positions" categories in weekly reports released by US regulators, besides the "net managed money" grouping more widely used as a proxy for speculators.

The latest week showed declines in speculators' net long interest in Chicago corn and soy, tallying with recent observations of investors closing "short wheat-long corn" and "short wheat-long soy" spreads.