49 The Business of Prairie Agriculture Better Farming | April 2024 Moe’s Market Minute WHERE TO NEXT? Record short 2024 funds grain & oilseed position. By Moe Agostino & Abhinesh Gopal Where’s all the investment money flowing to if it’s not to commodities? Grains and oilseeds sure do not seem to be garnering any of the hedge funds’ investment money. In fact, commodities are the cheapest versus stocks in 50 years! They remain out of favour in an inflationary environment. Since the peak in inflation for the U.S. at nine per cent in June of 2022, it’s been all downhill since. Along the way, Stats Canada and the U.S. Department of Agriculture (USDA) have added insult to injury by finding more bushels with higher-than-expected 2023 crop yields. This is despite a drought last year. A perfect storm created by timely wildfire smoke at the end of June and timely rains in July resulted in better-than- expected yields. So, when genetics are “bulletproof,” sometimes you get lucky. But 2024 and 2025 might not be so lucky for crop yields with La Niña returning by as early as May of 2024. After 12 straight weeks of selling, as of Feb. 17, 2024, managed money funds (spec funds) in grains and oilseeds combined futures and options (this included corn, soybeans, Chicago winter wheat, Kansas winter wheat, Minneapolis spring wheat, soybean oil, soybean meal, canola, and cotton) were record net short! Funds are said to be net short when they have more sell/short positions than buy/ long positions, and similarly they are net long if the situation is the other way around. They have instead been chasing U.S. money market funds to capture the five per cent no-risk interest rate, and this has boosted that market by over 150 per cent in two years. Funds have added eight trillion to buying Bitcoin (which was up by 264 per cent in 2023 and up 24.3 per cent so far in 2024) and chasing the Artificial Intelligence craze with stocks like NVIDIA (which was up by +232 per cent in 2023 and up 50 per cent in 2024). If we can’t beat them, perhaps we need to join them? The spec fund position in just soybean and corn combined was record net short for the month of February by a huge amount (about 246,700 contracts versus the normal level for the time of year). They were also record net short in canola, at over 139,000 contracts. Futures traded well below normal and were oversold and undervalued as the downtrend was the funds’ friend during early 2024. Even in a bear market, this very large record short position historically does not last long and can lead to a short covering rally in the opposite direction. But the funds need an excuse to cover, and it looks like Mother Nature will need to create that story, either in South America or the U.S. in the spring-summer to spook the funds. Since 2016, there have been five major short covering rallies in the grains and oilseeds complex in consecutive years. These have been fueled by fundamental supply shocks due to adverse weather, including drought, La Niña, derecho, etc., and three out of the five rallies happened larryhw/iStock / Getty Images Plus photo
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