Grain futures contracts around the world are a highly accessible asset class, particularly the Chicago Board of Trade futures contracts which have a high volume of contracts trading.
This means they can be bought and sold by many types of market participants, beyond just growers, end-users and traders of physical grain.
These participants include fund managers or speculators who are ultimately trying to make money out of the price of grain futures going up or down.
Currently speculators have record "net short" positions in the major United States spring crops of CBOT corn, CBOT soybeans, and high protein spring wheat traded on the Minneapolis Grain Exchange.
This means they have a large "bet" in place that those prices will go down.
It's important to note that just as a large net sold position implies speculators make money if the price goes down, it also implies that they lose money if prices go up.
This makes prices for US spring crops susceptible to a "short covering rally", where funds buy back these sold positions and can push prices higher while doing so.
For this to happen it will likely require some news in the market significant enough for funds to change their bearish view on prices, such as an adverse weather event or supply disruption.
The northern hemisphere spring is still ahead of us. Winter crops have been under snow and have a lot of growing to do. Spring crops are still to be planted.
There is a long way to go before global supplies are assured and at this stage the US Department of Agriculture is forecasting global wheat stocks-to-use to tighten year-on-year.
US wheat and corn stocks-to-use are expected to increase year-on-year, but it is based on their forecasts for yields and plantings to reach record or near record levels.
There has been a lot of risk premium eroded from global grain prices which can indicate the market is expecting reasonable weather in the northern hemisphere spring to deliver record yields.
The speculators' record large net short positions in the major spring crops accentuate this view.
Markets require some new information to trigger a change in price direction, particularly while Russian wheat keeps flowing into importing countries at relatively low prices.
The northern hemisphere spring, when crops are vulnerable to weather events, is often a period when risk premiums are added to grain prices.
For Australian growers who are holding grain and dissatisfied with current prices, this may provide opportunity.
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