FORT COLLINS, Colo. - Speculators last week briefly paused their aggressive exiting of short positions in Chicago-traded grains and oilseeds only to resume the bullish sentiment on Tuesday when the U.S. government slashed the corn harvest to a much larger degree than was predicted.

Constant precipitation in the U.S. Corn Belt over the last several weeks and months has severely hampered planting, holding corn and soybean development to a record-slow pace. Investors have been getting increasingly nervous about a potentially large supply loss in the No. 1 corn exporter, though they have been less worried about soybeans due to large domestic supplies.

In the week ended June 11, hedge funds and other money managers increased their net long position in CBOT corn futures and options to 111,212 contracts from 87,243 in the previous week, according to data from the U.S. Commodity Futures Trading Commission.  

Most of that move likely came on Tuesday, June 11, when the U.S. Department of Agriculture reduced U.S. corn production by 9% in its monthly supply and demand report.   There is not usually enough information in June for USDA to adjust the U.S. harvest since it is still early in the season, but the market had expected a 5% cut.

On Friday, most-active CBOT corn futures Cv1 reached a five-year high as weather forecasts continued to show rain and cooler weather in the near-term, which may cancel any last-minute planting efforts and inhibit emergence and development. Commodity funds were estimated to have purchased around 96,000 corn futures contracts between Wednesday and Friday.  

The recent production issues with U.S. corn have also encouraged speculators to ditch large short bets in Chicago wheat. Through June 11, money managers switched to a net long position in CBOT wheat futures and options of 1,741 contracts compared with a net short of 13,348 contracts a week earlier. Funds have not been bullish in Chicago wheat since early September.  

Market watchers have recently been concerned about supply issues in some of the major wheat exporters including Australia, Russia, and Canada, and some have worried that excessive U.S. rains have ruined wheat quality.

But short-covering has been the major recent theme for CBOT wheat, and the fact that a good portion of shorts have already been forced out of the market may limit upward price potential in corn should both markets continue to move in tandem. Trade estimates suggest commodity funds bought about 21,000 CBOT wheat futures over the last three sessions.

Investors have been covering short positions in Kansas City wheat futures and options over the last six weeks, but gross long positions have been exiting the market for the last seven weeks. The managed money net short fell to 23,624 futures and options contracts through June 11 from 24,080 in the previous week, though the number of outright long positions was the smallest since August 2016 at 46,070.

Money managers reduced their net short in Minneapolis wheat futures and options through June 11 to 4,978 contracts from 7,874 in the previous week. Outright short positions were the fewest in number since September.

USDA on Tuesday raised U.S. year-end soybean supplies above 1 billion bushels for the first time ever, somewhat reinforcing complacency in the soybean market with more-than-ample stockpiles. Through June 11, money managers trimmed their net short to 91,155 soybean futures and options contracts from 93,356 a week earlier. 

However, weather forecasts turned wetter by mid-week and soybean traders appeared to realize on Wednesday that U.S. soybean production could be at serious risk, boosting most-active futures Sv1 by more than 2%.   Trade estimates suggest funds bought about 34,000 soybean futures contracts between Wednesday and Friday.

Money managers extended their modest net long in soybean meal futures and options through June 11 to 4,665 contracts from 2,163 a week earlier. They remained comfortably bearish in soybean oil, trimming their net short to 53,803 futures and options contracts from 55,811 in the prior week.

Trade estimates pegged commodity funds as straight buyers of soybean meal and net buyers of soybean oil over the last three sessions.

Chicago corn, soybean, and wheat futures were up sharply early in the overnight session on Sunday into Monday as fears over U.S. production continued to accelerate.

(Editing by Richard Pullin) ((karen.braun@thomsonreuters.com; +1 (312) 408-8059; Reuters Messaging: karen.braun.thomsonreuters.net@reuters.com; Twitter: @kannbwx))