Hedge funds are starting to reposition in wheat markets in a way that could mark a notable shift in sentiment after a prolonged bearish stretch. According to data from the Commodity Futures Trading Commission, funds flipped to a net-long position in the week ended March 31, ending a net-short stance that had persisted since June 2022. The move appears to be driven by a sharp build in long positions to 117,375 lots, the highest level in more than six years, while short positions declined to 108,734, suggesting conviction is building around a tighter supply outlook.
The underlying catalyst could be a combination of geopolitical disruption and input shortages tied to the ongoing conflict involving Iran. Now in its sixth week, the war has damaged energy infrastructure in the region and disrupted flows of fuel and fertilizer through the Strait of Hormuz, a key route linking the Persian Gulf to global markets. Farmers globally are responding by rushing to secure inputs, and in some cases shifting toward crops that require fewer nutrients, a dynamic that could begin to tighten wheat supply expectations and support prices.
Weather conditions are adding another layer to the setup. Prolonged dryness across the US Plains has raised concerns about production in a critical growing region, reinforcing the more constructive positioning seen in futures markets. Wheat prices had already reached their highest level in a year during March before easing, as forecasts from the US Weather Prediction Center pointed to potential વરસાદ in some areas and some investors took profits. Even with that pullback, the combination of supply-side risks tied to both weather and geopolitics could continue to underpin sentiment in the near term.