Hedge funds have a net long position on wheat for the first time in four years, betting on shortages of fertilizer and fuel caused by drought and war in the Middle East.

Hedge funds have turned net bullish on wheat for the first time in nearly four years, betting that the wheat prices will rise due to the drought in the United States and the fertilizer and fuel shortages triggered by the Middle East war. According to the weekly data released by the U.S. Commodity Futures Trading Commission (CFTC) last Friday, as of the week ending March 31, the net long position in Chicago wheat futures was 8641 contracts, meaning that long positions exceeded short positions. This has reversed the pattern of net short positions that has been in place since June 2022. CFTC data shows that this shift was mainly driven by a sharp increase in long positions. Long positions during the week rose to 117,375 contracts, reaching the highest level in over six years; while short positions fell to 108,734 contracts. The ongoing war between the U.S. and Iran has entered its sixth week, causing severe damage to energy infrastructure in the Middle East and disrupting the transportation of fuel and fertilizers through the Strait of Hormuz (a key waterway connecting the Persian Gulf with global markets). Farmers around the world are scrambling to ensure the supply of key agricultural inputs, and some farmers have shifted to planting crops with lower reliance on fertilizers. The supply disruptions caused by the war have intensified concerns about food security in the market, completely reversing the market sentiment of the Shenzhen Agricultural Power Group, which was under pressure due to ample supply. In March, wheat prices briefly hit their highest level in a year before giving back some gains. The ongoing drought in the U.S. Great Plains region also supports wheat prices, as this region is a key wheat-producing area, and the drought threatens production. However, according to the latest forecast from the U.S. Weather Prediction Center, some areas will receive rainfall this week. The latest rainfall forecast, along with some profit-taking, led to a slight decline in wheat prices on Monday.