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Funds flood the open interest on wheat markets

Agriculture.com Staff 02/03/2006 @ 9:24am

[Dow Jones] - Total open interest Friday at the three U.S. wheat exchanges totals about 500,000 contracts, or 2.5 billion bushels, exceeding the size of the U.S. total wheat crop, notes Bill Nelson, a grain analyst at AG Edwards.

"Even a million corn contracts is 5 billion bushels, or less than half the corn crop," he said. "Perhaps there is some precedence for total open interest to exceed production of a crop, but we can't recall when or what that was. For trading purposes, our take is that the expanding open interest in the long commercial accounts has supported crop prices above levels that during previous recent years would have resulted in lower futures prices."

Nelson said that by comparison, CBOT wheat open interest was between 10,000 and 20,000 contracts in the early '70s.

"It is blowing off the top of the linear scale chart," Nelson says. "This development is consistent with the dramatic expansion of the so-called commodity index funds and their long-only buying. While one might think that these firms would be classified as large non-commercials, they are categorized by the CFTC as commercials, by and large."

[Dow Jones] - Total open interest Friday at the three U.S. wheat exchanges totals about 500,000 contracts, or 2.5 billion bushels, exceeding the size of the U.S. total wheat crop, notes Bill Nelson, a grain analyst at AG Edwards.

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