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Crop scouts survey wheat field in Cass County, N.D., on July 23, 2019. Bloomberg photo by Michael Hirtzer.

Red River Valley soils bursting with wheat underscore record bearish bet

The darker the better. That's generally the case when it comes to crop soils, where rich hues signal fertile ground. In North Dakota this year, the fields in the Red River Valley look they're covered in cast-iron black carpet.

The saturated soils are bursting with life. Spring wheat plants are a vibrant yellowish-green, growing to around thigh-high heights. Although many fields were planted late, some of the heads of grain are starting to brown, an indication that crops are nearing maturity.

A deluge of rains has now given way to mostly dry top ground. In most fields, you don't even need boots to stay clean. But there's an abundance of mosquitoes, reflecting the showers from earlier in the season that helped enrich the soil.

A cohort of more than 60 analysts, traders, grain millers and bakers traversed North Dakota fields for three days through Thursday, July 25. They were assessing spring wheat plants, the variety used to make pizza crusts. Fields were so thick that the crop scouts, as they're known, had to use their measuring sticks to push aside plants in order to make their way through. What they found: yields will be bountiful this year at 43.1 bushels an acre, up about 5% from last season.

"It looks like we have a big wheat crop coming from our state," Vance Taylor, president of North Dakota Mill in the city of Grand Forks, told the scouts during a tour of the grain facility. The state is the top U.S. grower of the spring variety.

The large crop underscores why prices for spring wheat have been declining. Futures traded in Minneapolis are down more than 3% this year, among the worst performances for major crop markets. Prices rose on Monday, July 29, amid a broader rally for agriculture.

Hedge funds are making a record bet that there are more declines in store. In the week ended July 23, money managers' net-short position expanded to 14,410 futures and options, according to U.S. Commodity Futures Trading Commission data published Friday. The holding, which measures the difference between bets on a price increase and wagers on a decline, is the most bearish since the data starts in 2006.

The short-only holdings jumped 9.3%, a fifth straight gain.

A winter wheat crop tour in Kansas in May also estimated big yield potential amid this year's wet weather. The good growing conditions are in contrast to what plants are facing in Europe, where a heatwave is scorching fields. That could eventually open the door for more U.S. exports, especially if the harvest shrinks in Russia, the top shipper.

Back in North Dakota, employees from companies such as Archer-Daniels-Midland Co., Ardent Mills and Dunkin' Brands Group Inc. used yardsticks to measure how many wheat plants were growing in a 3-foot row.

Austin Damiani, an independent futures trader based in Minneapolis, said the hard red spring wheat crop could get even bigger. Like last year, the tour is likely underestimating yields, he said in an email.

"For spring wheat in particular, I would say it is the only class of U.S. wheat that is building stocks year over year and supplies remain abundant," Damiani said.

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This is article was written by Michael Hirtzer, a reporter for Bloomberg.