(Agrimoney) – Hedge funds took a break from extending bearish bets on farm commodities for the first time since June, reflecting improved sentiment on soft commodities and livestock – but also on corn, which they appear to be spreading against soybeans.
Managed money, a proxy for speculators, raised its net long position in futures and options in the top 13 US-traded agricultural commodities, from soybeans to sugar, by nearly 29,000 contracts in the week to last Tuesday, the day after the US Labor Day holiday.
It was the first time in 10 weeks that hedge funds had raised their net long position – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – and only the second time since April.
And it came despite a further increase, to an eight-year high of 25,574 contracts, in the net short that speculators hold on Chicago soybean futures and options, amid growing expectations that the US crop will trounce yield and production records.
Record short
However, managed money raised its net long in Chicago corn futures and options by more than 12,500 contracts to 80,000 lots during the week, despite record US harvest expectations for this crop too, the data from the Commodity Futures Trading Commission regulator showed.
| Speculators’ net longs in grains and oilseeds, Sept 2, (change on week)Chicago corn: 80,116, (+12,523)Chicago soymeal: 47,915, (+14,626)Kansas wheat: 14,046, (+869)Chicago soyoil: -18,030, (-2,335)
Chicago soybeans: -25,574, (-3,634) Chicago wheat: -51,860, (-5,062) Sources: Agrimoney.com, CFTC |
Indeed, hedge fund’s gross long position, ie without taking account of short bets, hit a two-year high of 332,485 contracts, the opposite of what might be expected given expectations of a large crop, implying weak prices.
Conversely, speculators have raised their gross short in soybeans nearly to 136,000 contracts, the highest on records going back to 2006, and implying strong profits from further price falls which most brokers see as on the cards.
Prices typically bottom out during harvest, when investors remove the last of risk premium, and a spike in supplies swings market power to buyers.
Soybeans vs corn
What hedge funds may be betting on is a return of the soybean:corn ratio, which stood at a historically high 2.89:1 on Monday on a new crop basis, back to typical levels well below 2.5:1.
Soybean prices have been, relatively, supported by the tightness of stocks left over from last year’s harvest and the later occurrence of the crop’s sensitive pod-setting period, compared with corn’s vulnerable pollination phase which occurs in the US in July.
The short-term tightness of soybean supplies was also reflected on a jump of more than 14,000 contracts in hedge funds’ net long in futures and options in soymeal, the soy processing product at the heart of the demand for the oilseed.
Warmer on cocoa, coffee
Among soft commodities, hedge funds were broadly positive in their bets – bar cotton – raising their net long in futures and options in New York cocoa for the first week in three, and lifting their net long in arabica coffee to a six-year high.
The rally in arabica coffee futures regained momentum in late August, before a retreat late last week fuelled by a, relatively, upbeat estimate from Volcafe of the drought-hit Brazilian harvest.
Among livestock, managed money ended an eight-week spree of cutting its net long in Chicago lean hog futures and options, although this shift – in more distant contracts – proved premature.
Many lean hog futures contracts fell sharply later last week, on news of a vaccine against the porcine epidemic diahorrea virus (PEDv) which has curtailed US production.
