(Agrimoney) – Hedge funds showed further signs of unwillingness to extend their negative take on agricultural commodities, with increased bearishness in corn and soybeans matched by more positive takes in cotton and sugar.
Managed money, a proxy for speculators, lifted its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by 1,960 contracts to 251,765 lots in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
That represented a fourth successive week where the net long has remained in a range of 245,000-261,000 contracts, after a steady decline into early September from a figure of 1.13m contracts reached at the end of April.
The stability in the net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – has coincided with a period of improved performance for prices of many agricultural commodities.
However, Friday’s retreat in corn and soybean prices, following US Department of Agriculture upgrades in its monthly Wasde crop report to forecasts for domestic yields, has been viewed as a taster for a fresh step lower in values.
More selling to come?
In fact, hedge funds had already renewed taking a more bearish view on corn and soybean futures in the week to October 7 – ahead of the Wasde – selling into a price recovery, cutting their net long position in the grain by nearly 12,000 contracts, and lifting their net short in the oilseed by more than 9,000 contracts.
In corn especially, the more bearish take was down to a rise in negative bets – rather than closing long positions – with the gross short in corn futures and options rising by 12,236 contracts to more than 259,000 lots, the biggest in nine months.
Many investors still believe that corn and soybean prices face a fresh leg lower, with price lows often not reached, in bumper crop years, until the late-harvest period, after farmer hedging tails off, and as attention turns to risk premium for South America’s crops.
Cocoa also suffered from a speculative sell-down, by 12,474 contracts – the largest in eight years – as they took profits after a run-up in prices thanks to fears for the Ebola outbreak in West Africa, the biggest producing region for the bean.
‘Historically large net short’
However, hedge funds turned marginally less downbeat on Chicago wheat, cutting their short position below 68,000 lots, albeit with this representing a historically large position.
And they undertook more significant short-covering in cotton, by more than 7,000 contracts, amid ideas that a selldown in prices in late September, on concerns over Chinese imports, had been overplayed, given the competitiveness with other fibres.
“What had been an historically large and increasing net short hedge fund position retreated a bit, indicating some short covering,” said Dr John Robinson, cotton marketing specialist at Texas A&M University.
In raw sugar, hedge funds cut their net short by more than 15,000 contracts, encouraged by a slowdown in Brazilian production and after a smaller delivery than had been expected against New York’s expiring October contract.
Bull market in cattle
Managed money raised its net long in New York-traded arabica coffee by more than 4,500 contracts, helped by the fresh fears of damage to Brazil’s production prospects for 2015, after rains failed to arrive this month as had been expected.
Speculators lifted their net long position in live cattle too, fuelling a rise in prices which on Thursday took the October contract to 167.775 cents a pound, a record for a spot contract.
The latest wave of buying has been fuelled by a drop in US slaughter numbers as producers retain cows for breeding, with cow and bull slaughter down 16% since the start of September.
“The reductions in female cattle slaughter have led to the lower beef supply numbers. And this trend is unlikely to change anytime soon, not in a bear feed market,” said Paragon Consulting and Steiner Economics.
With a record US harvest in process, “we will likely see some of the lowest corn prices in the past five years.
“Keep in mind that lower corn prices tend to pressure prices lower for all other feeds, which is good news for cow-calf producers looking to carry their stock over the winter time.”
