Hedge fund enthusiasm for ags rises even as sentiment sours

August 18th, 2014

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Category: Grains, Oilseeds, Sugar

(Agrimoney) – Agricultural commodities are becoming a more popular bet with hedge funds but for the prospects of profiting from price falls official data showed, revealing another reduction in particular in sentiment on cotton and sugar.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to coffee, by nearly 30,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

The reduction took the net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – below 300,000 contracts for the first time since January.

It also represented the 14th reduction in 15 weeks, cutting the net long from more than 1.1m contacts at the end of April.

Rising exposure

However, the reduction reflects a drop in sentiment rather than in interest in betting on agricultural commodities, the data reveal, with the number of active contracts – the so-called open interest – up by nearly 300,000 contracts since the end of April.

“Open interest continues to rise,” said Rabobank, whose data highlight the change.

The biggest rise in open interest has been in the row crops, of some 238,000 contracts in corn and 189,000 contracts in soybeans, as increased yield prospects have increased expectations of lower prices, and indeed weighed on futures.

Hedge funds in the week to last Tuesday raised their gross short in corn above 250,000 contracts for the first time since January.

Biggest draws

However, there has been a big rise in open interest in New York raw sugar too, of 114,000 contracts, again weighted towards bets on lower values.

Hedge funds raised their gross short in raw sugar futures and options above 200,000 contracts in the latest week for the first time in six months, raising it by 20,000 lots, far exceeding the small increase in the gross long.

In Chicago wheat, the increase in open interest has been of 76,000 contracts, again weighted towards short positions, although the latest week saw some further short-covering from the elevated levels reached late in July.

In the livestock complex, the biggest rise in open interest has been in lean hogs, by nearly 43,000 contracts, again fuelled by a rise in short bets, as factors including heavier slaughter weights and softer consumer demand for pork have undermined sentiment.

Chicago lean hogs for October stood at 94.975 cents a pound in early deals on Monday, down 20% from an early-July high.

Cotton shorts

Open interest is in fact higher in all the major US-traded agricultural commodities bar Chicago live cattle futures and options and New York arabica coffee.

For cotton, the increase has been a relatively small 13,500 contracts – although again tilted towards short holdings.

Hedge funds in the week to Tuesday expanded their net short in New York cotton to the biggest since November 2012, fuelling by an increase in the gross short nearly to 40,000 contracts for the first time since then.

Hedge funds have now turned more bearish in positioning on cotton for eight successive weeks, matching the longest losing streak on records going back to 2006.

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