(Agrimoney) – Hedge funds cut their bullish positioning on agricultural commodities, but not nearly as much as investors had expected – buying into a falling grains market in a strategy which is looking ill-judged.
Managed money, a proxy for speculators, reduced its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to cattle, for the first time in six weeks in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.
A decline in the net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – had been expected given the decline in prices of most ags over the week.
However, the small extent of the fall in the overall net long, of 3,183 contracts to 566,096 lots, surprised many investors.
Indeed, it included a further rise in bets on corn and soybean price rises, even as futures fell – and have continued to decline since, making speculators’ optimism appear ill-timed.
Contrary move
In soybeans, hedge funds raised their net long by 5,115 lots to a 13-month high of 90,219 contracts, in a week when Chicago’s best-traded November futures contract fell by 2%, as improved weather reduced concerns for the US crop.
Indeed, the market had expected the data to show a drop in the net long to some 77,000 lots, according to ADM Investor Services.
In corn, the managed money net long soared by nearly 77,000 lots to 279,665 contracts –a big contrast with the decline to some 181,000 lots that investors had forecast.
“Managed money funds were defending their position by adding to net longs in corn,” broker Allendale noted.
The rise came even as futures continued to fall, with the latest calendar week indeed proving the weakest for prices in a year.
‘Ownership at too high a price’
With futures continuing to decline on Monday, the increased long position looked to have left hedge funds’ optimism in the row crops looking increasingly unprofitable, with declines in futures below moving averages from 10-day lines to 200-day suggesting losses on both long-term and short-term positions.
Indeed speculators “continue to struggle with net ownership at too high a price in corn and soybeans,” said Nicholas Sax at Benson Quinn Commodities.
“The series of new lows for the move gives the buyer little incentive to pay these prices and no incentive to pay up at this point.”
Sugar sell-down
Hedge funds did cut their bullish bets on Chicago wheat futures and options as prices fell, the regulatory data showed, although the reduction in the net long here was, at 11,816 contracts, half the decline that the market had expected.
The biggest reduction was seen in raw sugar, in which managed money turned net short again, with its largest shift bearish in positioning in nearly four months, and a profitable bet given the fall in October futures on Friday to a contract low.
Sugar prices are coming under pressure from continued thoughts of strong supplies, fuelled by ideas of strong inventories in Thailand and reduced worries over the impact of El Nino on stemming Indian rainfall.
The weakness of the real against the dollar has also undermined prices, cutting the value in dollar terms of assets in which Brazil is a major force and meaning, as Marex Spectron said on Monday, that “Brazilian producers can continue to hedge the forwards and lock in prices well above their direct costs”.
Bulls quit cattle
Speculators were also notably downbeat on live cattle futures and options, reducing their net long strongly for a second successive week, to a 22-month low of 38,020 lots.
The two-week decline of nearly 38,000 in the net long in live cattle futures and options is the biggest for any fortnight on records going back to 2006.
The drop comes amid a decline in beef prices from elevated levels which are seen as having discouraged consumption, and amid ideas too of an easing in tight US supplies of fattened cattle.
US Department of Agriculture data on Friday showed a 2% rise, year on year, in the number of fattened cattle on US feedlots as of the start of this month, and of a 2% rise in the overall cattle herd too.
