(Agrimoney) – Hedge fund selling in agricultural commodities accelerated, to an extent that raised questions over the appetite for more short bets in soybeans – although in wheat, speculators’ liquidation may prove “self-fulfilling”.
Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by nearly 90,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.
The sell-down was the biggest in six months.
And it reduced the net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – below 350,000 contracts for the first time since October.
Bearish bets
The turn bearish in sentiment was led by the big Chicago contracts, with hedge funds cutting their net short in corn by more than 27,000 contracts to just under 170,000 lots, the biggest selldown in eight months.
With sentiment on the grain undermined by the strong dollar – which is seen as requiring lower prices to US boost export prospects versus Ukraine in the short term, and against South America once its harvest ramps up in earnest – speculators now have their lowest gross long position in corn since March.
In Chicago soybean futures and options, hedge funds raised their net short position by more than 25,000 contracts, taking it above 33,000 lots, returning close to the eight-year high of 39,786 contracts reached in September.
Indeed, the extent of the selling already undertaken, encouraged by an improved South American weather outlook, besides the stronger dollar, raised doubts over the appetite for further hedge fund short positions in the oilseed.
‘Could slow selling’
“The speculative funds have reversed a neutral to slightly long position built into the first half of January to one that is back to approaching last September’s… large short,” said Kim Rugel at Benson Quinn Commodities.
“The soybean market has been run over by short-selling,” she said noting the pressure on prices from “record world supplies, with the Brazil harvest under way”.
However, Ms Rugel also noted that the market was “technically oversold”, and that funds’ build-up already of a hefty short position “could slow selling with start of the new month”.
“But with support well below current values at $9.20 a bushel basis the March, I would expect one more week of selling before finding a bottom.”
‘Self-fulfilling selldown’
In wheat, hedge funds also extended a net short position, by more than 9,500 contracts, taking it above 12,000 lots.
However, with that remaining well below the record net short position of 78,928 lots reached in September, the balance on its own was not seen as a deterrent to further selling in the grain – and in fact could yet attract further liquidation.
At Commonwealth Bank of Australia, Tobin Gorey said that the “step-up in short positions” suggests that “possibly, weak price momentum is attracting new sellers.
“Weakness in this case can become self-fulfilling.”
Cool on cocoa
Among soft commodities, hedge funds expanded their net short in cotton by 1,181 lots to 8,512 contracts – the biggest such position in more than two years, amid continued doubts over China’s appetite for imports, and sales by India of fibre from state reserves.
And in New York cocoa, hedge funds slashed their net long by more than 12,000 contracts, as data showing strong deliveries in Ivory Coast, the top producing country, further eased concerns over supplies initially eased by a set of downbeat Asian, European and North American grind statistics.
“Better-than-expected arrivals in Abidjan dissipated any doubts on the correct size of the 2014-15 Ivorian cocoa crop and triggered a long liquidation,” Rabobank said.
In the livestock complex, hedge funds cut their net long in live cattle below 60,000 contracts for the first time in 16 months despite official data showing the number of animals on US feedlots below market expectations.
