Hedge funds’ ag selling stalls – except in wheat

(Agrimoney) – Hedge funds’ trend of bearish positioning on agricultural commodities stalled, although there were signs this may be down to profit-taking on short positions, while wheat remained firmly out of favour.

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 1,249 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

The increase in the net long – the extent to which long positions, which profit when prices rise, exceed short bets, which benefit when values fall – was the second in three weeks, interrupting a downward trend in place since April.

Then, the net long peaked at 1.17m contracts, compared with the 261,000 lots as of last Tuesday.

Profitable short positions

The increase in the net long contrasted with a fall in prices over the week for all but one of the contracts, Chicago soyoil, which rose 4%.

Kansas City-traded hard red winter wheat was the worst performer, down more than 6%.

It appears that for the likes of corn, in which hedge funds raised their net long position, and soybeans, in which they reduced their net short, the moves were down to speculators taking profits by selling into the falling market.

Short positions have realised large profits, and covering such bets was also encouraged by some talk of frost damage to US crops.

Details of the CFTC data show that hedge funds reduced their gross short positions in futures and options in both corn and soybean , while making only marginal increases in long holding.

Downbeat on wheat

In New York-traded cotton, an increase in the net long to a two-month high of 5,430 contracts was also down to a reduction in short positions, which have actually since August not provided the hefty profits they did in the previous three months.

However, in wheat, hedge funds showed a greater appetite for bets on falling prices, raising their net short in Chicago-traded soft red winter wheat to 67,266 contracts, not far short of the record net short of 73,088 contacts set in January.

For Kansas City-traded hard red winter wheat, the managed money net long fell by more than 5,000 contracts to 7,729 lots, the lowest since January, driven by an increase in the gross short position to a seven-month high of 29,008 lots.

Rabobank noted that wheat futures last week ” lost the most of the agri commodities, as plentiful world supplies and competitive Russian exports pressured prices across the exchanges,” in a trading week also influenced by a US Department of Agriculture upgrade to world wheat production ideas.

Nonetheless, extreme hedge fund positioning – short or long – tends to raise investor nerves about the extent of the unspent appetite for more such bets, and can fuel reversals to the price trend.

Wheat futures indeed rose in early deals on Monday, the first trading session since the release of the CFTC data.

Upbeat on livestock

Hedge funds took a more upbeat view of most livestock futures, reflecting moves in both long and short positioning, amid ideas of constrained hog and cattle supplies with demand periods of Thanksgiving and the year-end holiday season on the horizon.

Already, US ground beef prices last month rose above $4 a pound for the first time.