(Agrimoney) – Hedge funds bet on further declines in ags in 2016, even after a year termed by the Bcom as the “most destructive crash in a generation” for commodities as a whole, helped by 19% losses for grain and livestock bulls.
Managed money, a proxy for speculators, undertook a hefty selldown in the top 13 US-traded agricultural commodities in the week to December 29, to return to a net short position which has been unusual by historical standards, analysis of regulatory data overnight reveals.
The net short position, while at 8,415 lots modest in scope, represents a sharp turnaround from the net long of more than 190,000 contracts only two weeks before, the data from the Commodity Futures Trading Commission (CFTC) show.
Indeed, it follows six months of net long positions – meaning that long bets, which gain when prices rise, exceed short holdings, which profit when values fall.
‘Destructive commodity crash’
The negative thinking also comes at the end of a year when commodities fell for a fifth successive year, this time by 25%, as measured by the Bloomberg Commodity Index (Bcom), which termed 2015 “the most destructive commodity crash in a generation”.
As measured by Bcom, only cotton among major commodities posted a positive 2015, of 3.0%, although raw sugar futures did gain on a spot contract basis over the year, while the index does not include the likes of cocoa and palm oil, which also made headway.
Soft commodities as a whole lost 9.9%, according to Bcom, which pegged losses in livestock at 18.8% and in grains, which dropped for a third successive year, at 19.4%.
Even so, hedge funds are betting heavily on further declines in grain prices, according to the CFTC data, which show managed money hiking its net short in grains, including the soy complex, by 112,328 lots in the latest week to 277,669 lots.
That puts the position within striking distance of the record high of 304,974 lots reached in May last year.
‘Could spark a countermovement’
Indeed, the extent of bearish positioning on grains raised some concerns among investors that hedge funds’ appetite for such bets may now be spent, with speculators wary of putting further money behind what might appear a “crowded” investment.
“Short-covering could spark a countermovement at any time,” said Commerzbank.
US broker Benson Quinn Commodities termed the CFTC report “bullish”, saying it “could offer some support [to prices] as funds were notably short wheat and soybeans”.
Speculators lifted their net short in Chicago soybean futures and options to a six-month high.
‘Exercise caution’
In wheat, hedge funds lifted their net short by nearly 16,000 lots to 83,120 contracts, the largest in seven months.
“This is still well below last spring’s record short of more than 111,000 lots, though wheat has continued to see heavy selling since last Tuesday,” Jonathan Watters at Benson Quinn Commodies said.
“Market structure certainly indicates that shorts should begin to exercise caution.”
Meanwhile, for corn futures, the data could “offer some support”, the broker said, noting that “funds piled into the short side”.
Managed money hiked its net short in corn by more than 53,000 lots to 136,111 contracts, a level exceeded only once – and narrowly – in the past two years.
‘Caught a bit short’
In New York-traded soft commodities, however, hedge funds retained a substantial net long position, of 244,590 lots, down a modest 10,364 lots week on week.
The decline reflected in the main a drop in their, historically large, net long position in raw sugar, amid late-year profit-taking evident also in a drop in overall open interest – the number of live contracts – which fell by some 15,000 lots to 1.13m contracts.
By contrast, in Chicago livestock contracts, speculators lifted their net long position by 4,511 lots to a seven-week high of 24,664 contract, amid a revival in cattle prices helped by data showing record low placements of animals for fattening on feedlots, and by a rebound in US cash prices.
“It would seem that packers were caught a bit short at the end of the year and had to come in and cover their needs at much higher prices,” Paragon Economics and Steiner Consulting said.
“But there is plenty of uncertainty as to whether the current trend will be sustained in the new year.”
