(Agrimoney) – Hedge funds, bruised by wrong bets on corn and soybean price rises, continued to make up for lost time in going short on grains – just as going long is looking the profitable bet.
Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities by 134,806 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.
It was the second successive week that hedge funds had cut their net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – by nearly 135,000 contracts, an unusually large amount.
And it was led again by a drop in grains and oilseeds, in which hedge funds lifted their net long positions to elevated levels last month – only for a turn benign in world weather, and a rise in the dollar, to send prices tumbling.
In Chicago-traded futures and options grains and soybeans and soy products, hedge funds halved their net long in two weeks to 234,698 contracts, a rate of bearish positioning only exceeded once before, in September 2011.
Wrong footed again?
The selling fuelled a slide in prices of wheat in particular, which in Chicago fell by more than 3% over the week to set a six-week closing low last Tuesday, and fell by more than 4% for Kansas City-traded hard red winter wheat futures.
However, ironically, just as hedge funds were wrong-footed by the July tumble in grain prices, they may have been too quick to sell too, with prices recovering this month.
A turn drier in the US Midwest weather, combined with worsened outlooks for the likes of the European Union and Ukraine too, has helped corn futures for December, the best-traded contract, recover by some 2.6% since last Tuesday.
Soybean futures for November have bounced by 3.0%, given extra impetus by strong Chinese import data and expectations that the US Department of Agriculture will, on Wednesday, cut estimates for both the domestic yield and sowings of the oilseed.
‘Providing underlying support’
The very extent of the selling by hedge funds has also encouraged buying, in reducing the overhang of managed money long positions which had been spooking the market.
Long positions, after all, represent unfulfilled selling pressure.
“The large drop in fund long positions is providing underlying support” to grain prices on Monday, said Paul Georgy, president at Chicago broker Allendale.
‘Bearish bias’
In New York-traded soft commodities, hedge funds slowed their rate of selling, after a hefty turn negative already in sugar and coffee – bets which have proved more lucrative, with prices of futures in both contracts being undermined by the weakness of the Brazilian real.
In fact, some hedge funds took profits in the softs, allowing for a reduction in net short positions – particularly in coffee, for which there has been some talk of the Brazilian crop falling well short of market expectations.
However, hedge funds cut their net long in New York cotton for a fourth successive week – a move justified by a tumble in best-traded December futures to their lowest in seven months on Monday, spurred by a poor reaction to US export sales data last week and to concerns over chart signals.
“The standard technical bias… remains bearish with the December contract again [on Friday] settling well below all of its most-referenced simple moving periods,” said Louis Rose at the Rose Report.
“In addition the prospect of a large crop in India, where a record area is to be cultivated, is depressing prices, as is better weather than expected in an El Niño year,” said Commerzbank.
Cattle vs hogs
In the livestock complex, hedge funds cut their net long in Chicago-traded futures and options to a two year low, led by a further cut to bullish positioning on live cattle, amid concerns of high beef prices having turned consumers towards pork and chicken instead.
Indeed, managed money cut its bullish positioning in live cattle for an eighth successive week for the first time since early 2013, taking the bet long below 20,000 contracts for the first time since April 2013.
By contrast, in lean hogs, speculators raised their bullish bets for a fourth successive week.
