(Agrimoney) – Hedge funds reduced their bullish positions on grains and coffee, and raised bets on sugar price falls to the highest in 17 months – but ended 2014 far more upbeat on agricultural commodities than they began it.
Managed money, a proxy for speculators, reduced its net long in Chicago-traded soft red winter wheat futures and options in the week to last Tuesday for the first time in five weeks, data from the Commodity Futures Trading Commission regulator shows.
The drop reflected the “clarity on Russian wheat export tariffs to be introduced on February 1”, Rabobank said, a move which, in easing uncertainty over shipments, spurred a drop in prices too.
Hedge funds also reduced their net long – the extent to which long bets, which profit when values rise, exceed short positions, which benefit when values fall – in Kansas City-traded hard red winter wheat, as well as in Chicago corn.
‘Very close to a record net short’
More dramatic negative positioning occurred in New York raw sugar futures and options, in which hedge funds raised their net short position by nearly 9,000 contracts to 66,824 lots – the biggest since July 2013.
“It seems there is still a bearish fundamental consensus based on expected price weakness caused by [increasing] Indian/Thai crop expectations,” said Tom Kujawa, co-head of softs department at Sucden Financial.
“But the funds very close to a record net short in sugar,” he added, a factor which can provoke buying by investors considering that appetite for bearish bets on prices is nearly spent, and with the market vulnerable to a spike in values if speculators are persuaded to close their short positions.
Hedge funds also cut their net long in New York-traded arabica coffee by nearly 4,000 contracts to a 10-month low of 25,385 contracts, amid ideas of rains improving prospects for Brazil’s 2015 harvest, but also amid concerns of a mass sell-down by index funds during this month’s annual reweighting process.
Funds following the two main commodity indices will sell the equivalent of 47% of average daily arabica trading volumes during the January 8-14 reweighting process, according to Societe Generale.
Vegetable oil buying spree
Nonetheless, hedge funds positioning overall on agricultural commodities proved marginally more positive in the latest week, lifted in particular by a swing positive in positive positioning on soyoil.
Managed money hiked its net long in Chicago soyoil futures and options by more than 14,000 contracts to a two-year high of 35,047 contracts amid concerns that Malaysian flooding would stem supplies of rival vegetable oil palm oil.
Kuala Lumpur palm oil futures “rallied 3.4% week on week, following monsoonal flooding across Malaysian production regions”, Rabobank noted.
“Despite the declining crude price,” in theory a negative influence on values of vegetable oils, which are used largely to make biodiesel, “Chicago soyoil followed palm higher and rallied 2.2%”, the bank added.
Year-on-year changes
Hedge funds also ended 2014 far more upbeat on agricultural commodities than they began it – with an overall net long of 552,499 contracts in the top 13 US-traded contracts as of last Tuesday, compared with 220,884 lots at the end of 2013.
Coffee, corn and wheat accounted for much of the increase in the net long, helped by reduced production supply compared with a year ago, after drought hurt Brazil’s arabica output, while US growers are expected to slash corn sowings this year.
Speculators ended 2014 more downbeat particularly on soybeans, given prospects of large US plantings, sugar, prices of which have been weighed by successive seasons of production surplus, and cotton, after Chinese subsidy changes which are expected cut the country’s imports.
However, hedge fund positioning is not necessarily a good price predictor, as highlighted by arabica coffee, the top performer in agricultural commodities of 2014, in which speculators entered the year with a net short position.
Hedge funds also reduced their overall interest in ag commodities over 2014, with open interest – the number of live contracts – falling some 230,000 contracts to 1.35m lots, according to Rabobank.
