Hedge Funds End Longest Buying Spree in Grains for 11 Years

(Agrimoney) –  Hedge funds returned to being net sellers in agricultural commodities for the first time in two months, in part as weather worries eased, although the extent of the selling raised ideas that buying awaits in some contracts.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by 95,386 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

The cut in the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – was the first in eight weeks, ending a run of buying which matched the longest in nearly four years.

The buying spree – spurred by worries over dryness in Argentina and the US southern Plains, besides by concerns over West African cocoa output, and by broader ideas of ags being undervalued – had turned speculators from a record net short of 393,914 lots to a net long of nearly 550,000 contracts.

Grains selling

However, in the latest week, grains suffered selling as rains in Argentina and the southern US Plains eased crop concerns, with moisture seen particularly likely to boost prospects for US winter wheat, which is still early in its growing season.

In grains, including the soybean complex, the managed money net long fell by 68,063 contracts in the latest week, after an eight-week net buying spree which had matched the longest since late 2006.

Chicago soft red winter wheat – speculators’ favored wheat contract – suffered net selling of 20,523 lots, with corn marginally behind on 19,832 lots.

Positioning ‘extremes’

However, more comment surrounded the selling in the soft commodities complex, in which speculators extended their net short by 8,506 contracts despite continued buying in cocoa.

The hedge fund net long in New York cocoa futures and options rose to a 19-month high of 40,549 contracts, buying spurred by the West Africa supply worries, but purchasing which Societe Generale cautioned had left the contract “extreme overbought” and “extremely vulnerable to profit taking”

By contrast, in sugar – in which speculators raised their net long to 147,181 contracts, the second largest on record – the bank restated a warning that the contract was “extreme oversold” and “extremely vulnerable to short covering”.

SocGen added that while sugar prices have been “drifting sideways, suggesting fresh momentum money could now wane”, with cocoa prices “continuing to break new highs, this is unlikely to be the case.

“As such, sugar would perhaps appear more vulnerable to short covering, than cocoa to long liquidation.”