Hedge funds eschew net short on ags, as sugar’s appeal grows

December 1st, 2015

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Category: Grains, Oilseeds

Sugars-Full(Agrimoney) – Hedge funds shied away from a return to a net short position in agricultural commodities thanks to a capitulation by bears on sugar, offsetting a rise in bearish bets on soybeans and soymeal fuelled by Argentina’s elections.

Managed money, a proxy for speculators, raised by more than 12,000 contracts its net long position in futures and options in the main 13 US-traded agricultural commodities in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC) regulator.

The increase lifted the net long position – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – to more than 20,000 contracts from the 8,242 lots the week before which represented an unusually low level by historical standards.

Until 2015, hedge funds had only been net short once in the top US-traded ags, for one week in August 2013, with the default position a net long position which has topped 1m lots, most lately in spring last year.

Argentina worries

In fact, hedge funds maintained their selling in grains, driving their net short in the complex, including soybeans and soybean products, to nearly 227,000 contracts.

That represents a sharp turn bearish in positioning, with hedge funds holding a net long in grains of 19,000 lots four weeks before.
However, the growing chance of Mauricio Macri winning the presidential elections in Argentina – as he did two weekends ago – has shattered sentiment in the soybean complex, in likely heralding the relaxation of crop taxes which have spurred farmers to create a hoard of unsold soybeans estimated by some observers above 15m tonnes.

Hedge funds raised their net short in soybean futures and options nearly to 53,000 lots, a five-month high.

And with Argentina the top exporter of soymeal, the prospect of extra domestic processing and export supplies of the feed ingredient has spurred a mass turn bearish on the soy product too, with the managed money net short hitting 24,266 – the highest since December 2011.

Downbeat on wheat

Hedge funds also extended their bearish bets on corn and wheat, lifting their net short in corn to a six month high just short of 100,000 lots, amid ideas of ample supplies.

In wheat, speculators’ net short in Kansas City-traded hard red winter wheat rose for a sixth successive weak – matching the longest bearish streak in four years – to a fresh record high of 24,115 lots as US Plains rains reduced fears of drought damage to drop seeded for the 2016 harvest.
Nonetheless, there is some feeling that the extent of short bets on wheat has rendered it top heavy, with broker Benson Quinn Commodities seeing concerns over the potential for a mass of short covering as “a factor” in a rise in prices on Monday.

In Chicago wheat too, the extent of the fund short “merits some consideration before adding to shorts at these levels”, the broker added.

Softs appeal

However, these selldowns were more than offset by a rise in bullish bets on sugar, as the prospect of a world production deficit in 2015-16 loomed ever larger, and with fresh concerns over drought damage to Indian cane diluting fears of the country returning in earnest to exports of the sweetener.

Hedge funds raised their net long in New York-traded raw sugar to 176,002 lots, the highest in two years.
Speculators also trimmed their net short in arabica bean futures, for the first time in six weeks, amid some doubts over whether Brazil’s overall coffee harvest in 2016 will reach the 60m bags that many commentators have pencilled in.

Rabobank noted that the arabica futures rebounded 5.3% during the week “to erase early November losses, following reduced trade expectations for Brazil’s 2016-17 crop”.

And in New York cocoa, the managed money net long rose for a fourth successive week, amid a weak start to 2015-16 for deliveries to Ivory Coast, the top producing country.

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