(Agrimoney) – Hedge funds all but wiped out their net long position in derivatives in the main agricultural commodities, led by selldowns in coffee, and in wheat, in which unexpectedly bearish positioning could set the scene for a price bounce.
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 cotton, by a little over 59,000 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
The decline took the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – to 8,242 contracts, the smallest in five months, and well down on the net long of nearly 350,000 lots held a month ago.
And it reflected in the main a selldown in the major grains, in which ideas of ample world supply and strong competition for orders – in particular since an upgrade two weeks ago to official estimates for US inventories – have undermined sentiment.
‘Could cause a reaction’
Indeed, the sales were so large that they raised some ideas that hedge funds might be reluctant to add to their short positions for now, for fears of overegging bearish bets.
In Chicago corn, in which speculators raised their net short position by more than 26,000 lots to a four-month high of 84,663 lots, the extent of the selldown was deemed “mildly supportive” for prices by Benson Quinn Commodities.
And increases in net short positions in wheat were “much larger than expected”, the US-based broker said, adding that the data “could cause a reaction” in markets on Monday.
In Chicago soft red winter wheat, hedge funds raised their net short position by more than 20,000 contracts, to 41,409 lots.
In Kansas City hard red winter wheat, managed money raised its net short 23,101 lots, the highest on records going back to 2006.
Negative on meal
Within the oilseeds complex, hedge funds expanded their net short in soymeal to approaching 15,000 lots – the most bearish positioning, bar one, in four years.
Sentiment on soymeal has been hurt by ideas of improving supplies in the US and, in particular, China, the top soybean-importing country, where soymeal futures on the Dalian exchange last week hit an eight-year low, on a spot contract basis.
In soybeans themselves, hedge funds modestly cut their net short position, for the first time in four weeks, “rather than increasing them” as many traders had expected, Benson Quinn said.
Indeed, ideas that speculators had increased “heavily” their net short position in soybean futures and options fuelled a price rise on Friday.
Coffee shorts
Among soft commodities, sentiment was less gloomy overall, with speculators raising their net long position in New York cocoa to a three-month high of 43,348 lots, amid a rally spurred by fears raised by lower-than expected arrivals of beans to ports in Ivory Coast, the top producing country.
New York cocoa futures on Friday topped $3,400 a tonne for the first time since April 2011, on a spot contract basis.
However, on arabica coffee, hedge funds hiked their net short position to a two-year high of 27,992 contracts.
That bet has not served speculators well, with best-traded March 2016 futures up more than 5% since then, putting recent short bets out of the money.
Scramble for beans
Arabica prices have found support in observations of shrinking inventories of beans being held for delivery against New York futures, as well as lingering concerns over the knock-on effect of poor Brazilian weather early this year.
“Experts have pointed out that the productive potential of the [Brazilian] national coffee crop will not be achieved in 2016, due to the predominance of heat and drought in the early spring, ” said Silas Brasileiro, chairman of Brazil’s Conselho Nacional do Café producers’ group.
Separate CFTC data, on commercial investors, showed them taking – unusually – a net long position in coffee, with a shift long in positioning of 7,311 lots, net of short holdings.
Indeed, at 4,805 lots, the net long in New York arabica coffee hit a record high, according to Rabobank, which said that commercial investors had been raising their exposure through futures “as they ran low on physical coverage”.
