(Agrimoney) – Hedge funds made the most bearish shift on their bets on agricultural commodities in four months, including a large negative shift in soybean positioning which left speculators “pantsed” by the price recovery late last week. Managed money, a proxy for speculators, slashed by more than 58,000 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 cut in the net long – the extent to which long bets, which profit when prices rise, exceed short ones, which benefit when values fall – was the biggest since July. However, it proved of mixed success in positioning funds for price changes during a volatile week after the Thanksgiving holiday.
Reduced fears In New York-traded raw sugar, in which hedge funds raised their net short by more than 22,000 lots to 58,268 contracts – an elevated, if not unprecedented, level – the positioning proved somewhat profitable, with futures down 0.7% since then.
While the sugar cane harvest in Brazil’s key Centre South region is winding down, seasonally, a little earlier than usual the drop has not proven as premature or dramatic as some cautions earlier in the year suggested.
Indeed, some commentators have nudged higher their estimates for Centre South cane and sugar output in 2014-15. Australia-based consultancy Green Pool, citing also improved Indian production hopes, last week ditched an expectation of world sugar consumption exceeding output in 2014-15, instead forecasting a 360,000-tonne surplus.
Furthermore, the drop in oil prices to five-year lows has cut prospects for values of ethanol, which competes with sugar for cane. ‘Got pantsed’ However, in Chicago corn futures and options, hedge funds appeared a little premature in cutting their net long for the first time in two months, by nearly 10,000 contracts – despite this crop too being a big raw material for ethanol plants.
Futures have risen 3.6% since Tuesday, lifted by persistent demand for US exports, besides by gains in fellow row crop soybeans – a rival in the South American sowings currently taking place.
Indeed, soybeans have gained 4.0% since Tuesday, catching out hedge funds who slashed their net long in the oilseed by nearly 23,000 contracts during the previous week, the biggest turn negative in positioning since June.
“To make us feel better about this week’s reversal higher [in prices], the funds got pantsed by the move as well,” said Kim Rugel at Minneapolis-based broker Benson Quinn Commodities. By contrast, speculators would have fared better by keeping their net short in Chicago wheat futures and options, rather than cutting tit to a six-month low, with prices of the grain falling in the latter half of last week. Investors have removed risk premium in wheat as concerns have eased over an immediate squeeze on Russian exports, which had looked in the works, with officials talking of moves to bar shipments on quality grounds – viewed as, in reality, an effort to preserve domestic supplies and attempt to curb soaring food inflation.
Winning bets However, hedge funds proved on the money in cutting their net long in arabica coffee by more than 3,000 contracts to 37,632 contracts, the lowest since September, with prices easing a further 1.8% since Tuesday, undermined by concerns over the index fund reweighting early next year.
This could see a huge selldown by index funds, as they cut their exposure on coffee back to levels suggested by the index they follow, Societe Generale believes. They also moved in the right direction in cutting their net long in Chicago live cattle, futures in which fell by 2.5% in the latter half of last week, undermined by signs of softness in cash markets and by the fall of the December and February contracts below their 50-day moving averages. “The last time that happened it was back in August when the drop below technical support levels led to a wave of selling,” Paragon Economics and Steiner Consulting said.
