(Agrimoney) – Hedge funds’ unbroken bearish shift in bets on agricultural commodities in 2015 ended with the biggest swing bullish in positioning in 11 months, led by soybeans, cotton and sugar.
Managed money, a proxy for speculators, raised its net long position in futures and options in the top 13 US-traded agricultural commodities by more than 85,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.
It was the first time in seven weeks that hedge funds had raised their net long position in agricultural commodities
And the increase in the net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – was the biggest since March last year.
Soybean shorts covered
The switch reflected in part a cut of nearly 24,000 lots in hedge funds’ net short position in Chicago soybean futures and options, helped by rains which slowed the Brazilian harvest.
The change also came in the week after the release of the US Department of Agriculture’s latest Wasde crop report, which lowered the estimate for US soybean stocks at the close of 2015-16 by 45m bushels to 385m bushels – a bigger downgrade than the market had expected.
And it followed a rise in hedge funds’ net short in soybeans nearly to 40,000 contracts, among the most bearish positions in the oilseed in eight years, and a level which in the past, as in September last year, has prompted covering of short positions.
Extreme net short, or net long, holdings often inspire a reversal in such positioning, with investors wondering whether appetite for such bets is spent.
Cotton production downturn
Indeed, in New York-traded cotton, hedge funds took to a third week a spree of bullish positioning, after in late January building their biggest net short in more than two years.
Sentiment on cotton has improved with ideas that farmers in many major producing countries will slash plantings this year in response to prices which last month fell to their lowest since2009.
In fact, the USDA last week forecast an 11.8% decline to 9.7m acres in domestic sowings of cotton this year, and a drop of 2m bales in output –a similar drop as forecast from China, which was until this season the world’s top producer of the fibre.
However, futures have reacted somewhat bearishly to the data, which showed a bigger US cotton sowings estimate than expected by, for example, the National Cotton Council.
‘Good rains’
Hedge funds also slashed their net short in New York raw sugar futures and options substantially – by 30,928 lots, the biggest bullish shift in 11 months – although this has proved an unprofitable call.
Since last Tuesday, raw sugar futures have tumbled more than 5%, dented by India’s decision to approve an export subsidy on the sweetener, besides by the fall of much-needed rains in Brazil’s key Centre South region.
“Good rains fell all over the area last week, ending talk of a second drought,” London broker Marex Spectron said.
Ideas of Brazilian rain have already reduced hedge funds’ appetite for bets on rising arabica coffee futures, with their net long cut in the latest week to a one-year low of 16,048 contracts.
