(Agrimoney) – Hedge funds’ bearish betting on agricultural commodities soared to the highest on record, led by selling in grains – spurring ideas of price support for some contracts as speculators’ reassess such downbeat positioning.
Managed money, a proxy for speculators, lifted its net short position in futures and options in the top 13 US-traded agricultural commodities, from corn to cattle, by more than 78,000 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
The selling took the net short – the extent to which short holdings, which benefit when prices fall, exceed long bets, which profit when values rise – to more than 142,000 contracts, far exceeding the previous record of 102,126 lots set a month ago.
Softs vs grains
Analysis of the data again highlighted a continued gap in sentiment towards soft commodities, in which speculators are cutting their bearish exposure, and grains, in which they hiked their net short by nearly 120,000 contracts to 215,584 lots.
That figure for the combined net short in hard wheat, soft wheat, corn, soybeans, soymeal and soyoil far exceeded the previous record high of 146,000 contrasts, set in August 2013.
Then, the record bearish positioning heralded a sharp reversal in hedge fund positioning, with managed money turning net long by 120,000 lots on grains within a month.
Indeed, record net short, or net long, positions tend to make investors wary about extending such bets, for fear of being late on the trade, and vulnerable if a profit-taking wave drives a reversal in prices.
And investors voiced expectations that prices may receive support from short-covering this time too, especially in soybeans and wheat, in which net short positions hit record high.
Wheat price support?
Commerzbank said that while speculators “evidently believe that the supply of wheat – after two years of surpluses of 11m tonnes each according to USDA figures – is very plentiful”, there were “fundamental reasons” why hedge funds should cover some short positions.
“For example, the wheat market balance could prove significantly tighter in the 2015-16 season – the International Grains Council even anticipates a small deficit at present,” the bank said.
“We therefore expect the wheat price to soon settle down at above $5.00 per bushel again.”
Chicago wheat futures for July, the best-traded contract, stood at $4.92 ¾ a bushel in early deals on Monday, up 0.7% on the day.
‘Look for more short covering’
In soybeans, broker Benson Quinn Commodities highlighted that it appeared that hedge funds had already covered many of the short positions which had taken their net short to a record high.
Open interest, a measure of the number of live contracts, “has tumbled since” as the “speculative fund takes profits on shorts”, said Benson Quinn’s Kim Rugel.
Regulatory data showed a drop of nearly 35,000 lots in open interest in Chicago soybean futures since the close on Tuesday.
Nonetheless, “by the size of Tuesday’s spec short and open interest levels in the options, look for more short covering” this week, Ms Rugel said.
‘Beginning to worry’
Among soft commodities, hedge funds continued in the week to Tuesday to cut short positions in New York-traded raw sugar, reducing their net short to a two-month low, amid concerns of wet weather hampering the start of the Brazilian Centre South cane harvest.
Raw sugar prices have recovered strongly from a six-year low of 11.91 cents a pound reached at the end of last month.
And in cotton, the managed money net long soared above 50,000 contracts for the first time in nearly a year, amid continued concerns over rains slowing sowings in the US South.
“Weather forecasters are now beginning to worry about a prolonged delay to cotton planting in the US [Mississippi] Delta and South East regions,” said Tobin Gorey at Commonwealth Bank of Australia.
“The weekend has been very wet and forecasts suggest there will be little opportunity to dry off in the next week to week and a half.”
