(Agrimoney) – Hedge funds, after a one-week break, resumed their bearish trend of positioning on agricultural commodities, with grains and sugar taking the brunt of the selling.
Managed money, a proxy for speculators, cut by more than 30,000 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.
It was the seventh time in eight weeks that hedge funds have cut their net long position – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when values fall.
And it reflected selling in a handful of contracts, including New York-traded raw sugar, in which hedge funds – ruing a wave of short-covering the previous week, which proved premature – returned to betting on price falls.
‘More pressure on the price’
Indeed, managed money’s net short position in raw sugar futures and options rose by 30,875 contracts – nearly exactly the same number as it fell by the previous week.
The latest sell-offset came as futures set a succession of four-year lows, undermined by India’s decision to resume sugar export subsidies, and by rains which eased concerns over dryness in Brazil’s key Centre South region.
Weakness in the real, which on Friday hit a 10-year low against the dollar, has also undermined dollar prices of assets, such as sugar and coffee, in which Brazil is a key player.
“India raw sugar export subsidies and real weakness has presented a cap [on prices] for some time now and continuing rainy weather in Centre South Brazil cane growing areas has perhaps created an expectation of a better harvest and therefore more pressure on the price,” said Nick Penney, senior trader at Sucden Financial.
One consolation for investors is that a large rise in the net short position “may add to support” for prices this week, he added.
Large net short holdings often provoke covering of such positions, amid concerns that investors’ appetite for such bets is spent.
Cool on coffee
Hedge funds also cut their net long in New York-traded arabica coffee futures and options below 10,000 contracts for the first time in a year, with the Brazilian rains easing crop concerns here too.
The drop in the net long, of nearly 8,000 lots, was the biggest in 21 months.
However, the managed money net long in Chicago corn futures and options fell by more than 22,000 contracts, taking it to a four-month low of 80,191 lots.
Sentiment in corn was undermined during the week by a forecast by the US Department of Agriculture that farmers will plant 89.0m acres with corn this year, a drop of 1.6m acres year on year, but a smaller decline than investors had forecast.
Wheat shorts
The USDA also cautioned of “substantial pressure” on wheat prices in 2015-16 from ample supplies in major exporting countries, and indeed hedge funds during the week to last Tuesday expanded their net short in Chicago-traded soft red winter wheat futures and options to a four-month high of 32,238 lots.
In hard red winter wheat, as traded in Kansas City, speculators cut their net long below 6,000 contracts for the first time in 13 months.
Among livestock contracts, speculators cut their net long in Chicago lean hogs to a 21-month low of 31,426 contracts.
The reduction came even as prices revived from contract lows reached amid improved pork supply ideas, undermined by increased hog slaughter numbers, and at increased weights.
The revival in futures was fuelled by the resolution of the labour dispute at West Coast US ports – so improving hopes of an upturn in US exports on routes to important Asian import markets.
