(Agrimoney) – Hedge funds’ dramatic turn less gloomy view on wheat price prospects has not been reflected in their thinking on ags overall, with corn and soybeans bearing the brunt of fresh bearish 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 sugar, by 32,354 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
The increase took the net short – the extent to which short holdings, which profit when values fall, exceed long bets, which benefit when prices gain – to 98,548 lots, below the record 142,612 contracts hit last month but a historically large figure nonetheless.
And it defied a steep cut in speculators’ bearish positioning on wheat, encouraged by weather scares in the US, where excess rain is testing the condition of southern winter wheat crops, and in Canada and Russia, where dryness concerns have grown.
‘Still held large short positions’
In both Chicago-traded soft red winter wheat futures and options and Kansas City hard red winter wheat, hedge funds swung more bullish in positioning by the largest amount in 19 months, since October 2013.
However, hedge funds retain a historically sizeable bearish position in wheat nonetheless, particularly in the Chicago contract, in which they held a net short of 72,999 lots.(Then, dryness for Russian autumn-sown crops and data showing lower-than-expected US inventories spurred short-covering.)
“Friday’s positions report showed that investors still held large short positions, as of last Tuesday,” said Tobin Gorey at Commonwealth Bank of Australia.
‘Continue to worry’
While investors are likely to have covered some further short holdings since Tuesday, the extent of the negative positioning could spur some further short-closing, and upward pressure on prices, given further weather worries.
“The trade will consequently continue to worry about wheat availability – and so sell only reluctantly – despite inventories being comfortable.””Weather forecasters continue to expect more rain [in the US], and so few opportunities for saturated soils to dry, over the next week or so in US hard red winter wheat regions,” Mr Gorey said, adding that “excessive moisture may also spill into soft red winter wheat regions”.
Still, at Minneapolis-based broker Benson Quinn Commodities Brian Henry said that at a weak finish for futures on Thursday “hinted at the idea that the funds were done covering shorts for now”.
‘Near-record high’
Despite the less bearish thinking on wheat, hedge funds extended their net short position on grains overall, including the soy complex, by more than 28,000 lots to a record 280,736 contracts, with large pile-ups of short positions in corn and soybeans.
In corn, the managed money net short rose to its highest since November 2013, also encouraged by the benign Corn Belt weather, which is expected to see the US crop given a strong condition score on its first official rating, released on Tuesday.In Chicago soybean futures and options, speculators raised their net short by nearly 40,000 contracts – the biggest bearish swing in positioning since September 2011 – encouraged by decent Corn Belt sowing conditions and a US Department of Agriculture forecast of record world stocks of the oilseed at the close of 2015-16.
“Expectations are for a near-record high [rating],” Benson Quinn Commodities said.
Downbeat on softs
In the latest week, hedge funds also turned more negative on soft commodities, led by a return to extending their net short in New York-traded raw sugar futures and options.
Expectations for a shortfall in world production of the sweetener in 2014-15 have continued to decrease, largely thanks to increased ideas of Indian production.
They also cut their net long in New York-traded cotton, despite some concerns over the southern US wetness slowing plantings, and a decent US export pace.
“We are seeing a continuation of the fluctuation in the hedge fund position, which has been swinging back and forth since October between net short and net long,” said John Robinson, expert on cotton marketing at Texas A&M University.
‘Special times’
However, speculators for a fourth successive week rebuild their net long in Chicago livestock futures, encouraged by a seasonal boost to demand from Monday’s Memorial Day holiday in the US, viewed as the start of the barbecue season.
Noting a rise in beef prices of some 15% year on year, Paragon Economics and Steiner Consulting said that “we think retail promotions certainly have been key going into Memorial Day.
“Retailers understand that consumers are willing to pay for high priced, high quality beef during special times of year. The start of the summer grilling season is one of those times.”
