(Agrimoney) – A rash of short-covering in soybeans, down to a technical factor, avoided hedge funds’ bearish positioning in ags hitting a fresh record high, with wheat in the firing line, and data on sugar surprising.
Managed money, a proxy for speculators, reduced its net short position in futures and options in the main 13 US-traded agricultural commodities in the week to last Tuesday for the first time in a month, according to data from the Commodity Futures Trading Commission (CFTC) regulator.
However, the reduction in the net short – the extent to which short positions, which benefit when prices fall, outnumber long bets, which profit when values rise – was minimal – at 1,196 lots.
It left the net short at 194,428 lots, second only to the record bearish position run up the previous week.
Options quirk
And that there was a reduction at all was down to a cut of more than 21,000 contracts in the net short in Chicago soybeans, reflecting a quirk surrounding the follow-up from an unusual options expiry on February 19.
That left investors short of this put option with a “naked short… hence the rally” in soybean prices last Monday as they covered their short exposure through the futures market.The short-covering “coincides with option expiration and market recovery into Monday [February 22]”, said broker Benson Quinn Commodities, which had flagged the knock-on effect of an unexpectedly large number of at-the-money put options expiring unexercised on February 19.
‘Will lead to a wheat rally… eventually’
By contrast, in wheat futures and options, hedge funds raised their net short to a record high of 27,163 lots for Kansas City-traded hard red winter wheat, while raising their net short in Chicago soft red winter wheat to 98,680 contracts.
The extent of hedged fund short positions “will eventually lead to a rally in wheat”, Benson Quinn Commodities said, although adding that the data were “in line with expectations”.That was the highest in nine months, and not far short of the record high of 111,409 contracts set in May last year – a proximity which raised ideas that the market is, ultimately, vulnerable to short-covering which would drive prices higher.
A net short of 134,334 lots in Chicago corn was also “in line with expectations and shouldn’t encourage much reaction in the corn pit”, the broker added.
‘Substantial potential buying’
However, investors did express surprise that the CFTC data did not show a bigger swing positive on speculators’ positioning in New York raw sugar, given that the week ran to a day which saw best-traded May futures soaring 9%.
The data suggest that “even after sugar’s Super Tuesday… the market still has substantial potential buying from investors”, said Tobin Gorey at Commonwealth Bank of Australia.Nonetheless, over the week, hedge funds cut their net long in raw sugar futures and options by more than 9,500 lots to a five-month low of 17,086 contracts – with the gross number of short positions surging more than 16,000 lots to 111,593 contracts.
Marex Spectron said that the data were “all a bit baffling” given Tuesday’s price surge.
The anomaly “is probably explained” by the fact that during the week to Tuesday, “the market spent much more time going down than up” – it ending the period up 5% overall.
