Soy takes the brunt as hedge funds extend bearish ag bets

(Agrimoney) -Hedge funds slowed their bearish turn on agricultural commodities in what may represent a “tipping point” in sentiment, with the likes of crop damage to weather in Brazil and the US fuelling more positive thinking for now.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities by 43,869 contracts in the week to last Tuesday, data from the Commodity Futures Trading Commission showed.

That represented a seventh successive week of decline which has reduced the net long position – the extent to which long holdings, which profit when values rise, exceed short bets, which benefit when prices fall – by nearly 500,000 tonnes to some 629,000 lots.

However, the more bearish positioning was focused in a handful of contracts – and, with agricultural commodity prices recovering in recent sessions, what fresh short positions were taken out are looking under water for now.

Soybeans on the rack

Chicago soybean futures and options sustained the brunt of the negative positioning, with speculators cutting their net long position by more than 33,000 contracts to 46,624 lots, the lowest in 10 months

Signally, in an indication of the downbeat sentiment, the number of short positions rose by 22,000 lots to 92,483 contracts – the largest on records going back eight years.

Such movements in positioning are closely watched by investors as they can prove a contrary price indicator, with build-ups in short positioning, for instance, raising questions over hedge funds’ appetite for more such holdings.

Soybean futures have staged a revival of some 2.5% since Tuesday, encouraged by concerns over excessive rain hurting US new crop prospects, besides lingering fears over the tightness of old crop stocks.

Shorter in grains

Hedge funds also extended a spree of cutting their net long in Chicago corn futures and options, this time by more than 9,000 lots, again fuelled by a rise in short positions, a trend Brian Roach at US broker Roach Ag Marketing told Agrimoney.com last week could fuel a price rebound encouraged by short-covering.

Corn futures have rebounded some 4% since Tuesday, in a recovery again fuelled by concerns over excessive rains in parts of the Midwest.

However, in Chicago wheat, while speculators continued to build a net short position, the pace slowed, to 1,807 lots in the latest week.

And in most other agricultural commodity contracts, they turned more bullish in their holdings, even if only by a small amount, but a shift in sentiment which could be indicative of a broader change in sentiment.

‘Bit of a tipping point’

“Outside soybeans and grains, managed money is not looking nearly as negative as it was in recent weeks,” a European agricultural commodities investor told Agrimoney.com.

“It looks a bit of a tipping point. It does look like they may have sated their appetite, maybe not forever, but for now.

“I would not be at all surprised in the next data to see more bullish positioning proving the order of the day.”

‘Options shackle’

In fact, speculators have already, after three months, ended a spree of reducing their net long position in Chicago lean hog futures and options.

This has proved a timely move, with July futures up 2.4% since Tuesday, and other contracts also gaining, recovering ground amid continued worries over US pork production, hurt by the outbreak of porcine epidemic diahorrea virus (PEDv), at a time when seasonal demand is strong.

Speculators also for the first time in four weeks raised their net long in New York raw sugar, if by a modest 591 lots – compared with a reduction of 66,000 contracts over the previous three weeks.

Sugar futures have bounced 4.6% since Tuesday, on a cocktail of factors ranging from concerns over the weak monsoon in India, the second-ranked sugar producing country, to continued dryness in Brazil’s Centre South region.

“It’s never just one thing in a price rally,” Australia’s Green Pool said, flagging also the release, thanks to expiry, of a so-called “options shackle” which had been “holding prices around 17 cents a pound”.