Hedge funds look to have been wrong-footed by the surge in wheat futures late last week, and saw profits dry up in soybeans as a rising market encouraged them to cover short positions at the fastest rate on record.
Managed money, a proxy for speculators, cut by more than 58,000 contracts its net short 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.
The reduction took the net short – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – for ags overall below 30,000 contracts for only the second time since early March.
And it was led by a cut in the net short position in grains which, at some 103,000 lots as of last Tuesday, was down by two-thirds in a month, as rising weather concerns for crops in North America in particular have prompted speculators to turn less downbeat on price prospects.
Wheat short-covering
However, in Chicago soft red winter wheat futures and options, hedge funds rebuilt their net short position in the week to Tuesday by more than 9,000 contracts to 52,716 lots – ahead of an 8% rise in futures since.
Rains have proved particularly strong in the Midwest, where soft red winter wheat is grown, slowing harvest progress, and raising quality threats, with moisture encouraging disease and kernel sprouting.
Kansas City hard red winter wheat futures have risen by a more modest 5% since, with drier weather in its central and southern Plains heartland believed to be allowing more speedy harvest progress.
Nonetheless, speculators were little blindsided by the rally in hard wheat too, having raised their net short in Kansas City to a six-week high of 2,842 lots in the week to last Tuesday.
‘Excessive US rainfall’
By contrast, in Chicago corn, many hedge funds exited bets on price falls just in time, with the managed money net short falling by more than 25,000 contracts to 94,522 lots in the week to last Tuesday.
The best-traded December corn contract has risen by some 6% since.
However, for soybeans, many hedge funds – which turned net bullish on the oilseed at the fastest pace on records going back to 2006 – may have quit their short positions a little late, with prices rising further during the week to last Tuesday, by 3.6%, than since then.
“Excessive US rainfall and subsequent planting concerns drove the rally from… contract lows,” Rabobank said.
Sugar out of favour
Hedge funds were in fact more bearish on soft commodities than grains in the latest week, raising their net short position in the main New York-traded contracts to a two-month high of 35,867 lots, led by further bets on price falls in raw sugar.
The managed money net short position in raw sugar futures and options rose by more than 6,000 lots to 97,815 contracts, within range of the record high of 116,984 lots set in late March, and amid continued confidence in global supplies of the sweetener.
“The Centre South Brazil cane crush is going well and good weather is expected short term, even if longer term worries still persist over potential higher than average rainfall caused by El Nino,” Sucden Financial said.
A better-than-expected start to the monsoon in India, the second-ranked sugar producing country, is weighing on prices too.
Livestock sales
Meanwhile, among livestock, speculators cut their net long position for a third successive week – in part thanks to the prospect of higher grain prices encouraging farmers to market stock to curtail feed bills, prompting a short-term uptick in supplies.
The reduction in lean hog futures and options also came ahead of a report on Friday which showed mixed market indicators.
While the market hog inventory was up 9.4% year on year as of June 1, a bigger rise than expected, as the impact of porcine epidemic diahorrea virus waned, the breeding herd was up a more modest 1.2%, below trade expectations of a 2.1% increase.
