Hedge funds extended to an eighth successive week their bearish positioning in the top US-traded agricultural commodities, led by a selldown in grains, which more than offset a more upbeat stance on sugar.
Managed money, a proxy for speculators, cut by more than 27,000 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.
The shift reduced the net long – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – below 83,000 contracts, compared with nearly 570,000 lots before the sell-off spree began in mid-July.
The turn bearish was led by positioning in the main grain and soy contracts, in which hedge funds turned net short overall for the first time in three months, amid ideas of strong US corn and soybean output, after bumper Brazilian crops, and upbeat European and former Soviet Union wheat harvests.
Right on soybeans, less so on corn
In fact, many hedge funds may have been too quick to sell down in corn, with a cut of nearly 30,000 lots in futures and options in the grain coming ahead of a bigger-than-expected US Department of Agriculture downgrade, on Friday, to its forecast for the domestic crop.
However, a strategy of raising bearish positioning on soybeans, raising their net short to a three-month high, has proved more profitable.The revision sent corn futures soaring, with prices ending the week up 5.1% from Tuesday, for when the CFTC data were accurate.
Soybean futures at one point on Friday hit a six-year low, for a spot contract, after the USDA unexpectedly raised its estimate for this year’s domestic harvest.
Wheat sell-down
On Chicago wheat, speculators raised their net short in futures and options by more than 20,000 lots, a second successive week of strong selling.
Indeed, they have lifted their net short in wheat by more than 40,000 lots over the fortnight, making it the most bearish fortnight for wheat in 15 months.
Expectations for wheat prices have faded with signs that El Nino is causing only limited dryness in Australia, rather than the extensive rainfall deficits, and sharp drops in wheat yields, that it can bring.
Furthermore, export markets have seen heightened competition, with sellers from France and Russia in particular seen slashing prices in a bid to shift hefty harvests.
Rare sugar net long
Among soft commodities, hedge funds further extended their net short in New York-traded arabica coffee, amid a fresh decline in prices, enhanced by weakness in the Brazilian real.
A weak real cuts the value of assets, such as coffee, in which Brazil is a major force.
However, prices of sugar, another soft commodity in which Brazil punches strongly, have managed to beat the weak real of late, helped by concerns over wet weather slowing the South American country’s harvest, while a weak monsoon has undermined expectations for Indian output.
“The rise in prices also continues to fly in the face of a still-weak real,” said Tobin Gorey at Commonwealth Bank of Australia
Hedge funds slashed short bets in the sweetener, turning net long in New York raw sugar futures and options – this for only the third week in a year.
“Investors are culling short positions,” Mr Gorey said, noting, on paper, “that there is still plenty of buying that investors might do, so the market still has some impetus for higher prices”.
‘Supplies will tighten’
In the livestock complex, speculators extended bearish positioning on Chicago live cattle, cutting their net long below 13,000 contracts for the first time since April 2013.
Cattle futures have been undermined by weak cash markets, in turn undermined by soft beef markets, with elevated slaughter weights boosting supplies at a time of seasonally weaker demand.
Still, there are expectations that a seasonal recovery might soon begin, with the reopening of schools after the summer, meaning beef demand for school meals, among supportive factors.
“Cattle demand is slow but the supplies will tighten in a few weeks,” US Commodities said.
