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Hedge fund enthusiasm for ags rises even as sentiment sours

Agricultural commodities are becoming a more popular bet with hedge funds but for the prospects of profiting from price falls official data showed, revealing another reduction in particular in sentiment on cotton and sugar.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to coffee, by more than 30,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

Change in managed money open interest, ag commodity futures and options, April 29-August 12

Corn: +238,799

Soybeans: +188,750

Sugar: +114,079

Lean hogs: -20,284

Arabica coffee: -39,085

Total (incl others): +293,887 (to 1.68m)

Sources: CFTC, Rabobank, Agrimoney

The reduction took the net long - the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall - below 300,000 contracts for the first time since January.

It also represented the 14th reduction in 15 weeks, cutting the net long from more than 1.1m contacts at the end of April.

Rising exposure

However, the reduction reflects a drop in sentiment rather than in interest in betting on agricultural commodities, the data reveal, with the number of active contracts the so-called open interest up by nearly 300,000 contracts since the end of April.

Speculators' net longs in grains and oilseeds, Aug 12, (change on week)

Chicago corn: 67,665, (-4,023)

Chicago soymeal: 36,301, (+7,851)

Kansas wheat: 13,359, (-1,350)

Chicago soyoil: -15,509, (-11,814)

Chicago soybeans: -11,704, (+2,909)

Chicago wheat: -61,124, (+5,909)

Sources: Agrimoney.com, CFTC

"Open interest continues to rise," said Rabobank, whose data highlight the change.

The biggest rise in open interest has been in the row crops, of some 238,000 contracts in corn and 189,000 contracts in soybeans, as increased yield prospects have increased expectations of lower prices, and indeed weighed on futures.

Hedge funds in the week to last Tuesday raised their gross short in corn above 250,000 contracts for the first time since January.

Biggest draws

However, there has been a big rise in open interest in New York raw sugar too, of 114,000 contracts, again weighted towards bets on lower values.

Speculators' net longs in New York softs, Aug 12, (change on week)

Cocoa: 73,182, (+3,258)

Arabica coffee: 41,416, (-711)

Raw sugar: -17,756 (-17,718)

Cotton: -5,733, (-3,980)

Sources: Agrimoney.com, CFTC

Hedge funds raised their gross short in raw sugar futures and options above 200,000 contracts in the latest week for the first time in six months, raising it by 20,000 lots, far exceeding the small increase in the gross long.

In Chicago wheat, the increase in open interest has been of 76,000 contracts, again weighted towards short positions, although the latest week saw some further short-covering from the elevated levels reached late in July.

Open interest is in fact higher in all the major US-traded agricultural commodities bar Chicago live cattle futures and options, lean hogs and New York arabica coffee.

In lean hogs, while investors have raised short bets, they have piled out of long holdings, as factors including heavier slaughter weights and softer consumer demand for pork have undermined sentiment.

Cotton shorts

For cotton, the increase has been a relatively small 13,500 contracts - although again tilted towards short holdings.

Speculators' net longs in Chicago livestock, Aug 12 (change on week)

Live cattle: 118,489, (-5,792)

Lean hogs: 48,369, (-3,967)

Feeder cattle: 10,420, (-920)

Sources: Agrimoney.com, CFTC

In the week to last Tuesday, hedge funds expanded their net short in New York cotton to the largest since November 2012, fuelled by an increase in the gross short nearly to 40,000 contracts for the first time since then

Hedge funds have now turned more bearish in positioning on cotton for eight successive weeks, matching the longest losing streak on records going back to 2006.

Sentiment in cotton prices has been undermined by fears for Chinese imports, following a revision in the country's subsidy regime, and by improved expectations for the US crop.

The US Department of Agriculture on Tuesday, in its monthly Wasde report, raised its forecast for US cotton output by 1.0m bales to 17.6m bales.

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