PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 12:33 UK, 2nd Jun 2014, by Agrimoney.com
Corn, sugar lead hedge fund selldown on ags

Hedge funds turned more bearish on agricultural commodities for a fourth week as production fears eased, with improved US weather hurting sentiment on corn and cotton, and a revival in Brazilian output stoking a selldown in 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 lean hogs, by nearly 88,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission, the regulator.

The reduction took to 261,000 lots the drop in the net long during a four-week spell when a catch-up by US farmers in spring sowings, the improvement of weather in Argentina and parts of Europe, and a stabilisation in the Ukraine crisis have prompted investors to reduce risk premium in crop prices.

The overall net long is now at 863,143 lots, the lowest in three months.

'Caught up very fast'

The decline was led by New York raw sugar futures and options, in which hedge funds cut their net long position by more than 38,000 contracts, the biggest bearish switch of 2014, reflecting data showing a sharp-pick up in early May in the pace of the cane crush in Brazil's key Centre South region.

Speculators' net longs in grains and oilseeds, May 27, (change on week)

Chicago corn: 178,319, (-29,523)

Chicago soybeans: 127,037, (+6,118)

Chicago soymeal: 72,042, (+913)

Kansas wheat: 29,684, (-2,242)

Chicago wheat: 19,715, (-4,721)

Chicago soyoil: 1,377, (+137)

Sources: Agrimoney.com, CFTC

Data from cane industry group Unica showed the volume of cane crushed rising by 62% from the last half of April, with the amount of sugar produced doubling, to 1.91m tonnes.

"This crop has caught up very fast since April," London broker Marex Spectron said, also noting the increase to 42.5% in the proportion of cane going to sugar rather than ethanol in the latest period.

"The mix has moved strongly in favour of sugar production, despite the fact that we are still early in the crop when young cane should be more favourable to ethanol production," with prices of the biofuel too suggesting its manufacture is more profitable than that of the sweetener.

However, with raw sugar futures recovering since Tuesday, when the Unica data were released, Marex also noted continued talk of lasting harm to cane from central Brazil's early-2014 drought, damage which may not begin to show up until later this month.

Rain factor

Hedge funds also in New York cut their net long in cotton futures and options, by 11,700 contracts, the most in seven months, to some 35,600 contracts, a 2014 low, as heavy rains in Texas eased concerns for the crop in the top US producing state.

Speculators' net longs in New York softs, May 27, (change on week)

Raw sugar: 103,189, (-38,721)

Cotton: 35,664, (-11,740)

Cocoa: 58,610, (+9,434)

Arabica coffee: 39,482, (-1,406)

Sources: Agrimoney.com, CFTC

The US southern Plains rainfall also provoked a further selldown in Chicago winter wheat, after the condition of the US crop improved for the first time since November.

However, corn in Chicago suffered a bigger turn bearish in positioning, by nearly 30,000 contracts, as US farmers' continued strong sowing progress, after a slow start, reduced yield concerns.

'Aggressive sellers'

"Funds were aggressive sellers of corn during the period," said Brain Henry at Benson Quinn Commodities.

Speculators' net longs in Chicago livestock, May 27 (change on week)

Live cattle: 124,832, (-12,422)

Lean hogs: 58,461, (-2,786)

Feeder cattle: 14,781, (-1,252)

Sources: Agrimoney.com, CFTC

Another broker said that "what is most interesting is that funds aren't just liquidating, some funds are actually getting short here", betting on falling corn prices.

Indeed, the fall in the net long position the extent to which long positions, which benefit when prices fall exceed short holdings, which profit when values fall was down almost completely to a rise in short bets.

The gross short position rose by 23,702 contracts to more than 100,000 lots for the first time since early March.

Cattle u-turn

In the livestock complex, the sell-off was most marked in Chicago live cattle futures and options, in which hedge funds cut their net long position by 12,422 contracts the biggest sell-down in eight months.

Live cattle futures fell back from highs reached on May 20 on profit-taking encouraged by ideas that, with Memorial Day past, beef consumption may ease a little.

However, futures recovered strongly late last week, encouraged by record highs in feeder cattle, for which US supplies are viewed as too thin to meet demand both from feedlots for animals for slaughter, and from ranchers for breeding stock.

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