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Cotton, sugar lead hedge fund pessmism on ags

Hedge funds cut their bullish positioning in agricultural commodities again as they turned net short in cotton and sugar for the first time in months, more than offsetting a more upbeat take on grains.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by more than 3,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

The decline represented the 13th week in 14 in which hedge funds have cut their net long position the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall.

And it reflected in particular a fifth successive week of extremely negative positioning on New York raw sugar futures and options, of more than 19,000 contracts.

'Top of the historic range'

That took to a small net short hedge funds' positioning on raw sugar, for the first time since February, compared with a net long of more than 150,000 contracts at the start of last month.

Speculators' net longs in New York softs, Aug 5, (change on week)

Cocoa: 69,924, (+589)

Arabica coffee: 42,127, (+4,282)

Raw sugar: -38 (-19,193)

Cotton: -1,753, (-2,641)

Sources: Agrimoney.com, CFTC

That represents an unusually large sell-off, and is being fuelled by a build-up of sugar inventories in Brazil, the top producer and exporter even if such an inventory rise is seen by many observers, such as Macquarie, as temporary.

It has also means that the gross short position funds hold in raw sugar futures and options is "creeping towards the top of the historic range", broker Marex said, a feature which may ring alarm bells among investors.

Extreme long or short positions tend to raise questions over whether hedge funds' appetite for these bets is exhausted, although a dearth of demand for sugar by end users is giving investors comfort this time, Sucden Financial said.

"Although the short position is up, it is perhaps not sufficient to create a base of support," Sucden senior trader Nick Penney said, adding the market appeared to have "absorbed" the CFTC data.

"Only additional physical off-take, it seems, will persuade the market that the current trade flow surplus will be eroded."

Raw sugar futures for October stood 0.4% down at 16.07 cents a pound in New York at 07:45 local time (12:45 UK time).

Net short on cotton

Hedge funds also turned net short in New York cotton futures and options, for the first time in 19 months, amid concerns over import demand from China, which has reformed a subsidy regime which had encouraged buy-ins, and with revived expectations for the US harvest too.

Speculators' net longs in grains and oilseeds, Aug 5, (change on week)

Chicago corn: 71,688, (+8,664)

Chicago soymeal: 28,450, (-2,392)

Kansas wheat: 14,709, (+2,040)

Chicago soyoil: -3,695, (+3,741)

Chicago soybeans: -14,613, (-6,294)

Chicago wheat: -67,033, (+4,935)

Sources: Agrimoney.com, CFTC

However, prices have shown some signs of stability this month, helped by a weak premium over man-made fibres such as polyester, viewed as turning demand back to cotton, and with some question marks remaining over the US crop.

Societe Generale cautioned that "if conditions are not adequate to properly finish the [Texas] High Plains area cotton, total US production could fall short of current expectations", a reference to conditions which, while bringing rain, have been cooler than ideal for the fibre.

Cotton futures for December stood 0.3% higher at 64.43 cents a pound in New York.

Short covering in wheat

With hedge funds also extending their net short in Chicago soybeans - amid benign conditions for the weather-sensitive pod-setting period for the US crop hedge funds' overall net short in major US-traded agricultural commodities rose despite a more upbeat take on grains.

Speculators' net longs in Chicago livestock, Aug 5 (change on week)

Live cattle: 120,641, (+4,204)

Lean hogs: 52,336, (-1,498)

Feeder cattle: 11,340, (-106)

Sources: Agrimoney.com, CFTC

Speculators cut their net short bets in Chicago wheat by nearly 5,000 contracts after 11 successive weeks of more bearish positioning, easily the longest such run on records going back eight years. The net short was, a week before, the second highest on record.

The reversal came amid revived concerns over tensions between Russia and Ukraine, and the West, ahead of the imposition by Moscow of curbs of imports of agricultural products from the likes of the European Union and the US.

On corn, to a lesser extent also affected by former Soviet Union tensions, speculators raised their net long by more than 8,000 contracts.

And in Chicago live cattle, hedge funds lifted their net long by more than 4,000 contracts ahead of a late week tumble in prices prompted by the Russian import ban.

Russia is a huge importer of meat, although its purchases from the US have already been running at low levels.

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