A plunge in agricultural commodity prices on Monday eased pressure on speculators who appear to have been wrong-footed by the market revival late last week spurred by crop estimate changes and US monetary easing.
Managed money, a proxy for speculators, reduced its net long exposure to futures and options in all the major US-traded crops - bar cocoa and coffee - in the week to last Tuesday, regulatory data showed.
Crop prices as of 12:15 Chicago time (18:15 UK time)
London wheat (November): £204.50 a tonne, (-1.2%)
Paris wheat (November): E260.25 a tonne, (-2.4%)
Paris rapeseed (November): E507.25 a tonne, (-2.4%)
Chicago wheat (December): $8.90 a bushel, (-3.7%)
Chicago corn (December): $7.52 ½ a bushel, (-3.8%)
Chicago soybeans (November): $16.69 a bushel, (-4.0%). Limit down
In Chicago wheat, they raised levels of short bets, which profit when prices fall, to their highest since June, while in corn and soybeans liquidating a stack of long positions, which benefit when values rise.
Among New York-traded soft commodities, they raised short positions in cotton and, especially, raw sugar, for which price sentiment has been hurt by the continued recovery in cane harvesting in Brazil's Centre South region, which is responsible for nearly 90% of national output of the sweetener.
The positioning came ahead of a broadly positive finish to last week for futures, spurred in oilseeds by a bigger-than-expected downgrade by the US Department of Agriculture on Wednesday to its forecast for the domestic soybean crop.
Talk of wind causing damage to Canadian canola prospects estimated at 1.7m tonnes, according to market talk reported by RJ O'Brien, also underpinned the oilseeds complex.
Speculators' net longs in grains and oilseeds, Sept 11, (change on week)
Chicago soybeans: 228,819 (-8,852)
Chicago corn: 296,467, (-27,162)
Chicago wheat: 68,974, (-3,447)
Chicago soymeal: 68,161, (-5,551)
Chicago soyoil: 52,847, (-1,330)
Kansas wheat: 48,881, (+2,554)
Grains gained support from weakened prospects for the Australian wheat crop, which Australia & New Zealand Bank on Friday downgraded to 20m tonnes, fuelling a gain of nearly 5% in Chicago wheat in the last three days of last week.
And the full range of risk assets, including agricultural commodities, gained from the US Federal Reserve's announcement of a campaign, of unlimited duration, to boost the US economy through snapping up mortgage-backed securities.
Even New York cotton, which fell initially after being handed some bearish estimate revision changes by the USDA, gained overall in the last three days of last week.
Weak start to week
However, short positions appeared a more profitable bet on Monday, when the boost from the Federal Reserve's move wore off, leaving shares and most agricultural commodities in negative territory.
Chicago corn and soybeans fell 4% at one point, feeling pressure too benign weekend weather which has speeded up the US harvest, giving a short-term boost to supplies.
For wheat, the price "suffered a setback", also dropped 4%, "as rainfall in the US has improved the conditions for planting", Commerzbank said.
Indeed, the weather outlook has turned "decidedly negative" for grain and oilseed prices, Richard Feltes at RJ O'Brien said, with "rains in Brazil, Western Australia and an open outlook for US harvest that on the one hand will wrap up quickly but in so doing concentrate selling pressure in the upcoming four weeks".
The bank also highlighted the resilience of cocoa futures to the sell-off, with speculators' net long position in the bean – the balance of long holdings over short bets – rising by nearly 2,000 contracts last week to just under 32,000 lots, the highest since spring 2010.
The move "is evidence that the market still anticipates a supply deficit in the 2012-13 period, mainly as a result of the unusually dry conditions in West Africa and a possible recovery of demand in the industrialised countries", Commerzbank said.
Speculators' net longs in New York softs, Sept 11, (change on week)
Raw sugar: 34,103, (-5,626)
Cocoa: 31,997, (+2,985)
Cotton: 16,181, (-541)
Coffee: -17,341, (+2,286)
"Despite a still ample stocks-to-grindings ratio, this – coupled with the current positive mood on the markets – could cause the price to climb further."
In New York, arabica coffee, a drop of nearly 2,300 lots in speculators' net short position represented the first such a shift in exposure since mid-July.
"Expectations that Brazilian farmer selling would depress prices were disappointed – driving the short covering," Rabobank said.
Nonetheless, speculators remained net short of 17,341 lots, one of the most bearish positions in records going back six years.