The extent of the losing bets that hedge funds have already
placed on wheat derivatives raises doubts over their appetite for more for now –
and the potential for price declines.
Managed money, a proxy for speculators, raised their net
short position in Chicago wheat futures and options by 10,000 contracts in the
week to last Tuesday, according to data from the Commodity Futures Trading
Commission, the US regulator.
The increase took the net short position – the extra
popularity of short bets, which profit when prices fall, over long holdings
which gain when values rise – to 27,676 contracts, the largest in nearly nine
Speculators cut their net long position in Kansas hard red
winter wheat futures and options to the lowest since May last year as well.
The positioning raised questions over the potential for
hedge funds increasing short exposure, although their net short in Chicago remains
well below the record high above 57,000 lots reached a year ago.
Speculators' net longs in grains and oilseeds, Feb 5, (change on week)
Chicago corn: 182,967, (+18,533)
Chicago soybeans: 135,644 (+30,627)
Chicago soymeal: 45,511, (+9,559)
Kansas wheat: 10,608, (-4,612)
Chicago soyoil: 7,419, (+10,133)
Chicago wheat: -27,676, (-10,000)
Sources: Agrimoney.com, CFTC
"With world wheat supplies tight, prices near long-term lows
and funds still short, it is questionable how much downside remains for wheat
prices this winter," said Jonathan Watters at Benson Quinn Commodities, the
Minneapolis-based broker.Chicago wheat futures stood at $7.53 ½ a bushel at 07:20
local time (13:20 UK time), down 0.4% on the day.
Their decline from levels nearing $8.00 a bushel three weeks
ago has been blamed largely on spreading by investors who, amid fears over the
impact of poor South American weather on corn and soybean harvests, hedged long
bets on the row crops against short bets in wheat.
In fact, extending long positions in corn and soybeans appears
to have left speculators poorly positioned for the US Department of Agriculture's
Wasde crop report on Tuesday which, in lifting estimates for world supplies of
both crops, was viewed as negative for prices.
Speculators' net longs in New York softs, Feb 5, (change on week)
Cotton: 59,138, (+5,843)
Cocoa: 18,294, (+2,968)
Raw sugar: -6,600, (-707)
Coffee: -16,839, (-6,323)
Sources: Agrimoney.com, CFTC
Speculators' net long position in Chicago corn rose 18,533
contracts to nearly 183,000 lots in the week to last Tuesday.
The net long in soybeans grew by more than 30,000 contracts,
the biggest upward shift since June, taking the position to a three-month high
of 135,633 lots.
The dynamic was reflected elsewhere in the soy complex too,
with hedge funds returning to a net long position in soyoil for the first time
in four months.
Among soft commodities, speculators were positioned better
for a Wasde briefing deemed bullish for the crop in cutting, by 300,000 bales,
the estimate for US inventories at the close of 2012-13.
Prices gained further on Monday after industry data pegged
US sowings at a 30-year low.
The managed money net long in New York futures and options hit
59,138 lots as of last Tuesday, the highest since October 2010, when futures
were rallying towards a record high.
In raising their net short position in New York arabica
coffee, hedge funds were also placed to exploit a decline in prices of the
March contract to its lowest since June 2010.