Chicago soybeans look "precariously overbought" after funds raised their net long position in derivatives close to record highs, with reports at the end of month potential catalysts for unwinding this position.

Non-commercial investors, a category taken by some investors as a proxy for large funds, raised their net long position in Chicago soybean futures and options to 148,020 contracts as of March 13, US regulatory data showed.

This net long position – a measure of the advantage of long holdings which benefit when prices gain over short positions which profit when values weaken – was the highest for 13 months and approaching record highs above 150,000 contracts reached in autumn 2010.

It reflected continued concerns that a disappointing South American harvest, downgraded again this month by the US Department of Agriculture and a host of private commentators, would drive buyers such as China, the leading importer, to America, the top exporter, for supplies.

Other indicators

However, the near-record extent of funds' net long position, as revealed in weekly data from the Commodities Futures Trading Commission, raised concerns over levels of buying yet unfulfilled.

CFTC data cut for managed money, a proxy for speculators, showed its net long position in soybeans at 176,091 contracts, less than 4,000 contracts short of a record high.

Furthermore, open interest, a measure of the number of active contracts and again taken as an indicator of the potential for further investor interest, is, at nearly 629,000 contracts, "also creeping up on the record high" of 698,776 lots set in February last year, Kim Rugel at broker Benson Quinn Commodities said.

'Precariously overbought'

"With open interest and fund longs at or near 13-month highs, the market is ripe for a price correction," Rugel said.

The prospect of US Department of Agriculture data at the end of the month on domestic crop inventories and on spring sowing intentions, two of the most important reports of the year, could prove a catalyst for investors to unwind some long exposure.

"Position squaring into March 30 planting and stocks reports could spur some profit taking," despite traders' "bullish outlook", backed by a series of strong US export data.

Out of favour

Conversely, the CFTC data showed managed money extending their net short position in New York arabica coffee futures and options to a three-year high of 8,384 lots, raising questions over how much further selling interest the market will support for now.

The negative outlook is based on ideas of a rise in production this year, with the market keeping a "close watch on the crop outlook in Brazil, with an anticipated rise in output mainly reflecting a higher production 'on-year' in its biennial crop cycle", Ker Chung Yang at Philip Futures in Singapore said.

In New York cotton, net short interest hit 9,628 contracts, the highest since early 2007, in a week during which India rowed back a little on the export ban which had sent prices up the exchange maximum, and the US Department of Agriculture unveiled another increase to estimates for world supplies of the fibre.

In the markets on Monday, prices of both New York coffee futures, up 0.6% at 183.50 cents a pound for May delivery, and cotton, up 1.8% at 89.08 cents a pound for May, closed higher.

Chicago soybeans for May ended 0.6% lower at $13.66 ½ a bushel, after a rally which has seen the contract close higher in 25 of the previous 33 trading sessions, gaining more than $1.80 a bushel.

'Sudden reversal'

Overall, despite the rise in the soybean net long position, managed money cut its exposure to rising agricultural commodity prices in the week to March 13, by 2.3% according to Standard Chartered calculations.

"The decline came mostly from sugar and wheat," StanChart analyst Kuon-Ken Lee said, noting a cut of 26,000 contracts in speculators' net long exposure to sugar.

In Chicago wheat, net short exposure was lifted by more than 13,000 contracts.

The trend of reduced interest was also reflected in the market for exchange traded funds last week, when agricultural index products saw net outflows of $68m, suffering a "sudden reversal from the prior week's promising inflows", Mr Lee said.