The extent of the latest lurch lower in grain prices appears
to have taken by surprise even hedge funds, which had cut their bearish bets on
the complex – raising questions over whether fresh selling lies in wait.
Managed money, a proxy for speculators, raised its net long
position in futures and options in the top 13 US-traded agricultural
commodities, from cotton to cattle, by more than 113,000 contracts in the week
to last Tuesday, according to data from the Commodity Futures Trading
The increase in the net long - the extent to which long
positions, which profit when values rise, exceed short bets, which benefit when
prices fall – reflected in part an increase of 27,375 contracts in the net long
in New York-traded soft commodities, taking it a fresh record high of 418,209
However, it also reflected a cut in the net short position
in the main grain contracts, including the soy complex, of 83,256 lots – the biggest
bullish turn in positioning in grains in more than two months.
Many hedge funds may wish they had held their nerve with
short bets, given the tumble in prices since last Tuesday of more than 5% in Chicago
corn futures, to contract lows, while Chicago wheat has shed a further 7% to
hit their weakest in 10 years.
'Did not go well'
In fact, short-covering was relatively light in Chicago soft
red winter wheat, with the net short cut by 1,761 contracts, with hedge funds
focusing more on Kansas City-traded hard red winter wheat, in which they reduced
their net long by more than 9,000 lots week on week.
Speculators' net longs in Chicago grains, August 23 (change on week)
Soybeans: 127,298, (+25,398)
Soyoil: 75,998, (+36,943)
Soymeal: 49,883, (-2,379)
Kansas wheat: -14,585, (+9,238)
Chicago wheat: -103,977, (+1,761)
Corn: -153,942, (+7,537)
Sources: Agrimoney.com, CFTC
The trend underlines the less bearish sentiment which
surrounds prices of higher protein wheat supplies, as Agrimoney.com has
highlighted, although Kansas City futures have also fallen heavily.
In Minneapolis-traded hard red spring wheat (not included in
the overall grains data), hedge funds flipped to a net long position of some 3,000
lots, from a net short of 1,200 contracts a week before, a switch "which did
not go well" given subsequent price moves, broker Benson Quin Commodities said.
In corn, speculators cut their net short position in Chicago
corn futures and options for the first time in 10 weeks.
And in soybeans, they hiked their net long by more than
25,000 lots - the biggest bullish shift in positioning for three months.
'Are funds short
The soybean move, in preceding a 5% drop in futures over the
past week, has left hedge funds sitting on large losses in the oilseed.
Speculators' net longs in New York softs, August 23 (change on week)
Raw sugar: 281,409, (+13,456)
Cotton: 61,657, (-5,320)
Cocoa: 43,392, (+12,014)
Arabica coffee: 31,751, (+7,225)
Sources: Agrimoney.com, CFTC
With the best-traded November contract now sitting below its
200-day moving average, as well as those for lesser periods, that implies that
all but the longest-term long bets are under water.
And with the prospect of record US soybean, and corn, harvests
ahead, the positioning raised questions about whether further selling might be
in the offing.
At Chicago broker RJ O'Brien, Richard Feltes flagged the autumn
selling last year in corn and soybeans as "they were forced to liquidate as a
large harvest unfolded", bringing a seasonal surge in supplies, and with it
swinging market power to buyers.
Hedge funds turned from net long in grains of nearly 475,000
contracts in late July to a net short of more than 226,000 lots four months
"Are funds short enough ahead of 2016 harvest?" Mr Feltes
'No place to begin
However, for wheat, Water Street Solutions flagged some hope
of price revival, given that futures were already at their lowest since 2006.
Speculators' net longs in Chicago livestock, Aug 23, (change on week)
Live cattle: 40,923, (-1,120)
Lean hogs: 38,926, (+3,500)
Feeder cattle: 2,263, (+780)
Sources: Agrimoney.com, CFTC
"This is no place to begin getting bearish," the ag advisory
"With price being at decade lows, the odds of higher is
beginning to outweigh the odds of lower."
The latest leg lower in prices "could be the capitulation
low trying to form", Water Street Solutions said, with many observers believing
prices in many markets, ironically, tend to revive just when the last bulls are
At Benson Quinn Commodities, Brian Henry said that managed money
"may be leaning a touch too short Chicago, but I am not convinced".
Among New York-traded soft commodities, the increase in the
net long position to a record high was led, again, by raw sugar, in which they
raised their net long to a fresh record high of 281,409 contracts, helping
futures hold at among their highest levels in four years.
And in cocoa, managed money raised its net long by more than
12,000 lots - the biggest bullish shift in positioning, week on week, in the
bean for nine years.
The upbeat sentiment on prices has been spurred by concerns
over West African supplies, with arrivals from producers to ports in top
producing country Ivory Coast at 1.453m tonnes so far in 2015-16 (which began
in October), a drop of 15% year on year.
Speculators also returned to raising their net long position
in New York-traded arabica coffee futures, for the first time in five weeks.
"The arabica [production] outlook for 2017-18 is
overshadowed by concerns about weather conditions," Commerzbank said, referring
to Brazil, the top-ranked producer of the bean.
"A number of instances of sudden frost in recent months and
cold weather could have reduced potential yields, though they can no longer do
anything to harm the current crop."