Hedge fund liquidation in ags 'largely complete'

Hedge funds' liquidation of bullish bets on agricultural commodities "looks to have largely run its course", Australia & New Zealand Bank said, after data showed a further selldown, with positioning on soybeans the most downbeat since 2011.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cocoa to lean hogs, by more than 50,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

Hedge funds have now cut their net long position the extent to which long positions, which benefit when values rise, exceed short holdings, which profit when prices fall in 11 out of the last 13 weeks, amid decreased concerns over weather damage to US crop prospects.

"Short-term leveraged money managers have been relentless sellers of grains, oilseeds and cotton over the last seven weeks," Paul Deane, at Australia & New Zealand Bank, said, estimating the net long in agriculture markets as a whole falling, in weight equivalent terms, to 10m tonnes, from 67m tonnes in mid-May.

'Largely run its course'

In the latest week to July 1, the day after US Department of Agriculture estimates for US grain stocks and sowings sent prices tumbling hedge funds cut their net long in corn futures and options by nearly 13,000 contracts to a four-month low of 102,188 lots.

Speculators' net longs in grains and oilseeds, Jul 1, (change on week)

Chicago corn: 102,188, (-12,988)

Chicago soymeal: 39,372, (-9,852)

Chicago soybeans: 22,204, (-19,017)

Kansas wheat: 22,887, (-2,062)

Chicago soyoil: 16,806, (+11,310)

Chicago wheat: -40,714, (-278

Sources:, CFTC

In soybeans, the managed money net long tumbled by more than 19,000 contracts to 22,204 lots the lowest since December 2011.

"Leveraged money selling has been particularly aggressive in Chicago wheat, corn and the oilseeds complex," said Mr Deane.

However, the extent of the selldown raises questions over the appetite for further such positions, he said, saying the "liquidation in speculative long positions looks to have largely run its course", a factor signalling short-term stabilisation in prices.

'Sound value'

In soybeans, hedge fund positions suggested that futures and options were in "heavily oversold territory", Mr Deane said, viewing as "minimal" the downside to prices over the next month.

Speculators' net longs in New York softs, Jul 1, (change on week)

Raw sugar: 153,869, (-2,495)

Cocoa: 69,224, (+1,238)

Arabica coffee: 37,760, (-1,294)

Cotton: 16,346, (-8,356)

Sources:, CFTC

For Chicago wheat, a small rise in the net short in the latest week, after heavy selling since late May, suggest that fund "have ceased as net sellers".

"This supports our view that the near-term correction in wheat prices has also run its course", he said, terming as "sound value" Chicago wheat prices below $6.00 a bushel.

Cotton out of favour

Among soft commodities, managed money cut its net long position in cotton to a seven-month low of 16,346 lots in the latest week, down from more than 68,000 contracts in March, before a slowdown in Chinese import purchases, and rains on the US southern Plains which have boosted production hopes.

Speculators' net longs in Chicago livestock, Jul 1 (change on week)

Live cattle: 120,876, (-6,771)

Lean hogs: 59,549, (+705)

Feeder cattle: 10,934, (-1,668)

Sources:, CFTC

In arabica coffee, the net long position was cut by nearly 1,300 contracts, with more stable prices fostering some reluctance to hang on in the hope for higher values on ideas of damage from drought to the Brazilian harvest.

Turning to the livestock complex, hedge funds cut their net long positioning in live cattle by more than 7,000 contracts, despite the increasing concerns over beef supplies which drove futures on Thursday to a fresh record high, on a spot contract basis, of 155.325 cents a pound.

In lean hogs, they raised their net long by 705 contracts, after the US Department of Agriculture said that the US herd was, at 62.49m head, at its smallest in seven years, having shrunk 4.1% over the past year, thanks to the outbreak of porcine epidemic diahorrea virus (PEDv).

Investors had expected a drop of 3.0%.

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