PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 12:51 UK, 3rd Feb 2014, by Agrimoney.com
Hedge fund sugar, wheat bets may herald price gain

The extent of hedge funds' selling in sugar and wheat may herald a better price performance, limiting their appetite for further short positions, investors said, as both agricultural commodities staged some revival.

Managed money, a proxy for speculators, trimmed its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by some 1,700 contracts in the week to January 28, according to data from the Commodity Futures Trading Commission regulator.

The return to a more negative view on agricultural commodities, after two weeks of raising exposure to higher prices, reflected largely an increase of nearly 6,000 contracts in hedge funds' net short in Chicago wheat futures and options and a rise of nearly 2,300 lots in New York raw sugar.

New York arabica coffee and cotton also witnessed substantial selling.

'Oversold market'

However, the extent of speculators' net short in Chicago wheat, now back some 10,000 lots from its record high set earlier in the month, provoked ideas that - with prices already down 8% in 2014, and amongst their lowest since 2010 - investors may prove less willing to bet on further declines.

Speculators' net longs in grains and oilseeds, Jan 28, (change on week)

Chicago soybeans: 121,631, (-5,530)

Chicago soymeal: 58,826, (-698)

Kansas wheat: 4,833, (-1,508)

Chicago wheat: -56,571 (-89)

Chicago corn: -52,117, (+7,208)

Chicago soyoil: -63,012, (+1,525)

Sources: Agrimoney.com, CFTC

This is especially so given a small rise, of 2.8%, in futures in rival grain corn last month, signs of demand from importers at lower prices, and some talk of damage to US and former Soviet Union winter grains crops from cold weather.

"With wheat markets oversold and showing signs that they have value, there's a good chance shorts in Chicago will be forced to cover some positions," Brian Henry at Benson Quinn Commodities said.

"In addition to excessively cold temperatures, many key US hard red winter wheat-growing regions have dealt with below-average precipitation over the course of the last couple months".

Chicago wheat futures for March stood 0.2% higher at $5.56 a bushel as of 06:30 local time (12:30 UK time) aiming at their first run of three successive positive sessions since November.

'Spooking investors'

In raw sugar, in which hedge funds raised their bearish positioning for a 13th successive week, to the highest net short since July, the extent of the move has also provoked ideas that this trend has gone far enough.

"Any slightly bullish news is capable of spooking those who have shorted recently and have come late to the party," Nick Penney, senior trader at Sucden Financial, said.

And indeed, raw sugar futures for March stood 0.8% higher at 15.68 cents a pound, up 6.7% from the three-year low for a spot contract set last week.

Sugar boosts

The sweetener has been the subject of a cocktail price-positive news, besides dryness in Brazil's Centre South region, which has raised concerns over the 2014 cane crop, and delays to India's proposed sugar export subsidy, although there are talks of further government discussions this week.

Speculators' net longs in New York softs, Jan 28 (change on week)

Cocoa: 77,461, (+8,063)

Cotton: 43,947, (-5,372)

Arabica coffee: -5,454, (-2,699)

Raw sugar: -58,657, (-2,277)

Sources: Agrimoney.com, CFTC

"We believe there are a number of less visible factors working below the surface which may be causing incremental decreases in supply, and which, taken together, could be sufficient to push the market higher," said Marex Spectron, the London-based broker.

In India, the second-ranked producing country and top consumer, the impact of low sugar prices in causing default on sugar mills' payments to cane farmers "should lead to lower plantings for the next crop".

In Thailand, the second-biggest sugar producer, the drain on farm support payments caused by low world market prices has meant that "the stabilisation fund may simply be running out of money", prompting farmers to turn back to cassava, Marex said.

In Brazil's Centre South, whatever the weather impact on yields, a "lack of cash has certainly led to less husbandry - fertilizers, pesticides, fieldwork which must be beginning to have a negative effect on yields".

Positive positioning

Among other crops, hedge funds continued, for a fourth successive week, to reduce their net short exposure to corn to a six-month low, a switch encouraged by ideas that relatively low prices of the grain compared with wheat have encouraged consumption.

Speculators' net longs in Chicago livestock, Jan 28, (change on week)

Live cattle: 124,097, (+442)

Lean hogs: 45,930, (+4,617)

Feeder cattle: 9,480 (+478)

Sources: Agrimoney.com, CFTC

Speculators also turned more positive on New York cocoa futures and options, raising their net long position back close to 78,000 contracts on talk of a bigger-than-though world deficit in 2013-14, although such ideas received a dampener from the International Cocoa Organization.

Hedge funds also continued to rebuild their net long in Chicago lean hog futures, amid concerns over the extent of losses to the US herd from porcine epidemic diarrhoea virus (PEDv), which has now spread to Canada too.

Prices of summer lean hog futures have set a series of contract highs.

The net long in live cattle was increased too, to its largest since 2010, amid ideas of a squeeze on beef supplies ahead, a hangover from feedlots' reluctance to take on animals last summer, when feed prices were still high.

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