Hedge fund sugar, wheat sales may not reverse yet

The dramatic turn bearish by hedge funds in their positioning on raw sugar may not be over despite them returning to a net short position, with their negative call on wheat too potentially sustainable despite hitting a record high .

Managed money, a proxy for speculators, cut its net long position in futures and options in the main 13 US-traded agricultural commodities by more than 24,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

That represented the seventh successive week of bearish positioning in agricultural commodities matching the longest such streak on records going back to 2006.

And it was led by a further reduction in positive positioning on New York raw sugar futures and options, in which managed money turned net short for the first time in three months.

'Potential for more short-selling'

Nonetheless, despite the huge swing in sentiment - with hedge funds holding a near-record net long position of more than 200,000 contracts in raw sugar two months ago the selldown may not be over yet, traders said.

Speculators' net longs in grains and oilseeds, Dec 17, (change on week)

Chicago soybeans: 9,451, (+9,451)

Chicago soymeal: 63,362, (-96)

Kansas wheat: 14,203, (-3,567)

Chicago soyoil: -41,950, (-234)

Chicago wheat: -71,714 (-2,253)

Chicago corn: -104,845, (-12,629)

Sources:, CFTC

"There is still potential for more short-selling," said Nick Penney, senior trader at Sucden Financial, flagging that historically speculators have shown willingness to build a far bigger net short position.

Hedge funds' net short hit a record 83,340 lots in April.

A rally on Friday had appeared "purely correction", with the likelihood that mills in Brazil and India, the top sugar producing countries, "may cap [price rises] in the medium-term".

'Provide some pressure'

At Singapore-based Phillip Futures, Vanessa Tan echoed this thinking, saying that "with raw sugar prices rallying towards the end of the week, it could boost farmer selling in Brazil, especially if the Brazilian real remains weak.

Speculators' net longs in New York softs, Dec 17 (change on week)

Cocoa: 74,724, (-2,832)

Cotton: 34,293, (+17,679)

Raw sugar: -9,071, (-34,188)

Arabica coffee: -11,645, (+8,551)

Sources:, CFTC

"This could provide some pressure to the raw sugar market."

And although Brazilian crop bureau Conab on Friday cut to 38.8m tonnes, from 41m tonnes, its forecast for total domestic sugar production in 2013-14, "this is still a record result and up 500,000 tonnes year on year", Luke Mathews at Commonwealth Bank of Australia noted.

Raw sugar futures for March stood 0.4% down at 16.38 cents a pound at 07:00 local time (12:00 UK time).

Negative on grains

Speculators' increased net short holding in ags also reflected positioning on grains, with the net short on Chicago corn futures and options raised for the first time in four weeks, by more than  12,000 contracts.

Speculators' net longs in Chicago livestock, Dec 17, (change on week)

Live cattle: 89,271, (-937)

Lean hogs: 50,290, (-5,022)

Feeder cattle: 9,814, (+1,547)

Sources:, CFTC

In Chicago wheat, hedge funds increased their net short position to a record 71,714 contracts, reflecting the upgrades to Australian and, especially, Canadian harvests, and weakened expectations for US exports.

While extreme fund positioning often raises questions about whether the appetite for such holdings is spent, many investors remained downbeat about the prospect of a short-covering spike in prices.

With little else to go on, short covering remains the feature in oversold markets, but there is a limit to how much of that they want to do given the extremely weak technical structure and negative fundamental picture," Brian Henry at Minneapolis-based broker Benson Quinn Commodities said.

While investors "have to respect the oversold nature of the wheat markets, a legitimate correction requires a much better appetite to cover shorts", he said.

"Given the daily occurrence of new lows for the move and the inability of the market to sustain upward momentum through mid-session, the wheat needs both the fundamental and technical structure of the market to improve."

Warmer on coffee

Speculators also turned more negative on Chicago lean hog futures and options, cutting their net long position for a 12th successive week nearly to 50,000 contracts, a six-month low.

Lean hog prices have been weighed by unexpectedly strong slaughter weights, and pork production, with hog weight for Iowa and south Minnesota, for instance, hitting a record 282.4 pounds,

However, hedge funds warmed to New York arabica coffee, cutting their net short position by more than 8,000 contracts to a seven-month low, spurred by a bounce in prices of London-traded robusta beans.

 And in cotton, they hiked their net long position by more than 17,000 contracts, lifted by tightening US inventories certified for delivery against futures, and by waning concerns over Chinese reforming its generous market support programme for now.

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