The worst of a turn bearish by hedge funds on agricultural commodities may be over after spreading into all major contracts – although, for a second week, being focused on corn and sugar derivatives.

Managed money, a proxy for speculators, in the week to last Tuesday – unusually - cut its net long exposure to futures and options all 13 major grain, livestock, oilseed and soft commodity contracts monitored by Agrimoney.com.

The extent of the turn bearish was, in its extent, even worse than in the previous week, when cotton and soymeal saw improved net long positions – meaning long holdings, which benefit when prices rise, outnumber short bets, which profit when values fall.

According to Rabobank, among the farm commodities it follows, "net long positions by managed money declined 160,116 contracts to 194,612 contracts - the lowest level since March 2009.

"This was the second consecutive week of managed money net long positions declining by over 100,000 contracts, and only the second time on records which began September 2006."

In the latest week, notable changes included the biggest bearish swing, of nearly 12,000 contracts, in positioning on Chicago lean hog futures for more than two years, while arabica coffee speculators ran up their largest net short position, of more than 28,000 lots, on records going back to 2006.

Sour on sugar

However, it was Chicago corn and New York raw sugar derivatives which, for a second week, attracted the biggest swings, amid forecasts of easier supplies expected to heap pressure on prices.

Rains in central Brazil have boosted hopes for the forthcoming crushing season, at a time when many investors believe producers still have ample levels of the last crop to sell.

The International Sugar Organization on Thursday raised its estimate for the world sugar production surplus in 2012-13 to 8.5m tonnes, citing the strong finish to Brazil's last crushing season, and warning that "the bearish pressure on world market prices is unlikely to fade".

'Should be priced in'

In corn, speculators slashed their net long holding by more than 60,000 lots, the biggest drop in three years, taking it to an eight-month low of 65,303 contracts.

However, Commerzbank raised doubts over hedge funds wish to position further for price losses, saying that, with the first USDA 2013-14 forecasts now published, "most of the news of increasing supply should be priced in", if cautioning that "prices are likely to remain under pressure in the short term".

Chicago corn for May closed up 0.2% at $6.85 ½ a bushel.  

'Market is getting wary'

On sugar, Sucden Financial said it saw "potential for the upside [on futures prices] in the short term based on the large speculative short position", which raised questions over how much hedge fund selling pressure was left unspent.

Covering short positions means making a purchase, and potentially, if enough such holdings are closed, forcing prices sharply higher.

The extent of the net short position meant "the market is getting wary", Sucden's Nick Penney said.

"Some of these shorts may have been covered late last week but we still think it is a large short position."

Macquarie also cautioned over the potential for short covering to lift prices. But May raw sugar futures nonetheless lost early gains to end  0.3% lower at 18.09 cents a pound in New York.

Wheat vs soybeans

Among other crops, Brian Henry, at Benson Quinn Commodities, cautioned over the potential for turbulence caused by an unwinding of short positions in wheat, many of which speculators have hedged against long bets in soybeans.

Managed money's net short in Chicago wheat futures and options rose by nearly 17,000 contracts to a nine-month high of 49,223, and only some 3,000 from a record high.

"I don't expect the combined fund net short and the short wheat positions that are spread against length in the row crops to be unwound in an orderly fashion," Mr Henry said.

"But there's no telling when it happens."