PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 13:04 UK, 10th Jul 2017, by Mike Verdin
Hedge funds 'aggressive' buyers in grains - and 'more to come'

Hedge funds were "aggressive" buyers in grains heading into July, taking the hit on under-water short contracts and look likely to have some further pain ahead in corn bets too.

Managed money, a proxy for speculators, slashed its net short position in futures and options in the top 13 US-traded agricultural commodities overall, including the likes of hogs and sugar, by 168,555 contracts in the six days to last Monday, analysis of data from the Commodity Futures Trading Commission regulator shows.

The move reduced the net short - the extent to which short holdings, which profit when values fall, exceed long bets, which benefit when prices gain to a three-month low 26,853 lots.

However, the headline shift disguised dramatically different fortunes between ag complexes, with managed money cutting its net short in grains, while increasing its bearish betting on soft commodities and curtailing upbeat positioning in livestock.

In fact, speculators turned more bearish on softs than grains, including the soy complex, for the first time in four months.

'An aggressive buyer in all markets'

In grains, hedge funds, unusually, swung net bullish on betting in all six contracts covered, to the tune of a combined 167,388 lots.

Speculators' net long in Chicago grains, July 3 (change on week)

Kansas wheat: 54,926 (+10,686)

Soyoil: 19,718, (+9,207)

Chicago wheat: 18,003, (+28,161)

Soymeal: -42,967, (+11,463)

Corn: -46,715, (+59,404)

Soybeans: -70,216 (+48,467)

Sources: Agrimoney.com, CFTC

"Managed money was an aggressive buyer in all markets," said Benson Quinn Commodities, while flagging the "surprising" exception of Minneapolis spring wheat, which is not included in the Agrimoney's overall grains data.

At Futures International, Terry Reilly also flagged that "surprisingly funds and money managers were modest sellers in Minneapolis".

Hedge funds reduced their net long in Minneapolis spring wheat futures and options by 1,330 lots to 14,017 contracts, even as prices approached four-year highs, set last Wednesday, amid continued concerns over the impact of dry and hot weather on crops in the northern US Plains and parts of Canada's Prairies.

Winter wheat in demand

In Chicago-traded soft red winter wheat, by contrast, hedge funds turned net long for the first time in nearly two years, amid price strength attributed to worries over crops in the likes of Ukraine and Australia, besides the knock-on effects of the Minneapolis price surge.

Speculators' net longs in New York softs, July 3, (change on week)

Cotton: 26,410, (-5,000)

Cocoa: -41,191, (+1,752)

Arabica coffee: -42,576, (+1,043)

Raw sugar: -113,233, (+201)

Sources: Agrimoney.com, CFTC

Many funds are unwilling, or unable, to trade in Minneapolis derivatives because of the market's relatively lack of liquidity, using Chicago contracts, the world benchmarks, as proxies.

In Kansas City-trade hard red winter wheat, the managed money net long 54,926 lots, the highest since November 2010.

The potential shortage of high-protein, spring wheat supplies has diverted some buyers in particular to hard red winter wheat, which has higher protein levels than soft wheat.

'Driving the bus'

However, larger still were the shifts bullish in positioning in Chicago corn and soybeans, in which managed money cut net shorts by more than 100,000 lots combined.

Speculators' net longs in Chicago livestock, Jul 3, (change on week)

Live cattle: 118,773, (-6,412)

Lean hogs: 77,611, (+10,306)

Feeder cattle: 14,604, (-723)

Sources: Agrimoney.com, CFTC

Even so, they retained net short positions in both contracts, a factor which, given growing worries over the spread of heat to parts of the Corn Belt this week, was seen by some commentators as likely to mean further short-covering ahead, and upward pressure on prices.

"The summer weather market is in charge and found the funds out of position in grains and oilseeds," said ag advisory group Water Street Solutions.

"The continued warm/dry forecast in the west should continue to provide market uncertainty support."

Benson Quinn Commodities said: "Mother Nature is once again driving the bus."

Water Street Solutions added that in corn, "warm and dry conditions in the west continue to drive fund short covering and a doubt that the US can reach trendline yield".

In soybeans, the group said that while the oilseed was "overbought, the short fund position could give the market another $0.10-0.20 a bushel before needing further weather degradation" to justify another leg higher in prices.

Cotton vs coffee

In New York-traded soft commodities, by contrast, hedge funds extended their net short by 2,000 lots to 170,590 contracts a fresh record on data going back to 2006.

In fact, the extension in the net short was down entirely to cotton, in which hedge funds cut their net short for a seventh successive week, the longest selling streak in nearly three years.

The resulting net long of 26,410 lots was the lowest in 13 months.

In arabica coffee, by contrast, managed money for the first time in eight weeks curbed its net short, which reached a record high the previous week.

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