Hedge funds' bearish turn on ags extends into 2014

Hedge funds started the new year where they left off 2013 in extending their bearish positioning on agricultural commodities, fuelled by a raise in their net short holding on Chicago wheat to a record high a profitable call.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by more than 40,000 contracts in the first week of 2014, according to data from the Commodity Futures Trading Commission regulator.

The decline extended to 11 successive weeks the turn bearish in hedge fund positioning on agricultural commodities, by a margin the longest such streak since records began eight years ago.

The positioning comes at a time of recovering inventories for many important commodities, such as corn and soybeans, with cocoa "the only market expected to be in an outright deficit", according to Macquarie.

Raw materials have also fallen out of favour with some investors, with fund manager BlackRock estimating that commodity exchange traded products suffered a $42.9bn outflow last year, although the great majority of this represented a flight from gold.

Record net short

The sell-down in the latest week reflected in part an even more bearish stance on wheat, with hedge funds raising their net short position in Chicago futures and option by more than 1,600 contracts to a record high of 73,088 lots.

Speculators' net longs in grains and oilseeds, Jan 7, (change on week)

Chicago soybeans: 107,658, (-29,025)

Chicago soymeal: 52,624, (-5,307)

Kansas wheat: 6,700, (-1,322)

Chicago soyoil: -50,029, (-3,380)

Chicago wheat: -73,088 (-1,620)

Chicago corn: -91,451, (+3,361)

Sources:, CFTC

The expanded net short the extent to which short positions, when profit when values fall, exceeds long holdings, which benefit when prices rise left speculators well placed for the collapse in wheat futures on Friday, after the US raised its estimate for domestic and worldwide supplies of the grain.

US inventory data, as of December 1, beat market expectations, and appeared to indicate that livestock farmers, faced with a premium of wheat over corn of more than $2 a bushel, had turned more of their demand to the yellow grain.

Chicago wheat futures, which closed in on Friday at their weakest since July 2010, had already offered tidy gains to short investors in falling 22% last year.

'Becoming a worry'

Hedge funds also extended their net short position in New York raw sugar futures and options by more than 10,000 contracts to 35,728 contracts again a profitable bet.

Speculators' net longs in New York softs, Jan 7 (change on week)

Cocoa: 70,381, (-4,327)

Cotton: 44,137, (+849)

Arabica coffee: -3,045, (+5,372)

Raw sugar: -37,758, (-12,132)

Sources:, CFTC

Raw sugar futures set a three-year low last week amid expectations of a further generous production surplus in 2013-14.

"Sugar fundamentals continue to be bearish as stocks remain high in India and China," said Sucden Financial.

India, the second-ranked sugar producing country after Brazil, is "expected to be in a position to export up to 4m tonnes of raw sugar this year to help pay for cane arrears", while for China, a major importer, "government intentions are unclear as to further stockpiling", the broker said.

"The combination of this is becoming a worry for this year's sugar balance and is dragging the markets lower."

Cotton, cattle

However, hedge funds continue to take a more bullish stance on New York cotton, in which they raised their net long position for a seventh successive week, amid ideas of lower prices late last year encouraging mill buying.

Speculators' net longs in Chicago livestock, Jan 7, (change on week)

Live cattle: 105,024, (+8,253)

Lean hogs: 38,866, (-1,974)

Feeder cattle: 8,175 (-1,438)

Sources:, CFTC

Furthermore, doubts have eased, for now, over China ceasing cotton purchases from the domestic market with the aim of supporting the country's growers, but which has supported prices worldwide.

Live cattle also bucked the negative trend, with speculators raising their long position above 100,000 contracts for the first time in two years.

This too has proved a profitable call, with Chicago futures last week hitting a record high, for a spot contract, of 137.325 cents a pound.

Prices are being supported by decent demand for beef, with US exports hitting a record by value in November, industry data on Wednesday showed, at a time when numbers of animals ready for slaughter remain depressed, a hangover from high the grain prices before the autumn.

And speculators called a revival in coffee prices right too. Arabica coffee values last week hit a four-month high, supported by decreased expectations for Brazil's harvest this year. 

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