Worries over Argentine wetness and low US winter wheat sowings
prompted hedge funds to hike their net long in ags by the most in six months - provoking
concerns that the buying may have gone too far.
Managed money, a proxy for speculators, lifted its net long
position in futures and options in the top 13 US-traded agricultural
commodities, from corn to sugar, by 113,672 contracts in the week to last
Tuesday, analysis of data from the Commodity Futures Trading Commission
The buying spree drove the net long - the extent to which
long bets, which profit when values rise, exceed short holdings, which benefit
when prices fall – to its highest since July, extending the apparently enhanced
appeal of ags so far in 2017.
In three weeks, hedge funds have now hiked their net long in
ags by more than 215,000 contracts, helping ag prices , as measured by the Bcom
ag index, rise by 7.2% so far in 2017.
'Prices reacted to
The buying in the latest week was driven by grains (including
the soy complex) in which hedge funds hiked their net long by more than 97,000
contracts to a six-month high of 156,808 contracts.
|Speculators' net longs in Chicago grains, Jan 17 (change on week) |
Soybeans: 131,522, (+35,632)
Soyoil: 85,282, (+6,658)
Soymeal: 49,496, (+26,486)
Kansas wheat: 26,909 (+3,305)
Corn: -51,385, (+25,179)
Chicago wheat: -85,017, (-49)
Sources: Agrimoney.com, CFTC
Purchasing was encouraged in part by worries over rains in
Argentina destroying a substantial area of newly-planted soybeans crops, with speculators
buying into the oilseed at their fastest rate in six months.
In soymeal, the soybean processing product of which
Argentina is the top exporter, hedge funds hiked their net long by more than 26,000
lots – the most for any week on data going back to 2006.
A lower-than-expected forecast by the US Department of Agriculture,
in its latest Wasde crop report, for US soybean stocks of the close of 2016-17
also supported prices.
"Chicago soybeans and soymeal rallied 5.5% and 9.9%,
respectively" in the week to last Tuesday, Rabobank said, noting that "prices
reacted to Argentine weather concerns and the USDA's January Wasde".
'Big wheat buying'
Hard winter wheat was also a major beneficiary of speculative
buying, with the net long in the Kansas City-traded contract rising nearly to
27,000 contracts for the first time since June 2014.
Speculators' net longs in New York softs, Jan 17, (change on week)
Raw sugar: 161,630, (+3,747)
Cotton: 84,635, (-5,580)
Arabica coffee: 22,163, (+8,598)
Cocoa: -3,924, (-504)
Sources: Agrimoney.com, CFTC
The spree, which helped Kansas City futures touch their
highest in six months, was fuelled by separate USDA data showing US winter
wheat sowings at their lowest since 1909, with hard wheat plantings
Furthermore, grain market sentiment received support from ideas
of buying by index funds, which were seen as snapping up wheat and corn futures,
as part of their annual "rebalancing", in which they reweight portfolios back
to levels mandated by the index followed – a process which often involves
buying laggards of the previous year and selling the best performers.
In the two weeks to January 17, index funds raised their net
long in Chicago corn by nearly 34,000 contracts, and in Chicago wheat by more
than 26,000 lots, plus nearly 10,000 Kansas City wheat contracts, the CFTC data
"One component of the rebalance was big wheat buying," Joe Lardy
at CHS Hedging noted.
However, the extent of the hedge fund buying raised concerns
that appetite for further purchases may be more muted.
Speculators' net longs in Chicago livestock, Jan 17, (change on week)
Live cattle: 105,538, (+5,996)
Lean hogs: 56,927, (+3,114)
Feeder cattle: 7,992, (+1,090)
Sources: Agrimoney.com, CFTC
Richard Feltes at Chicago broker RJ O'Brien saw the "ballooning"
managed money net long in soybeans as a "bearish" influence prices short-term,
while also flagging a "smaller-than-expected" net short figure for corn.
In Kansas City hard red winter wheat, Benson Quinn
Commodities, flagging the continued rise in the net long, said that it "wouldn't
rule out the selling of some of this position", although did see scope for
buying in Chicago wheat, of which short-covering was surprisingly low in the
"The managed money net short of 85,000 contracts seems
manageable, but it wouldn't take much of a rally to force more short-covering,"
Benson Quinn Commodities said.
Coffee, cattle buying
Among soft commodities, a rise in the net long was driven by
a recovery in sentiment over coffee prices, amid ideas of a drop in Brazilian
output this year, as forecast by official crop bureau Conab.
Rabobank flagged issues in particular for the robusta coffee
market from continued dryness in Espírito Santo, the top Brazilian state for
growing the variety, and with "expectations for Brazil to allow robusta imports
for its soluble export business".
And in the livestock complex, hedge funds raised their net
long in Chicago live cattle futures and options above 100,000 lots for the
first time in two years, amid a rally being spurred by a boost to cash markets
from a relative squeeze on animal supplies.
The rise in cattle prices, at a time of declining beef
prices, has provoked a deepening decline in beef packers' margins - estimated
by HedgersEdge at a negative $40.20 per animal as of Friday, compared with a negative
$26.76 a week before – in turn raising doubts over processors' demand.
"Ongoing weakness in the price of value beef cuts could make
packers more reluctant buyers come February and March, but we will likely need
to see much more significant [beef] price erosion for that to be the case,"
said Paragon Economics and Steiner Consulting.
"For the moment it does not appear that the packer situation is dire
enough to force them to back off the market in a big way."