Hedge funds 'close to exhausted' in selling wheat

The sustainability of hedge funds' selldown in wheat came into question as their continued turn bearish in agricultural commodity investments extended their net short in Chicago futures and options to a historically high level.

Managed money, a proxy for speculators, reduced its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by more than 80,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

The selldown, the 11th in the last 12 weeks, took the net long the extent to which long positions, which profit when prices rise, exceed short bets, which benefit when values fall to a six-month low of 365,407 lots.

Australia & New Zealand Bank, which cuts CFTC data slightly differently from analysis, said speculators were "now positioned the shortest in agricultural markets as a whole in 12 months".

Even by the end of June, hedge funds had cut back their net long position in agricultural commodities to the equivalent of 10m tonnes, from 67m tonnes in mid-May, on ANZ calculations.

'Close to exhausted'

Indeed, the extent of the negative positioning raised questions over the appetite by hedge funds for placing more such bets, with ANZ analyst Paul Deane stressing the extent of selling in wheat that speculators have already done.

Speculators' net longs in grains and oilseeds, Jul 22, (change on week)

Chicago corn: 70,408, (-22,693)

Chicago soymeal: 27,985, (-217)

Kansas wheat: 13,407, (-212)

Chicago soyoil: -7,671, (-8,463)

Chicago soybeans: -18,543, (-12,454)

Chicago wheat: -54,519, (-8,024)

Sources:, CFTC

Hedge funds raised by more than 8,000, to 54,519 contracts, in the net short on wheat - a marked reversal from the net long of 45,000 contracts two months ago.

"Supportive of prices stabilising is leveraged money selling being close to exhausted," Mr Deane said.

At Minneapolis-based broker, Benson Quinn Commodities, Brian Henry said: "Given a firmer stance on the Chicago chart, the size of their net short position in that market is supportive.

"I think the message is, don't add to a short position."

In fact, hedge funds' net short in Chicago wheat of 54,519 contracts is the 13th largest on records going back to 2006, with the record set earlier this year, at 73,088 lots.

Sour on sugar

Managed money is also notably bearish, from a historical perspective, in soybeans, with a net short position of 18,543 contracts, up more than 12,000 week on week, and the highest since October 2006.

Speculators' net longs in New York softs, Jul 22, (change on week)

Cocoa: 67,698, (+455)

Raw sugar: 44,588, (-25,392)

Arabica coffee: 32,790, (+1,674)

Cotton: 3,618, (-4,006)

Sources:, CFTC

The strength of soybean prices has been undermined by benign US weather which has supported expectations of a record harvest in the top producing country, as it has for corn too, in which speculators cut their net long position to a five-month low of 70,408 contracts.

However, New York-traded raw sugar saw the biggest sell-down in the latest week, by more than 25,000 contracts, taking the net long to a three-month low of 44,588 contracts.

The switch was down completely to a hike in short positions, amid some improvement in India's monsoon, and with Brazilian sugar output remaining firm for now, although the extent of the bets on falling prices has raised concerns about the appetite for more.

"Some operators question who will want to add to shorts at current prices," London broker Marex Spectron said.

'Might be a little less bearish'

Hedge funds also reduced their net long in cotton by more than 4,000 contracts to 3,618 lots, the lowest since December 12.

Speculators' net longs in Chicago livestock, Jul 22 (change on week)

Live cattle: 118,655, (-2,722)

Lean hogs: 54,871, (-1,077)

Feeder cattle: 12,120, (+314)

Sources:, CFTC

Again, the bearish turn was down nearly completely to fresh short positions, rather than liquidation of longs, with growing concerns over Chinese import demand, at a time when US production hopes remain high, despite some decline in crop ratings.

"The speculators are either liquidating and or going outright short," John Robinson, cotton marketing specialist at Texas A&M University, said, adding that the next set of CFTC data "will likely show more of this since we have been seeing declining prices with increasing open interest".

Open interest shows the level of extant contracts.

However, Dr Robinson was relatively upbeat over cotton price hopes, given the slump by benchmark December cotton futures (which fell last week to the lowest since 2009, on a nearest-but-one-contract basis) below March, May and July 2015 contracts.

"While the forward spreads don't cover the cost of storing cotton, at least it is a move back towards normal economic relationships.

"And that move suggests things might be a little less bearish for the future."

Hedge fund ag selldown takes them net short on soy
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