Hedge funds close to most bearish ever on wheat

Hedge funds cut their bets on agricultural commodities to the most downbeat in six months, led by wheat, in which they came close to their most bearish positioning ever, with notable gloom over cotton price prospects too.

Managed money, a proxy for speculators, cut by more than 37,000 contracts its net long position in futures and options in the main 13 US-traded agricultural commodities in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC) regulator.

The decline took the net long the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall to less than 328,000 contracts, the lowest since January.

And it defied growing bullish sentiment on some commodities, including coffee, in which speculators raised net long positions by more than 5,000 amid fresh concerns over Brazil's harvest which sent New York arabica futures soaring late last week, temporarily taking them back above 200 cents a pound.

'Unattractive picture'

However, in New York, hedge funds cut their net long position to just 888 contracts, nearly turning net short for the first time since November 2012, amid concerns over Chinese import demand, following a revamp of its subsidy strategy, and with ideas growing of US production this year.

Speculators' net longs in grains and oilseeds, Jul 29, (change on week)

Chicago corn: 63,024, (-7,384)

Chicago soymeal: 30,842, (+2,857)

Kansas wheat: 12,669, (-738)

Chicago soyoil: -7,436, (+235)

Chicago soybeans: -8,319, (+10,224)

Chicago wheat: -71,968, (-17,449)

Sources:, CFTC
With the decline occurring a time of rising open interest, ie in the number of live cotton contracts, this signals "outright shorting by the hedge funds", John Robinson, cotton marketing specialist at Texas A&M University, said.

The gross short position was actually the largest in exactly two years.

Citing's report on Australia & New Zealand Bank crop forecasts, he said: "The financial press still paint an unattractive picture for cotton in the near term, meaning that speculative demand may not pick up for a while."

Short enough?

Nonetheless, cotton futures traded firmer in New York in early deals on Monday, in a rise seen fuelled by concerns that hedge funds may be reluctant to extend their short positions further, given that they are already at historically high levels.

Speculators' net longs in New York softs, Jul 29, (change on week)

Cocoa: 69,335, (+1,637)

Raw sugar: 19,155, (-25,433)

Arabica coffee: 37,485, (+5,055)

Cotton: 888, (-2,730)

Sources:, CFTC
Rabobank forecast a recovery in prices, citing the prospect of lower values, which have closed their premium to polyester, fuelling demand. a factor cited by the International Cotton Advisory Committee too in an upgrade to cotton price forecasts.

Wheat prices rose too, standing 1.9% higher in Chicago as of 07:00 local time (13:00 UK time), after the CFTC showed hedge funds raising their net short in Chicago futures and options in the grain to 71,968 contracts.

That was a little over 1,000 lots shy of the record net short, set in January, before concerns over US drought, and the Ukraine crisis, spurred a rapid switch to a net long position by mid-March.

The run of 11 successive weeks of increasingly bearish positioning was also by far the longest on records going back to 2006.

"If you are a speculator, you are going to be asking how much more in the way of short positioning the market is going to be willing to take right now, without some big bit of bearish news," a European grain trader told

Feed vs milling 

In fact, concerns remain over the quality of the European Union wheat harvest thanks to harvest-time rains which, in falling on ripe kernels, have encouraged sprouting, with worries centring over France, the bloc's top producer and exporter.

Speculators' net longs in Chicago livestock, Jul 29 (change on week)

Live cattle: 116,437, (-2,218)

Lean hogs: 53,834, (-1,037)

Feeder cattle: 11,446, (-674)

Sources:, CFTC
"It seems that roughly a third of the crop is basic feed wheat, another third may make some sort of milling specification - but probably only for home consumption and the final third should achieve the 225 Hagberg requirement for exports to Algeria and elsewhere in North Africa," traders at a major European commodities house said.

"Yet again this week, the French merchants and co-operatives have been heaving feed wheat onto vessels and selling at the best price they can get in order to make storage room for sorting out the rest."

Shorter on corn

Hedge funds also cut their net long in corn by more than 7,000 contracts to a five-month low of 63,024 lots, as benign weather during the pollination period underpinned expectations of a bumper US crop.

However, they trimmed by 10,000 lots their net short in soybeans, with weather turning a little drier for its sensitive pod-setting period, and with hedge funds having built a net short of more than 18,000 contracts, the highest in nearly eight years.

In the livestock complex, hedge funds lowered their net long in live cattle and feeder cattle futures and options to the lowest level since early 2014 despite data on the US herd and feedlot dynamics viewed by many investors as positive for prices.

ANZ and Societe Generale have issued upbeat forecasts for cattle prices, but Goldman Sachs foresees them underperforming crop futures over the next year.

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