Hedge funds ended a bearish betting spree on ags dating back
to July, despite higher-than-forecast crop supply estimates in a much-watched
report – sparing themselves losses, indeed, to price resilience since.
Managed money, a proxy for speculators, reduced its net
short position in futures and options in the top 13 US-traded agricultural commodities,
from corn to sugar, by 57,427 contracts in the week to last Tuesday, analysis
of data from the Commodity Futures Trading Commission regulator shows.
The reduction in the net short – the extent to which short
holdings, which profit when values fall, exceed long bets, which benefit when
prices gain – was the first in seven weeks, ending a spree during which sales exceeded
purchases by nearly 500,000 contracts.
And the buying came despite the US Department of Agriculture
on Tuesday, in its monthly Wasde report on world ag supply and demand, confounding
market expectations by raising estimates for US corn and soybean yields, while
also hiking hopes for the US cotton harvest to well above forecasts.
Weakest since 2008
Nonetheless, hedge funds swung bullish on positioning on all
three complexes – grains, soft commodities and livestock – a shift which has been,
marginally, rewarded by subsequent markets moves.
|Speculators' net long in Chicago grains, Sep 12 (change on week) |
Soyoil: 100,435, (+11,801)
Kansas wheat: 13,031, (-1,954)
Soybeans: -4,408, (+7,536)
Soymeal: -31,817, (+4,527)
Chicago wheat: -83,745, (+2,825)
Corn: -119,412, (-9,689)
Sources: Agrimoney.com, CFTC
Prices, as measured by the Bcom agricultural commodity sub-index,
have risen by some 1% since then.
Indeed, the reluctance by hedge funds to extend bearish bets
tallies with ideas from some commentators that the fall in ag values has gone
far enough, with the Bcom agriculture sub-index late in August touching its
lowest since December 2008, at the height of the world financial crisis.
Low point passed?
In fact, managed money extended its short position in
Chicago corn, one contract over which the debate is particularly strong over
whether a late-August low represents a seasonal nadir, or only a temporary floor.
Speculators' net longs in New York softs, Sep 12, (change on week)
Cotton: 70,284, (+14,104)
Arabica coffee: -30,431, (-518)
Cocoa: -47,035, (+1,127)
Raw sugar: -91,400, (+24,786)
Sources: Agrimoney.comn, CFTC
US broker Benson Quinn Commodities said that "seasonally",
futures in corn, and soybeans, "hit harvest lows around October 2" as the spike
in fresh supplies weighs on values, adding that "I see no reason why this year
will be different".
But commentators such as Florida-based Roach Ag have
suggested that corn futures may indeed hold above the late August low.
Water Street Solutions said that the "market is too low to
sell but is lacking enough news yet to scare the shorts out".
'Not as comfortable
In many other grain contracts, hedge funds took a more
upbeat position, turning more positive in positioning on Chicago wheat for the
first time in nine weeks, while near-eradicating their net short in soybean
futures and options.
Soybeans are one contract in which "funds aren't typically as comfortable being short",
Benson Quinn Commodities said.
The average managed money position in Chicago soybeans over the
past five years is a net long of nearly 65,000 contracts.
In soyoil - one commodity whose bullish credentials were enhanced
by the Wasde, which hiked expectations for use of the vegetable oil by biodiesel
plants – the net long rose above 100,000 contracts for the first time this
Meanwhile, among soft commodities, hedge funds continued to
reduce their net short in New York-traded raw sugar from last month's record
high, amid ideas that values of the sweetener had gone low enough to persuade
Brazilian mills to turn more cane into ethanol instead.
Managed money net long in top 13 US-traded ags and (change on week)
Sep 12: -73,050, (+57,427)
Sep 5: -130,477, (-2,566)
Aug 29: -127,911, (-47,245)
Aug 22: -80,666, (-178,404)
Aug 15: 97,738, (-173,212)
Aug 8: 270,950, (-68,777)
Sources: Agrimoney.com, CFTC
And in cotton, they ended the week with a net long raised by
14,000 contracts, taking it to a three-month high above 70,000 lots, despite the
Wasde hiking the forecast for US production in 2017-18 to well above market
expectations – although this did not include a full appraisal of hurricane
In fact, after tumbling ahead of the Wasde, futures have
flat-lined since, with trading house Ecom flagging support to data on "on call"
cotton, ie that in the physical market which has yet to be priced against
As of September 9 "mills need to fix 32,000 futures
contracts compared to the producers only needing to still fix 18,000 of
contracts," Ecom said, adding that "this means there are 14,000 more futures
contracts to fix on the buying side.
"Therefore we believe, as the futures drop more, mills will
come in to fix their on call contracts."
Furthermore, there are some estimates of substantial damage,
if not necessarily losses, to the US crop from hurricanes Harvey and Irman,
with Rabobank estimating the latter storm may have affected about 1m bales.
'A lot faster, and a
In the livestock complex, a turn more bullish in positioning
reflected betting on higher cattle futures, amid ideas of beef demand being
spurred by a dip in prices from early summer highs, while hedge funds continued
to sell down lean hogs.
Speculators' net longs in Chicago livestock, Sep 12, (change on week)
Live cattle: 82,257, (+4,400)
Lean hogs: 55,829, (-3,864)
Feeder cattle: 13,362, (+2,346)
Sources: Agrimoney.com, CFTC
Indeed, speculators cut their net long in Chicago lean hog futures
and options to a three-month low, as October futures headed down to 58.25 cents
a pound last week, the weakest price of 2017 for a spot contract.
The decline reflects a tumble in US cash hog prices, in turn
seen as down to the boost to pork output from rising slaughter weights.
Livestock analysts at Steiner Consulting - noting a boost of
3.5 pounds month on month to 210.7 pounds in the average weight of producer-sold
barrows and gilts, as of September 12 – said that this may not seem like a
"But 3 additional pounds of pork on 2.3m hogs slaughtered in a week
represents an additional
8m pounds just on the weight gain alone."
"The issue right now is that hog weights are increasing a lot
faster, and a lot earlier [seasonally], than they normally do," with growth
usually accelerating later in the year, helped by cooler weather and fresh