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Hedge funds extend bearish turn on ags. Soy leads

Hedge funds extended for a fifth week their turn bearish in positioning on agricultural commodities, hiking bets on price declines in the soy complex, and turning still more downbeat on wheat and lean hogs too.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cocoa to cattle, by 64,000 contracts in the week to last Tuesday, data from the Commodity Futures Trading Commission showed.

The decline represented a fifth successive week of reducing the net long, the extent to which long positions, which profit when prices rise, exceed short bets, which benefit when values fall.

The net long has fallen more than 325,000 contracts over the period, to just under 800,000 lots.

And it reflected in particular a turn more negative on the soy complex, as fund sell long positions in July contracts, which is approaching expiry and less liquid trading, while taking a more negative attitude towards new-crop lots.

Back to net short

Indeed, in soyoil, a turn net short in hedge funds' position on Chicago futures was down nearly completely to a hike in short positions, by nearly 14,000 contracts, with a relatively small drop in the gross long holding.

Speculators' net longs in grains and oilseeds, Jun 3, (change on week)

Chicago corn: 174,160, (-4,159)

Chicago soybeans: 104,150, (-22,887)

Chicago soymeal: 70,629, (-1,413)

Kansas wheat: 30,017, (+333)

Chicago wheat: 1,037, (-18,678)

Chicago soyoil: -14,100, (-15,477)

Sources: Agrimoney.com, CFTC
The vegetable oil complex has suffered turbulence from improved ideas over palm oil inventories, with the much-expected El Nino not appearing to have arrived in time to hamper the seasonal rise in output in Indonesia, the top producing country, and second-ranked Malaysia.

Palm oil futures fell for a third successive week in Kuala Lumpur last week "as strong Malaysian production is combining with nervousness about exports to keep prices depressed", said Sterling Smith at Citigroup, which a firm ringgit depressing expectations for shipments.

However, with El Niño likely to "slowly enter the mix", a factor which can prove to be a problem for palm oil production", in bringing Asian production, and exports set to get a rise from pre-Ramadan demand futures should "begin to initiate a bottoming process", he added.

'Rather telling'

In soybeans themselves too, a cut of nearly 23,000 in hedge funds' net long position – to 104,000 contracts, the lowest in seven months - was mainly down to a hike in short positions.

Speculators' net longs in New York softs, Jun 3, (change on week)

Raw sugar: 102,117, (-1,072)

Cocoa: 65,363, (+6,753)

Arabica coffee: 38,809, (-673)

Cotton: 31,311, (-4,353)

Sources: Agrimoney.com, CFTC
The gross short rose to 56,361 lots, the highest in 10 months.

"It is rather telling that a large portion of the managed money crowd is starting to add new short positions rather than just cutting longs," one US broker said.

Kim Rugel at Benson Quinn Commodities said: "Momentum [in prices] is shifting downward with US weather favouring an excellent soybean crop at this time.

"To date soil, is in great condition with ample moisture expected into June 15."

In fact, the US Department of Agriculture is expected later on Monday, in its first rating for the US crop, to put at least 70% as in "good" or "excellent" condition.

Wheat exit  

Meanwhile, the improved conditions for US winter wheat, besides the easing tensions in Ukraine and soft US export data, prompted hedge funds to cut their net long in Chicago soft red winter wheat futures and options to just 1,037 contracts.

Speculators' net longs in Chicago livestock, Jun 3 (change on week)

Live cattle: 125,287, (+455)

Lean hogs: 55,427, (-3,034)

Feeder cattle: 14,893, (+162)

Sources: Agrimoney.com, CFTC
However, it was notable that speculators made a small upgrade to their net long position in Kansas City hard red winter wheat, the type which has been under threat from drought in the southern Plains, and now faces something of a mixed blessing in terms of heavy rains.

Although the rainfall has improved yield prospects for some less developed crops, for ripe ones, moisture can mean sprouting, a drop in protein levels and quality downgrades.

Wheat futures in fact staged a recovery in major markets on Friday, which continued on Monday.

Death loss over-anticipated

For cotton, the southern Plains rains have provided a boost to prospects for newly-sown crops in Texas, the top US cotton-producing state, if hampering progress on plantings yet to be made

Hedge funds cut their net long in New York cotton futures and options for a fourth successive week to a six-month low of 31,311 contracts.

And in livestock markets, speculators cut their net long in Chicago lean hog futures and options for a seventh successive week.

While speculation that porcine epidemic diahorrea virus (PEDv) "had greatly reduced pig numbers took lean hog futures prices to astounding heights", fears may have been overstated, said Chris Hurt at Purdue University.

"Death loss may have been over-anticipated in February and March and producers have been able to compensate for a substantial portion of lost animals by much higher weights."

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