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Hedge funds hike bullish bets on ags - but is this a high water mark?

Hedge funds, despite a sell-off in cocoa, hiked bullish bets on agricultural commodities to the highest in seven months, in a move which raised some ideas that further such buying may be harder to come by.

Managed money, a proxy for speculators, hiked its net long position in futures and options in the top 13 US-traded agricultural commodities, from hogs to sugar, by 145,883 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

The increase in the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – took it to 737,652 contracts, doubling so far in 2017 to its highest level since June.

And it reflected a further rise in bullish positioning in both grain and livestock complexes, contrasting with an easing in the net long in New York-traded soft commodities under the weight of a wave of selling in cocoa, in which speculators' gross short position hit a record high.

'Could prove bearish'

In US-traded grains, including the soy complex, hedge funds turned bullish at the fastest rate since April top lift their net long above 300,000 lots for the first time in six months, spurred by concerns over the dent to Argentine row crop prospects after heavy rains.

However, with Argentine weather fears now easing - MDA said that "drier weather in central crop areas is allowing wetness concerns to ease a bit" – investors flagged doubts over speculators' willingness to extend bullish bets.

On soybeans, for instance, broker Benson Quinn Commodities said that the "big increase in the fund long" as revealed by the Commodity Futures Trading Commission data "could prove bearish" for futures.

And, indeed, the latest investors to go long in the grains complex are already looking at modest losses, with prices, as measured by the Bcom grains index, down nearly 3% over the past week.

'Does look supportive'

The one grains contract on which many brokers were more bullish, given the hedge fund data, was Chicago wheat, in which managed money, contrary to its enthusiasm for other grains, raised its net short in futures and options in the week to last Tuesday.

Speculators' net longs in Chicago grains, Jan 24 (change on week)

Soybeans: 176,410, (+44,888)

Soyoil: 95,905, (+10,622)

Soymeal: 68,385, (+18,889)

Kansas wheat: 27,894 (+985)

Corn: 20,898, (+72,283)

Chicago wheat: -88,699, (-3,682)

Sources: Agrimoney.com, CFTC

"The increase in Chicago wheat short… does look supportive" to price prospects, Benson Quinn Commodities.

At Commonwealth Bank of Australia, Tobin Gorey termed the net short in Chicago wheat the "one caveat" to a bearish call on grain prices.

"Investors have cut this [net short] position at times during January. Should investors want to cut that position further then prices might get another boost."

Cocoa shorts in profit

Among New York-traded soft commodities, hedge funds made a modest addition to their net long in raw sugar, of 3,501 contracts to 165,131 lots, although Marex Spectron said that this "relative stability may imply that they are not in a hurry to rebuild their old longs".

Speculators' net longs in New York softs, Jan 24, (change on week)

Raw sugar: 165,131, (+3,501)

Cotton: 87,341, (+2,706)

Arabica coffee: 25,741, (+3,578)

Cocoa: -16,486, (-12,562)

Sources: Agrimoney.com, CFTC

The net long in raw sugar in October hit a record high of more than 286,000 lots.

However, in cocoa, managed money hiked its net short in the latest week to 16,486 contracts, the highest since April 2012, amid worries over demand, after processing volume data for both Europe and North America for the October-to-December period fell short of market expectations.

Short betting on cocoa has been a profitable strategy for hedge funds, with futures in 2017 extending a decline which began late in 2015.

On Friday, futures hit their lowest in nearly four years, undermined by an International Cocoa Organization assessment that the world cocoa production deficit n 2015-16 was smaller than the 150,000 tonnes that had been thought.

Bull run in cattle

In the Chicago-traded livestock complex, hedge funds extended their net long above 175,000 lots for the first time in more than two years, driven in particular by upbeat sentiment on cattle prices.

Speculators' net longs in Chicago livestock, Jan 24, (change on week)

Live cattle: 109,275, (+3,737)

Lean hogs: 55,824, (-1,103)

Feeder cattle: 10,033, (+2,041)

Sources: Agrimoney.com, CFTC

Managed money raised its net long in live cattle futures for an 11

th successive week, the longest such streak on records going back to 2006.

The revival in cattle prices has lifted feedlots back into the black "for the first time in several months", Paragon Economics and Steiner Consulting said.

Official data on Friday showed feedlots hiking by 18.0% year on year their December buy-ins of young cattle for fattening up.

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