Hedge funds extended bullish bets in agricultural
commodities, helped by a record net long in cotton and strong buying too in
soybeans – a bet whose fate may be largely determined by weather in Argentina.
Managed money, a proxy for speculators, lifted its net long
position in futures and options in the top 13 US-traded agricultural
commodities, from corn to sugar, by 31,139 contracts in the week to last
Tuesday, analysis of data from the Commodity Futures Trading Commission
The increase took the net long - the extent to which long
bets, which profit when values rise, exceed short holdings, which benefit when
prices fall – back above 500,000 lots.
And it reflected further increases in bullish bets on grains
and oilseeds, in particular on Chicago soybean futures and options, in which
the net long rose by more than 21,000 lots to a four-month high of nearly
'Managed money keeps
'"Managed money keeps buying soybeans," said ag advisory
group Water Street Solutions.
|Speculators' net longs in Chicago grains, Nov 29 (change on week) |
Soybeans: 134,705, (+21,061)
Soyoil: 111,951, (+16,418)
Soymeal: 19,359, (-18)
Kansas wheat: 17,126 (+6,221)
Corn: -69,261, (-8,867)
Chicago wheat: -118,509, (-4,287)
Sources: Agrimoney.com, CFTC
"Investors made sharp additions to their long position in
soybeans," said Tobin Gorey at Commonwealth Bank of Australia.
The increase has left the soybean market "at risk of looking
overbought once Chinese demand pivots to South American supplies", he said,
with the Brazilian harvest, which starts early in the calendar year, likely to see
importers' demand switch to the country from the US.
And having a relatively large net long already in soybeans –
albeit below multi-year highs of 200,000 lots reached in June – means funds
have "plenty of room to sell", US broker Benson Quinn Commodities said.
One factor which looks crucial in determining whether
soybean futures extend their recovery over the past two months is the potential
for the Argentine crop, which is still being planted, and which faces a soil
moisture deficit in many growing areas.
Speculators' net longs in New York softs, Nov 29 (change on week)
Raw sugar: 168,635, (-8,216)
Cotton: 83,474, (+2,921)
Arabica coffee: 43,069, (-7,653)
Cocoa: 5,667, (+1,401)
Sources: Agrimoney.com, CFTC
"If conditions in Argentina deteriorate further though, then
the rationale for the large long position can quickly be revalidated," CBA's
Tobin Gorey said.
And forecasts indeed see a continuation of dryness.
"Argentina will see minimal precipitation over the next week
bias south eastern growing areas, increasing stress to the newly planted crops,"
said Terry Reilly at broker Futures International.
MDA said that early-week rains in "central Buenos Aires
should improve moisture, but dryness will continue in southern Cordoba and
eastern Buenos Aires".
Central Cordoba province, besides southern Santa Fe and north-central
and eastern areas of Buenos Aires represent the "main area of dryness," Commodity
Weather Group said, although adding that relatively cool temperatures would "help
limit any immediate stress" on plants from moisture shortages.
Hard vs soft
Hedge funds also raised their net long noticeably, by more
than 16,000 lots, in Chicago soyoil, spurred by firm prices of rival palm oil
and moves by the US to raise use of biodiesel, which is made from vegetable oils.
Speculators' net longs in Chicago livestock, Nov 29, (change on week)
Live cattle: 69,041, (+10,982)
Lean hogs: 32,239, (+308)
Feeder cattle: 3,553, (+868)
Sources: Agrimoney.com, CFTC
"The US Environmental Protection Agency [added] a further
280m gallons to its 2017 advanced biofuel requirement—now 4.28bn gallons—consuming
a potential 500m pounds of extra vegetable oil over 2017," said Rabobank.
And in Kansas City-traded hard red winter wheat futures and
options, managed money raised its net long to a 10-month high of 17,126
contracts, as US dryness raised questions over seedlings planted for next year's
The buying contrasted with further selling of Chicago-traded
soft red winter wheat, the world benchmark – and could potentially set the
scene for contrary price moves, said broker Benson Quinn Commodities.
"The added length in the hard wheat contracts strikes me as
a negative" for prices, the broker said.
By contrast, "at any point, [funds] could get pushed out of
some of their shorts in Chicago wheat", which would boost values.
'Still extremely long'
Among the big four New York-traded soft commodities, hedge
funds cut their net long overall by more than 11,000 contracts, to the lowest
in five months, led by further selling in raw sugar, in which the net long fell
to the lowest since April.
"Investors sold another large chunk of their long position,"
Mr Gorey said, adding that further liquidation could in the offing.
"We suspect investor's still have some material selling to
do, but we are much closer to the end."
Marex Spectron said that funds "are still extremely long" in
In arabica coffee, meanwhile, hedge funds cut their net long
by more than 7,600 lots, the fastest pace since May, amid waning concerns over prospects
for Brazilian output next year, fuelling a drop of some 18% in New York futures
from a near-two-year high set last month.
"Most of the move is technical, but the weather in Brazil is
excellent, with very favourable rainfall, even in the robusta areas that were
dry until recently," Rabobank said.
By contrast, managed money raised its net long in cotton by
nearly 3,000 lots to 83,474 contracts, the highest on data going back a decade,
with prices supported by the furore stemming from India's banknote shake-up.
"The temporary shortage of physical cotton supplies in India
remains supportive for prices," Mr Gorey said.
However, "any large position presents a risk that it will,
at some point, be unwound. If investors become spooked it is unlikely that they
can exit their positions without pushing prices down sharply for a period."