Hedge funds may have been 'over-bullish' on sugar

Ideas grew that the recent rally in sugar futures may have been overplayed after data showed hedge funds undertaking their most bullish shift in positioning on record, following a caution that demand may have been underestimated.

Managed money, a proxy for speculators, lifted by 20,929 lots its net long position in futures and options in the major US-traded agricultural commodities in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC), the US regulator.

The uplift reflected a massive shift in sentiment on New York raw sugar, in which hedge funds raised their bullish positioning by nearly 50,000 contracts, the largest such turn on records going back to 2006.

Indeed, that was sufficient to turn them from a substantial net short raw sugar to a small net long, the first since January, and meaning that long bets, which profit when values rise, outnumbered short positions which benefit when prices fall.

Demand underestimated?

The sea change in hedge fund positioning followed a caution from Czarnikow that sugar demand may have been underestimated.

Speculators' net longs in grains and oilseeds, Sept 10, (change on week)

Chicago soybeans: 145,933, (-13,505)

Chicago soymeal: 68,784, (+4,052)

Kansas wheat: 14,220, (+68)

Chicago soyoil: -17,473, (-1,721)

Chicago wheat: -47,008, (-8,618)

Chicago corn: -64,686, (-180)

Sources:, CFTC

The London-based sugar merchant slashed its forecast for the sugar production surplus in 2013-14 by 1.9m tonnes to 2.0m tonnes.

New York's benchmark October raw sugar futures contract soared some 5% over the subsequent five sessions.

"The recent upturn has now seemingly been attributed to the consensus opinion the global statistical surplus figures have been reduced because of an underestimation of global demand," Tom Kujawa, co-head of Sucden Financial's softs department, said on Monday.


However, "it seems the debate amongst our sugar market elite is now of qualitative perceptions of this increase in demand", Mr Kujawa added.

Speculators' net longs in New York softs, Sept 10, (change on week)

Cocoa: 65,264, (+5,800)

Cotton: 40,548, (-6,299)

Raw sugar: 2,588, (+49,212)

Arabica coffee: -23,756, (-1,039)

Sources:, CFTC

It appeared that the extra demand "has been in the physical sugar market", meaning that it may have gone to swelling inventories, "and not production of ethanol", where it would have been "burnt off".

"In essence, then, the insinuation is [investors] have been over-bullish."

Some commentators, such as Kingsman and Marex Spectron, have taken a more robust view of world sugar inventory levels.

At Commonwealth Bank of Australia, Luke Mathews pointed to technical support for lower prices, saying that "the front end of the futures curve is looking susceptible to a near term sell-off after consolidating slightly lower over the past three sessions".

Indeed, New York sugar futures for October eased 0.6% to 16.99 cents a pound, as of 07:00 local time (12:00 UK time).

Hogs vs cattle

Hedge funds also hiked bullish positioning on lean hogs, raising their net long in futures and options by more than 11,000 contracts to a record 90,946 lots.

Speculators' net longs in Chicago livestock, Sept 10, (change on week)

Lean hogs: 90,496, (+11,688)

Live cattle: 39,342, (-18,492)

Feeder cattle: 3,796, (-37)

Sources:, CFTC
Prices have been lifted by in part by reductions in US pork inventories, spurring ideas that relatively high prices of beef are prompting a switch to the meat, at a time when falling corn prices and therefore lower feed costs are expected to spur producers to keep more stock for breeding.

Indeed, slaughter rates have been unexpectedly small, sparking concerns also that losses to PEDv, porcine diarrhoea virus, have been higher than thought.

The bullish positioning lean hogs contrasts with a bearish turn in sentiment towards live cattle futures, amid ideas of a healthy outflow of fattened animals ahead from feedlots which taken in an unusually large proportion of heavy animals.

However, Societe Generale has recommended investors to bet on live cattle futures rather than lean hogs.

Bearish on grains

Hedge funds also returned to building their net short position in Chicago wheat futures and options, taking it back above 47,000 lots for the first time in a month, the CFTC data showed.

Sentiment has been soured by strong results from the early US harvest of fellow grain corn, in which speculators already have a historically high net short position, raising doubts about the appetite for more in this contract.

In soybeans, hedge funds returned to a more bearish stance, cutting their net long position by more than 13,000 contracts.

The position covering came amid uncertainty over what a US Department of Agriculture Wasde report last Thursday would reveal.

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