Hedge funds most bearish on ags since 2009 crisis

Hedge funds turned their most bearish on agricultural commodities since the depths of the global financial crisis - but appear to have been wrong-footed in lean hogs - ramping up short bets– just ahead of a rebound in prices.

Managed money, a proxy for speculators, extended a mammoth shift towards betting on falling agricultural commodities, according to data from the Commodity Futures Trading Commission, the US regulator.

However, the pace was at least slower. In the week to last Tuesday, speculators in Chicago soybean futures options returned, for the first week in four, to increasing net long exposure - the advantage of long positions, which profit when prices rise, over short holdings, which benefit when values fall.

They also raised their net long position in New York cotton, while boosting their bets on higher corn prices too, from a stance which had been the most bearish since June.

'Less bearish than we anticipated'

Speculators' caution over turning more bearish still on corn appears to have been justified by the US Department of Agriculture's Wasde report on Friday, which left its estimate for domestic stocks at the close of 2012-13 unchanged, surprising many investors who had forecast a rise in the inventory estimate.

Speculators' net longs in grains and oilseeds, Mar 5, (change on week)

Chicago soybeans: 128,296, (+5,298)

Chicago corn: 62,864, (+10,789)

Chicago soymeal: 56,427, (+8,587)

Kansas wheat: 1,844, (+90)

Chicago wheat: -46,286, (-920)

Chicago soyoil: -55,111, (-13,414)

Sources:, CFTC

"The Wasde proved less bearish than we anticipated," Morgan Stanley said.

Some hedge funds cut short positions just in time in New York raw sugar futures too, ahead of a rise of 3% in prices since, although the overall net short position, of more than 46,000 contracts remained historically large.

Raw sugar futures spiked on Thursday, lifted by ideas of tightness in near-term supplies, as evident in rising white sugar prices, and by the proximity of the Brazilian crushing season, which at current prices is expected to see mills boost the proportion of cane turned into ethanol rather than sweeteners.

'Major low has been scored'

However, some hedge funds appear to be nursing considerable losses in Chicago lean hogs, in which they raised bearish positioning at the fastest pace on records going back to 2006, turning net short for the first time since May.

Speculators' net longs in New York softs, Mar 5 (change on week)

Cotton: 60,482, (+7,955)

Cocoa: 10,343, (-2,228)

Coffee: -24,671, (-1,568)

Raw sugar: -46,386, (+2,240)

Sources:, CFTC

This price of lean hogs has since rebounded 3.5%, on a front contract basis, lifted by ideas that low prices have done enough to support demand at a time when values often begin a seasonal uptick, ahead of spring and summer.

"The market is deeply oversold and due for a seasonal rally," broker US Commodities said, adding that it believed "a major low and a seasonal low has been scored".

Speculators scored better on a cut in net long positioning on Chicago live cattle futures to the lowest since June 2009, with prices feeling greater impact from ideas that US cutbacks will, in lower inspector numbers, force meat packers to curtail activity.

Bearish positioning

The bearish positioning in livestock ensured that speculators reduced their overall net long position in the best-traded agricultural commodities in Chicago and New York by nearly 8,000 contracts, to less than 138,000 contracts - the lowest for four years, since the depths of the global financial crisis.

Speculators' net longs in Chicago livestock, Mar 5, (change on week)

Live cattle: 1,947, (-4,710)

Feeder cattle: -1,789, (-297)

Lean hogs: -7,325, (-17,013)

Sources:, CFTC

Hedge funds' overall net long position has slumped by more than 70% in a month.

The prospect of a sharp recovery in US crop production, after a drought-hit 2012, has been a major factor in encouraging speculators to take a more bearish stance, while many funds are quitting commodities altogether in favour of equities.

Other contracts on which they notably increased short exposure in the latest week included soyoil, which is being manufactured apace as soybean crushers exploit strong margins, but which is in less demand than the other main soy processing product – soymeal.

"Soybean crush margins throughout the world are very positive and crushers do not want to miss out on any of these positive margins," Darrell Holaday at Country Futures said.

Soybean crush margins are positive in the US by some $1.20 a bushel, and in China by about 30 remninbi per tonne, according to Morgan Stanley.

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