Hedge funds most gloomy ever on ag price prospects

Hedge funds have turned their least optimistic ever on prospects for agricultural commodity prices, slashing exposure to rising soybean futures, and hiking their net short position in corn to a record high.

Managed money, a proxy for speculators, slashed its net long position in futures and options in the major US-traded agricultural commodities by nearly 48,000 contracts to 58,489 lots, analysis of regulatory data shows.

This net long the level to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall is the lowest since records began seven years ago.

And it reflects, rather than waning interest in agricultural commodities, growing pessimism over prices, which for grains and oilseeds, and many soft commodities too, are being depressed by expectations of much-improved supplies.

Bearish on corn

Such expectations are particularly strong in corn, for which benign Midwest weather during peak pollination over the last three weeks has prompted a turn upward in the tide of US yield expectations, from the likes of FCStone, Macquarie and Commodity Weather Group.

Speculators' net longs in grains and oilseeds, July 30, (change on week)

Chicago soybeans: 75,490, (-34,152)

Chicago soymeal: 32,666, (-14,082)

Kansas wheat: -3,892, (+824)

Chicago wheat: -40,768, (+7,894)

Chicago soyoil: -43,804, (+3,689)

Chicago corn: -108,089, (-24,728)

Sources:, CFTC

Corn prices have fallen to their lowest since 2010, a fact that Commerzbank on Monday noted was "reflected in the market positioning of short-term-oriented market participants".

As of last Tuesday, managed money held a net short in corn of 108,089 lots, the most bearish positioning on the grain on record, reflecting a jump above 300,000 in the gross short position for the first time.

The net short is equivalent, in crop terms, to more than 500m bushels, or some 13.7m tonnes.

Soy sell-off

However, hedge funds also turned more downbeat on soybean futures and options, cutting their net long position by more than 34,000 contracts to 75,490 lots, the lowest since May.

Speculators' net longs in New York softs, July 30, (change on week)

Cocoa: 44,001, (+868)

Cotton: 61,148, (+1,976)

Arabica coffee: -13,993, (+860)

Raw sugar: -52,244, (+8,065)

Sources:, CFTC

In soymeal, which suffered a particular collapse in prices over the week, undermined by a tumbling US cash market, the net long was slashed by 14,000 contracts.

But, in remaining net long of 32,666 lots, hedge funds remained exposed to a further drop in prices since.

Speculators reduced their net short positions in soyoil, which have been more profitable bets, and which are often hedged against long positions in soymeal.

'May encourage the bulls'

However, hedge funds nudged higher their net long position on arabica coffee, amid some fears over damage from Brazilian frost to next year's crop, and slashed their net short on New York-traded raw sugar futures and options by more than 8,000 lots.

Speculators' net longs in Chicago livestock, July 30, (change on week)

Lean hogs: 70,350, (+5,645)

Live cattle: 32,795, (-5,451)

Feeder cattle: 1,632, (+2,431)

Sources:, CFTC

Brazil's cane crop too appears to have been damaged by frost, spurring a revival in raw sugar prices last week temporarily back above 17.00 cents a pound, although there was some surprise that speculators had not covered even more of their short positions.

"Given the market movement, accompanied at times by high volumes, one would have expected a greater degree of short-covering by the speculative community," Nick Penney, senior trader at Sucden, said.

 "This still leaves an overall net short by the speculative community which may encourage the bulls," in meaning there is still a large volume of short positions yet to be closed through buying sugar.

'Additional short-covering'

Other contracts on which hedge funds turned less negative included wheat, reducing their net short positions in both Chicago and Kansas City-traded derivatives, amid talk of quality concerns at a time of resilient demand.

"The potential for additional short covering is one of the key supportive factors in the wheat market," Brian Henry at Benson Quinn Commodities said.

"I look for the correction in the wheat market to continue.

"It appears the wheat market can trigger some additional short-covering."

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