Hedge funds sell-off ags as US weather improves

Decreasing fears for US spring plantings and winter wheat production drove hedge funds to turn bearish on agricultural commodities at the fastest pace in nearly 11 months, with cattle, cocoa and coffee among the few contracts to escape the selldown.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from sugar to lean hogs, by more than 95,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

The reduction in the net long position the extent to which long positions, which benefit when prices rise exceed short holdings, which profit when values fall was the biggest since the week to July 2.

And it was driven by reduced sentiment towards grain and oilseed prices, with US weather improving with regard both to spring sowings, which have been held up by excess rain and cold in the north of the country, and to winter grains, set back by drought in the southern Plains.

Wheat sell-off

Hedge funds cut their net long in Chicago wheat futures and options by more than 20,000 contracts, the biggest sell-off in six months, as rains refreshed southern states such as Oklahoma and Kansas, and amid forecasts for more.

Speculators' net longs in grains and oilseeds, May 20, (change on week)

Chicago corn: 207,572, (-47,472)

Chicago soybeans: 120,919, (-10,844)

Chicago soymeal: 71,129, (-932)

Kansas wheat: 31,926, (-2,597)

Chicago wheat: 24,436, (-20,871)

Chicago soyoil: 1,240, (-16,840)

Sources:, CFTC

And, indeed, much of the region has received its best rains in months, precipitation which is seen helping stabilise, if not improve, the condition of the hard red winter wheat grown in the area.

US winter wheat condition overall fell to its lowest in 18 years, as of a week ago.

Investors have extracted further premium from wheat futures thanks to drier conditions in the northern Plains, boosting hopes for sowings of spring wheat, which were 49% complete as of a week ago, 19 points behind the average pace.

Corn vs soybeans

The improved northern US seeding weather fostered a significant sell-off in Chicago corn futures and options too, with hedge funds cutting their net long position by more than 47,000 contracts, the biggest selldown in nearly 11 months.

Speculators' net longs in New York softs, May 20, (change on week)

Raw sugar: 141,910, (+6,894)

Cotton: 47,404, (-9,640)

Cocoa: 49,176, (+1,590)

Arabica coffee: 40,888, (+1,126)

Sources:, CFTC

And in soybeans, which are also spring seeded, hedge funds cut their net long position by more than 10,000 contracts to the lowest in four months although they may have reversed that position since, with concerns over the thinness of US supplies driving futures to contract highs late last week.

"The producer certainly did not let the chance get away from him to lock in good margins, with the US farmer a very active seller yesterday on any new crop acres, while the Brazilian producer used the rally in the July contract to over $15 a bushel to advance old crop sales," Kim Rugel at Benson Quinn Commodities said.

"And the funds were more than happy to take the opposite side with trend following funds estimated to have bought near 15,000 contracts over past two sessions."

Cotton out of favour

Elsewhere in the soy complex, in soyoil, hedge funds cut their net long position in Chicago futures and options by nearly 16,000 contracts in the week to last Tuesday, the biggest selldown in 15 months, and nearly reopening a net short position.

Speculators' net longs in Chicago livestock, May 20 (change on week)

Live cattle: 137,254, (+5,706)

Lean hogs: 61,247, (-2,275)

Feeder cattle: 15,983, (+833)

Sources:, CFTC

The vegetable oil has suffered in part thanks to investors opening short soyoil- long soymeal bets, a frequently traded spread between the two major soy processing products, but has also suffered from the decline in prices of rival palm oil, which on Monday hit their lowest in nearly seven months.

Among New York-traded soft commodities, cotton fared particularly badly, with the managed money net long position falling by 9,600 contacts, the biggest one-week drop in six months, thanks also to the wetter weather in the southern Plains.

Dry weather in Texas, the top US cotton producing state, has been seen as threatening some 2m bales of production.

'Price falls to peter out'

However, hedge funds turned more positive over some other soft commodities, such as arabica coffee, in which some commentators have doubts over a decline in prices continuing.

"Although the arabica coffee price has plunged by over 10% in May, its decline is likely to peter out, as the Brazilian crop expectations are still being downwardly corrected," Commerzbank said on Monday, flagging a downgrade of 2m bags to 46m bags in FO Licht's forecast for Brazilian production.

"FO Licht is particularly worried by the outlook for 2015-16," the bank said, noting that "this year's drought is expected to have hampered the growth of coffee trees to such an extent that next year may produce an even lower crop", as highlighted two weeks ago.

Among livestock, hedge funds raised their net long in feeder cattle to a two-year high of nearly 16,000 contracts, after data showed placement on US feedlots at a lower level than a year ago, but returning closer to average levels.

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