Hedge funds turn sweeter on most ags but not sugar

Sugar futures, hurt by fears that poor price prospects will force some Brazilian mills to close, missed out on a further turn positive by hedge funds on agricultural commodities, with exposure to rising cocoa values raised to a five-year high.

Managed money, a proxy for speculators, raised its overall net long exposure to futures and options in the major US-traded agricultural commodities by more than 34,000 contracts in the week to last Tuesday to 282,774 contracts, the highest in three months.

The recovery in the net long position the extent to which long bets, which profit when prices rise, outnumber short holdings, which benefit when values fall for a fifth successive week from the record low reached last month reflected improved sentiment towards many contracts.

Sweet on cocoa

Hedge funds continued to rebuild their net long position in Chicago corn, as rain slowed US plantings of the grain to the lowest on record as of May 12, although sowings are believed to have shown a strong catch-up since.

Speculators' net longs in grains and oilseeds, May 14, (change on week)

Chicago soybeans: 83,826, (+10,726)

Chicago corn: 75,632, (+14,000)

Chicago soymeal: 28,706, (-1,340)

Kansas wheat: 15,599, (+724)

Chicago soyoil: -13,167, (+8,663)

Chicago wheat: -17,225, (-6,781)

Sources:, CFTC

In New York cocoa, the managed money net long rose above 45,000 lots for the first time since March 2008, amid concerns over prospects for the key growing region of West Africa.

"After initial optimistic polls pointing to a crop of 400,000 tonnes for Ivory Coast, the latest feedback from pod counters are suggesting low rates of pod survival on trees and renewed dry weather in the south," Macquarie said on Friday.

For 2013-14, "our initial estimates point to a small reduction, based on the structural decline in yields of ageing trees, offsetting higher yields at younger trees", the bank said.

Speculators also rebuilt a historically high net long position, of more than 62,000 contracts, in New York cotton futures and options, after the US Department of Agriculture forecast domestic stocks staying at below-average levels in 2013-14, and with sowings of the fibre lagging.

Sugar vs ethanol

However, on raw sugar, investors bucked the trend by increasing their net short exposure mean short bets outnumber long positions - by more than 25,000 lots to more than 65,000 contracts, heading back towards the record high established last month.

Speculators' net longs in New York softs, May 14, (change on week)

Cotton: 62,386, (+9,827)

Cocoa: 45,276, (+2,682)

Arabica coffee: -172, (+8,109)

Raw sugar: -65,247, (-25,550)

Sources:, CFTC

The large turn negative on sugar reflected a sharp acceleration in the cane crush in Brazil's key Centre South region, as revealed in industry data on May 13, which also showed sugar taking a bigger proportion of the crop than many investors had expected, given the financial incentive for mills to manufacture ethanol instead.

"Some participants estimate 2013-14 sugar mix as low as 42%," with ethanol taking 58% of Centre South cane, Deutsche Bank said.

Mills to close?

A further negative to prices was the prospect of further selling by Brazilian sugar producers which, deterred by prices which fell to their lowest in nearly three years last week, have yet to realise prices on much of their output.

Speculators' net longs in Chicago livestock, May 14, (change on week)

Live cattle: 31,021, (-4,336)

Lean hogs: 31,662, (+9,138)

Feeder cattle: -3,311, (-889)

Sources:, CFTC

"With less than 50% of the industry likely to be hedged, hedging pressure will be evident," Deutsche Bank analyst Christine McGlone-Hahn said.

Indeed, the industry's poor financial prospects raised a "common belief" at New York sugar week last week that some Brazilian mills will close, "thus taking out capacity", Ms McGlone-Hahn added.

"However, largely offsetting this is capacity creep from the maturing of brownfield investments made in prior years.

"Hence, despite the closure of some mills, total capacity may be unchanged. In essence, the better performing mills will operate at higher capacity utilisation."

Mixed wheat

Speculators also turned more negative on Chicago soft red winter wheat, amid improved hopes for crops in Australia and the former Soviet Union, and with the contract often spread against long positions in other grains.

By contrast, speculators raised their net long position in hard red winter wheat - the type traded in Kansas, and which has suffered damage to drought and frosts in the US - to the highest in nearly four months.

Coffee, corn, hogs turn hedge funds upbeat on ags
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