Hedge funds win on hogs, sugar, but lose on cotton

Hedge funds ended their record long spell of bearish positioning on lean hogs as cold and the spread of porcine epidemic diarrhoea virus diminished supply prospects, helping futures for summer delivery hit contract highs.

Managed money, a proxy for speculators, lifted its net long position in futures and options in the main 13 US-traded agricultural commodities by more than 12,000 lots in the week to last Tuesday, according to data from the Commodity Futures Trading Commission, the regulator.

The rebuild - for a second successive week, after the longest period of bearish positioning since records began eight years ago reflected largely a less bearish take on corn prices, after the US earlier in the month cut its estimate for stocks at the end of 2013-14.

The US Department of Agriculture cited a lower estimate for last year's domestic harvest, and increased use of the grain for feed compared with higher-priced wheat, for the revision.

Positive porcine forces

However, the figure also signally included an increase in hedge funds' net long in Chicago lean hog futures and options for the first time since speculators in September notched up their most bullish positioning on record.

Speculators' net longs in Chicago livestock, Jan 21, (change on week)

Live cattle: 123,655, (+4,799)

Lean hogs: 41,313, (+2,832)

Feeder cattle: 9,002 (+951)

Sources:, CFTC

The net long has since more than halved, from the all-time high of 97,952 lots reached in the latest week, but revived in the week to last Tuesday in part thanks to cold weather which has prompted ideas of logistical hiccups and reduced weight gains, although these have been countered in part by strong US slaughter weights.

"Record weights are the current negative," US Commodities said. 

However, prices have also been supported by the continued outbreak of porcine epidemic diarrhoea virus, or PEDv, which causes high mortality in piglets, and slows development severely in older animals.

Indeed, hedge funds' return to increasing their net longs in lean hog futures has been a winning call, with news last week of the spread of PEDv to Canada fuelling a rise in prices, which for many summer lots remain near contract highs.

'Wildly bullish standpoint'

"Canada reported their first PEDv, showing that it is still spreading," US Commodities said.

Speculators' net longs in grains and oilseeds, Jan 21, (change on week)

Chicago soybeans: 127,161, (+18,713)

Chicago soymeal: 59,524, (+767)

Kansas wheat: 6,341, (+747)

Chicago wheat: -56,571 (-89)

Chicago corn: -59,325, (+4,606)

Chicago soyoil: -64,537, (-3,878)

Sources:, CFTC

Chicago-based broker Allendale said: ""Canada's first confirmed case of PEDv will change this year's pricing.

"From a wildly bullish standpoint we now have to write down our production estimates for our friends up north.

"That will also lead to fewer imports. Of last year's 112m hog kill here in the US, 5m came from Canada either as weaned/feeder pigs or finished hogs."

Lean hog futures for April on Monday stood 0.2% higher at 94.25 cents a pound in late deals, having touched a three-month high of 94.50 cents a pound earlier.

July futures matched their contract high, set in the last session, of 101.10 cents a pound.

Wrong footed on cotton

However, hedge funds' increase in their net long position in cotton futures and options in the week to January 21, by 7,778 contracts to a three-month high of 49,139 contracts, was looking less profitable on Monday, after a 3.4% tumble in prices to 84.25 cents a pound.

Speculators' net longs in New York softs, Jan 21 (change on week)

Cocoa: 69,398, (-437)

Cotton: 49,319, (+7,778)

Arabica coffee: -2,755, (-2,461)

Raw sugar: -56,380, (-4,074)

Sources:, CFTC

Cotton prices had gained on ideas of tightening US supplies, stoked by relatively low levels of inventories certified for delivery against Chicago futures, and strong US export data.

US export sales for the week to January 9 trebled to more than 230,000 running bales, including trade forward for next season, and more than doubled again the following week to 550,000 running bales, making it the second best week of the current 2013-14 marketing year so far.

The figure for the latest week included nearly 180,000 running bales bought by Chinese importers, helping underpin ideas that proposed reforms to the country's support regime for cotton growers will not, for now, remove a major source of international demand which has been a key prop for world prices.

However, cotton prices have retreated with the broader market weakness caused by concerns over emerging market growth, being, as an industrial commodity, more susceptible than values of food crops to changes in macroeconomic sentiment.

Profits on sugar

Hedge funds have proved more profitable in their bets on raw sugar futures and options, in which they raised their net short position for a 12th successive week and which, indeed, have continued to fall, undermined by ideas of strong supplies.

New York raw sugar futures for March on Monday fell 2.1% to 14.80 cents a pound, the first close for a spot contract below 15 cents a pound since June 2009.

"We still suspect oversupply in both markets will cause these to weaken further as we approach the respective March expiries and the physical markets show no sign of improvement," said Nick Penney, senior trader at Sucden Financial, raising the threat of a weaker Brazilian real to prices too.

"What may also affect the sugar market is the macro situation, affected by the current peso devaluation crisis in Argentina which has sharpened attention on emerging market risk.

"The Brazilian real and Indian rupee may be buffeted by this, and any fall in local currencies against the dollar in producing countries adds to the potential selling pressure on sugar and other dollar-denominated commodities."

The real on Monday shed 1.0% against the dollar, on track for its weakest close since August.

Hedge funds end record bearish spree on ag futures
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