PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 13:50 UK, 6th Mar 2017, by Mike Verdin
Hedge funds wrong-footed in ags by Trump biofuels shake-up talk

The rumour mill surrounding US President Donald Trump squeezed ag speculators - spurring a sharp rally just after hedge funds had undertaken a major selldown, including their biggest turn bearish on softs in more than a year.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by nearly 123,000 contracts in the last week of February, analysis of data from the Commodity Futures Trading Commission regulator shows.

While the cut in the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – was led by grains, it was particularly notable in New York-traded soft commodities, in falling by more than 38,000 contracts.

That was the biggest selldown in the complex since early February last year, and included fresh selling in cocoa, in which hedge funds expanded their net short to a fresh record high, and raw sugar, in which the net long was slashed to a 10-month low.

'Thrown into a frenzy'

However, the selling came ahead of a firm finish to the week for agricultural commodities, spurred largely by talk that Mr Trump was to introduce US biofuels reforms likely to spur demand for both ethanol, processed largely from corn, and biodiesel, which is made from vegetable oils such as soyoil.

Speculators' net long in Chicago grains, Feb 28 (change on week)

Soybeans: 131,576, (-22,731)

Corn: 82,135, (-10,081)

Soymeal: 70,482, (-2,983)

Kansas wheat: 37,357 (+2,987)

Soyoil: 27,046, (-17,852)

Chicago wheat: -55,466, (-28,081)

Sources:, CFTC

"The corn market was thrown into a frenzy as statements from the Renewable Fuels Association indicated a big change to the ethanol industry," said Joe Lardy at CHS Hedging.

"The soybean market went crazy as rumours of a change to the biodiesel mandate was going to occur by executive order. The soyoil market rocketed higher and pulled beans with it."

While the White House denied any executive order was in train, investors are still "wondering if and when an announcement is coming", Mr Lardy said.

'Screaming higher'

In Chicago soyoil, the rally in prices from five-month lows followed a particularly sharp selldown, of more than 40,000 lots over two weeks, the biggest for any fortnight since June 2015.

Speculators' net longs in New York softs, Feb 28, (change on week)

Raw sugar: 136,254, (-28,392)

Cotton: 99,766, (+1,611)

Arabica coffee: 13,393, (-5,005)

Cocoa: -32,348, (-6,396)

Sources:, CFTC

While the selling was "likely reversed… after the biofuel fireworks hit the market, sending soyoil screaming higher", as Terry Reilly at Futures International noted, it left hedge funds' latest short positions under water.

The total number of short bets in soyoil as of last Tuesday, at nearly 40,000 lots, was at its highest since August.

Positive, negative signals

In corn and sugar too – both linked to the ethanol market - hedge funds appeared wrong-footed in selldowns which were particularly strong for the sweetener, in which managed money cut its net long in New York-traded futures and options by more than 28,000 contracts to a 10-month low.

Speculators' net longs in Chicago livestock, Feb 28, (change on week)

Live cattle: 98,170, (+1,250)

Lean hogs: 53,269, (-7,029)

Feeder cattle: 5,454, (-198)

Sources:, CFTC

And for corn at least, the selling was viewed as potentially positive for prices, in creating room for speculators to take out fresh long positions without such a position appearing top heavy.

"With the reduction [in the net long], it allows managed money to add new longs with positive news," said Benson Quinn commodities.

For sugar, broker Marex Spectron flagged a potential negative for values in technical signals, in that some shorter-term moving averages are moving down through longer-term peers.

"Interestingly, we have noticed that on the second month continuation chart, the 100- and 200-day moving averages have crossed over," Marex said, noting that this represented a reversal of a signal in November 2015 which preceded price strength.

The latest chart movement "could be a longer-term signal for the medium-to-longer term funds to start liquidating positions".

'Supportive tilt' for prices

Among other contracts, a hike by hedge funds of more than 28,000 lots in their net short in Chicago wheat futures and options was also viewed as potentially bullish for prices, in meaning that more selling pressure than had been thought had been taken out of the market.

Indeed, besides being "heavy sellers in Chicago wheat" in the week to Tuesday, funds "have added to that position" in the latter sessions of last week, Benson Quinn Commodities said.

"The added shorts offers the market a supportive tilt," the broker said, adding that it "would lean toward the wheat markets have a little firmer tone" early this week.

Chicago wheat futures for May, the best-traded contract, indeed added 1.7% to $4.61 ¼ a bushel in early deals on Monday.

'Losing steam'

In the Chicago-traded livestock sector, hedge funds also cut their net long position, thanks in the main to the biggest cut in seven months to bullish betting on lean hog futures and options.

"Prices have adjusted lower as some of the factors fuelling the rally appear to be losing steam," said Steiner Consulting.

"Pork belly prices, which approached all-time record highs at an unusual time of the year, have declined sharply."

However, the analysis group added that there are "still a number of positives in the current hog/pork market.

"For one, we are still seeing very strong demand for pork as US prices are more competitive relative to what European and South American producers can offer in the world market."

Hedge funds' ag buying stalls, amid questions over commodities rally
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