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Soy, sugar drive hedge fund sell-off in ags

Hedge funds came close to their first net short position in soybeans since 2011, but proved surprisingly reluctant to sell down corn, as they drove their bullish bets on agricultural commodities to the lowest in five months.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to live cattle, by more than 86,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

The sell-down took the net long the extent to which long bets, which gain when prices rise, exceed short holdings, which profit when values fall to 544,000 contracts, the lowest since February.

And it was fuelled by a drop of more than 20,000 contracts in the net long in soybeans, to just 2,142.

Soybean exit

Hedge funds have now cut their net long in Chicago soybean futures and options by more than 200,000 contracts since early March, as much improved US weather, after a wet start to the planting season, have boosted hopes for a record crop this season.

Speculators' net longs in grains and oilseeds, Jul 8, (change on week)

Chicago corn: 107,600, (+5,412)

Chicago soymeal: 31,116, (-8,562)

Kansas wheat: 17,698, (-5,189)

Chicago soyoil: 8,705, (-8,101)

Chicago soybeans: 2,142, (-20,062)

Chicago wheat: -44,296, (-3,582)

Sources: Agrimoney.com, CFTC

Price prospects were further undermined on June 30, when the US Department of Agriculture revealed that US inventories were larger than had been thought.

The CFTC data do not cover the period for the latest slide in in futures, fuelled on Friday, when the USDA raised estimates for both US and world inventories, which drove Chicago's best-traded November soybean lot to a contract low.

Indeed, there are expectations that the next data will show managed money turning net short on Chicago soybeans for the first time since December 2011.

'Plenty of bullets'

"Managed money is also transitioning to a net short position across Chicago soybeans," Rabobank said, noting that "the soybean complex continues to trade lower on expectations of a record-large new crop in the US".

Speculators' net longs in New York softs, Jul 8, (change on week)

Raw sugar: 115,580, (-38,289)

Cocoa: 69,631, (+407)

Arabica coffee: 37,061, (-699)

Cotton: 10,997, (-5,349)

Sources: Agrimoney.com, CFTC

At Benson Quinn Commodities, Kim Rugel said that the extent of the bearish positioning still left scope for hedge funds to raise their short bets on the oilseed.

The record short, in 2006, was of more than 55,000 contracts "meaning funds still have plenty of bullets to throw at the short side of this market", Ms Rugel said.

Extremes of net long or net short positioning, compared with historical levels, tend to raise questions over whether hedge funds have exhausted their appetite for such bets.

Sour on sugar

The CFTC data also showed managed money raising its net short in Chicago soft red winter wheat futures and options to more than 44,000 contracts, the highest since February, although more selling was seen in Kansas City hard red winter wheat.

Speculators' net longs in Chicago livestock, Jul 8 (change on week)

Live cattle: 119,391, (-1,485)

Lean hogs: 58,069, (-1,480)

Feeder cattle: 10,617, (-317)

Sources: Agrimoney.com, CFTC

The US hard red winter wheat harvest has improved markedly as it has moved out of the southern Plains, with the June 30 inventory report signalling that the country's stocks of the grain as of the end of 2013-14 were higher than thought too.

Notable selling was also seen in New York cotton, in which hedge funds cut their net long to a seven-month low, with southern US rains improving harvest hopes, and in raw sugar, in which the net long was slashed by more than 38,000 contracts.

"Harvest pressures are adding to already abundant international stocks," Rabobank said.

However, the extent of the selldown was seen by Sucden Financial as fuelling a 0.4% recovery to 17.14 cents a pound in New York's October raw sugar contract in early deals on Monday.

Ideas that much selling pressure in sugar has already been spent "helped values recover somewhat so far this morning", the broker said.

Corn conundrum

However, puzzingly, hedge funds failed to extend a net short in corn futures and options, raising questions over the driver of a 4% drop in prices over the week to last Tuesday.

Swap dealers and index traders also raised their net long position in corn, and while commercials did return to a trend of raising their net short, the increase was by a modest 5,284 lots over the week.

"It is difficult to square these moves in positions with what happened in prices," a European grains investor told Agrimoney.com.

"Whether there is some unusual spreading going on, I do not know."

In fact, managed money raised both its long and short holdings in corn over the week, with the open interest rising too, by 76,000 contracts to 1.83m lots.

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