The Ukraine crisis, coupled with concerns over Brazilian
dryness and an outbreak of porcine epidemic diahorrea virus, prompted hedge funds
to make their second-biggest ever bullish shift in agricultural commodity bets.
Managed money, a proxy for speculators, raised by more than
158,000 contracts its net long position in futures and options in the main 13
US-traded agricultural commodities in the week to last Tuesday, according to
data from the Commodity Futures Trading Commission (CFTC) regulator.
The increase in the net long - the extent to which long
positions, which benefit when prices rise, outnumber short bets, which profit
when values fall – was the second biggest on records going back to 2006,
exceeded only by a week in July 2010.
And it came as Russia's invasion of Crimea added to the
concerns over Brazilian dryness, US cold and a North American outbreak of porcine
epidemic diahorrea virus (PEDv) which had already driven a marked recovery in
sentiment on agricultural commodity prices.
"Managed money's rapid return to agri commodity markets
continued," Rabobank said.
Clamour for corn
Indeed, hedge funds - which entered 2014 amid their longest unbroken
stretch of bearish positioning in agricultural commodities on record – have now
rebuilt a net long of nearly 900,000 contracts, the highest in 18 months.
Speculators' net longs in grains and oilseeds, Mar 4, (change on week)
Chicago soybeans: 208,493, (+5,497)
Chicago corn: 155,122, (+70,606)
Chicago soymeal: 70,132, (-3,456)
Kansas wheat: 28,197, (+4,772)
Chicago soyoil: -3,983, (+13,784)
Chicago wheat: -6,040, (+14,271)
Sources: Agrimoney.com, CFTC
The swing in the latest week was driven by a jump of more
than 70,000 lots in the net long position in Chicago corn futures and options,
the second-biggest bullish switch on record, spurred by fears for export
supplies from Ukraine, the third biggest exporter of the grain.
US corn export sales have already exceeded expectations,
reaching 93% of the total the US Department of Agriculture expects for the
whole of 2013-14, with half the season left.
Many investors forecast that the USDA will, later on Monday in
its much-watched monthly Wasde crop report, raise its estimate for US corn shipments
'Robust job on
pricing in risk'
However, managed money also cut its net short position in
Chicago wheat futures and options, by more than 14,000 contracts, with Ukraine
a major shipper of this grain too.
Speculators' net longs in New York softs, Mar 4, (change on week)
Cocoa: 80,376, (+1,063)
Raw sugar: 64,740, (+42,922)
Cotton: 54,337, (+1,135)
Arabica coffee: 27,872, (+6)
Sources: Agrimoney.com, CFTC
"Funds have moved to limit short exposure, which is
understandable given that a [Crimea] resolution isn't around the corner and the
implications of the Black Sea region suddenly unable to supply wheat to the
world," Jonathan Watters at Benson Quinn Commodities said.
In fact, there has been little disruption to shipments from
the Crimea turmoil, although buyers are believed to be shifting demand elsewhere
in case of setbacks ahead.
"Unrest in the Ukraine has seen this market do a very robust
job on pricing in risk and accounting for the potential increase in both intra-European
Union demand for wheat along with international demand," said Jaime Nolan
Miralles at FCStone, referring to price gains in particular in Paris, where
futures hit a 10-month high on Friday.
"However, it must be noted that despite the fractured nature
of Ukraine/Russia, trade flow until now has not been impacted."
'More questions being
Raw sugar futures and options also attracted a surge in
buying interest, on concerns for the impact of Brazilian dryness on cane, with
the managed money net long rising by nearly 43,000 contracts, to some 65,000
Speculators' net longs in Chicago livestock, Mar 4, (change on week)
Live cattle: 132,073, (+3,839)
Lean hogs: 77,077, (+7,435)
Feeder cattle: 11,564, (-4)
Sources: Agrimoney.com, CFTC
However, the extent of the increase, which was more than some
investors had expected, has begun to raise questions of whether hedge funds
will have appetite to raise further their net long.
"The increase, and rain arriving in Centre South Brazil
sugar areas over the weekend, was enough to prompt some early selling this
morning on the opening in New York," said Sucden Financial, as raw sugar
futures for May eased 1.0% to 17.83 cents a pound in early deals.
At Commonwealth Bank of Australia, Luke Mathews said that "more
questions are being asked regarding the sustainability of the recent rally in prices.
"Speculative investors have now built a net long position, a
significant contrast to the imposing net short position which had been
accumulated a few months ago."
In arabica coffee, also the subject of concerns over Brazil's
dryness, the managed money net long rose by just 6 contracts to 27,872, if
still setting a fresh high since May 2011.
That increase was less than many investors had expected,
helping arabica coffee futures for May rise 1.7% to 200.20 cents a pound in New
Still, Chicago lean hog futures performed best of any of the
major agricultural commodities in the week in question, soaring 11%, as
concerns over the North American outbreak of porcine epidemic diahorrea virus
(PEDv) will curtail pork supplies.
"The trade is extremely concerned that the slaughter will
plummet due to the increased cases of PEDv reported in December through
February," US Commodities said, noting that "futures now have a huge premium"
to hog cash prices.
Indeed, the broker urged caution over lean hog futures
saying that "the trade is now dialling in summer production down 10-20% - this
is a massive drop.
"The market remains positive but stretched out and
overbought. The PEDv fear has pushed
sellers to the sideline and is dialling in massive premiums."