Hedge funds hike bullish ag bets - spurring fears of grains selldown ahead
By Mike Verdin - Published 20/02/2017

Hedge funds hiked their bullish bets in agricultural commodities near to the highest in nine months, led by a buying spree in grains – which commentators cautioned could herald revived selling pressure.

Managed money, a proxy for speculators, boosted its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by 118,149 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

The increase in the net long – the extent to which long positions, which benefit when prices gain, exceed short bets which profit from price falls – left it at 796,016 lots, its highest since June last year and more than twice the levels heading into 2017.

The purchasing reflects a broadly more positive view of commodities, as investors bet on a recovery in inflation, to which raw materials are seen as offering some exposure.

"Funds have been situating themselves in long 'inflation' bets," said Water Street Solutions.

"But the fundamentals will need to catch up to their position," the ag advisory group added, in comments which some investors saw applying in particular to grains, which have seen prices buoyed by a wave of short-covering, which some commentators see as not proportionate to changes in world supply and demand factors alone.

'Negative for prices'

Indeed, in the latest week, hedge funds hiked their net long in grains, including the soybean complex, by 140,726 contracts to 378,611 lots

Speculators' net long in Chicago grains, Feb 14 (change on week)

Soybeans: 170,688, (+20,354)

Corn: 85,360, (+56,527)

Soyoil: 68,628, (+5,766)

Soymeal: 66,587, (+5,762)

Kansas wheat: 27,425 (+9,817)

Chicago wheat: -40,047, (+42,500)

Sources:, CFTC

The purchasing was led by corn, in which managed money raised its net long by more than 56,000 contracts to a seven-month high of 85,360 lots,

Investors "bought well more contracts than expected in corn", said Terry Reilly at broker Futures International, a factor which could be viewed as a negative for prices in implying more buying pressure had been fulfilled than had been thought.

Broker Benson Quinn Commodities said that "the position should be a negative [for prices] this market doesn't need going into" this week. 

'Have to liquidate more length'

In Chicago wheat futures and options, managed money cut its net short by 42,500 contracts - the biggest swing positive in positioning in 19 months - to some 40,000 contracts, in a spree which appeared to end abruptly late last week, when prices reversed sharply.

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

Raw sugar: 161,925, (-12,258)

Cotton: 103,337, (+2,997)

Arabica coffee: 16,608, (-3,482)

Cocoa: -26,561, (-2,241)

Sources:, CFTC

"Funds continued to add length until about 10.30am on Thursday," said Benson Quinn Commodities, adding that the ensuing selling wave may have further to run.

"I expect the funds to have to liquidate more length as the correction plays out."

However, Tobin Gorey at Commonwealth Bank of Australia flagged the potential for further short covering ahead, saying that investors' "apparent absence" as prices fell late last week "does not mean they will not return as buyers to support the market temporarily."

Cool on cocoa

Among New York-traded soft commodities, hedge funds extended their selling in cocoa for an 11th successive week, expanding their net short to an all-time high of 26,561 contracts, amid fears over Ivory Coast bean reselling which helped drive prices to a multi-year low last week.

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

Live cattle: 97,300, (-6,288)

Lean hogs: 59,219, (+415)

Feeder cattle: 5,577, (-1,720)

Sources:, CFTC

However, in cotton, they raised their net long by nearly 3,000 lots to a fresh record high of 103,337 contracts, spurred by ideas of heavy physical pricing to come against the expiring March contract, and of a shortfall in Indian supplies which has helped buoy US exports of the fibre.

Rabobank flagged a "notably high March unfixed sales position… and the ability of speculators to profit from this".

'Speaks volumes'

CBA's Tobin Gorey said that while New York cotton prices had fallen markedly on Friday, by 1.6% to 75.52 cents a pound for the best-traded May contract, "the market remains in an uptrend.

Managed money net long in top 13 US-traded ags and (change on week)

Feb 14: 796,016, (+118,149)

Feb 7: 677,867, (+30,597)

Jan 31: 647,288, (-90,364)

Jan 24: 737,652, (+145,882)

Jan 17: 651,769, (+113,672)

Jan 10: 478,097, (+95,927)

Sources:, CFTC

"Measures of momentum have become increasingly important as the record investor long position builds."

He also flagged data from the Indian Cotton Federation showing that, in the five months since October, India's cotton imports rose 20% year on year. 

While volumes remained relatively small "the real significance is that the world's second largest exporter hasn't been able to meet its own domestic needs, let alone the rest of the world's.

The impact of demonetisation, and the unexpected withdrawal last year of high value bank notes, "has been much more significant, and prolonged, than most expected", a factor which "speaks volumes as to why US prices have enjoyed such a boost".

'Robust demand'

In the livestock complex, hedge funds nudged higher their net long in Chicago-traded lean hog futures and options, to a seven-month high of 59,219 contracts, amid continued buoyancy in cash markets unexpected by many investors.

"Cash hog prices have moved steadily higher in the last two months," said Paragon Economics and Steiner Consulting in a report, attributing the improvement to "robust pork demand, particularly demand for pork bellies, and packer competition for hogs as supplies seasonally decline."

The extent of demand - which has driven prices of pork bellies, and of carcass byproducts, 40% above year-ago levels - means that "for now" cutout, or wholesale, values "are robust enough to provide the packer with an incentive to run full schedule".

© Agrimoney 2017