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Hedge funds return to selling ags - although cocoa gets buying spree
By Mike Verdin - Published 07/08/2017

Hedge funds returned to net selling in agricultural commodities for the first time since June, as the exit of risk premium from grains more than offset a scramble to cut bearish bets on softs – in cocoa, at the fastest pace in a decade.

Managed money, a proxy for speculators, reduced its net long position in futures and options in the top 13 US-traded agricultural commodities, from coffee to cattle, by 20,483 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

The reduction in the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – was the first since late June, ending a spree which had seen hedge funds swing bullish in positioning by a net 555,000 lots.

And it reflected a return to selling in grains, besides an acceleration in the swing bearish in positioning on livestock, which speculators sold down at their fastest pace of 2017.

'Hot dry scare is past'

In grains, including the soy complex, managed money swung more bearish on positioning on all the main contracts bar soyoil, over which price sentiment was boosted by hopes that a US court ruling against the US Environmental Protection Agency would lift consumption prospects.

Speculators' net long in Chicago grains, Aug 1 (change on week)

Corn: 84,644, (-22,171)

Soyoil: 67,913, (+5,285)

Kansas wheat: 54,187 (-6,468)

Soybeans: 39,795 (-11,090)

Chicago wheat: 12,910, (-15,660)

Soymeal: -7,414, (-3,033)

Sources: Agrimoney.com, CFTC

In Chicago corn and soybean futures and options, hedge funds turned more bearish for the first time since June amid reduced concerns over the threat of dryness to US Midwest crops.

In corn, the "'hot dry' scare is past the market", said ag advisory group Water Street Solutions, adding that "the focus now is one how the grain-fill period finishes".

For soybeans, August brings the critical pod-setting period, which is seen being supported by a turn cooler and wetter in US weather.

Benson Quinn Commodities said that "the theme of the week" last week for soybean investors was that "the [US] crop was no longer getting smaller with nice soaker rains falling in North Dakota, South Dakota, Minnesota and Iowa," and forecasts for cool temperatures ahead.

'Still too long'

In Chicago winter wheat futures and options, hedge funds cut their net long by 15,660 lots, the most in three months, as worries over dryness-hit crops including US spring wheat and European Union winter wheat passed their peak.

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

Aug 1: 339,727, (-20,483)

Jul 25: 360,210, (+29,667)

Jul 18: 330,543, (+27,153)

Jul 11: 303,390, (+330,243)

Jul 3: -26,853, (+168,555)

Jun 27: -195,408, (-132,124)

Jun 20: -63,284, (+14)

Sources: Agrimoney.com, CFTC

Furthermore, expectations for the Russian wheat harvest have continued to increase – upgrades which, coupled with a rouble which has returned to weakening, have raised the prospect of the country achieving hefty exports of the grain in 2017-18.

Indeed, Benson Quinn Commodities said that funds were "still too long" in Chicago wheat, a contract in which they have historically shown an enthusiasm for building net short positions, a bet which provided persistent profits during a run down in prices from 2012 until late last year.

'Sell rallies' mode

In livestock too, managed money reduced its net long – by more than 12,000 lots, the biggest selling spree in nearly a year, including a cut in bullish betting on Chicago lean hogs for the a third successive week.

Speculators' net longs in Chicago livestock, Aug 1, (change on week)

Live cattle: 102,526, (-8,176)

Lean hogs: 73,826, (-3,476)

Feeder cattle: 15,310, (-724)

Sources: Agrimoney.com, CFTC

Rabobank noted that "US production estimates trend higher through the second half of 2017—to forecast record levels", a factor which has "capped rallies and pressured prices", with Chicago futures last week falling to a 2017 low on a spot contract basis.

In live cattle, hedge funds cut their net long for the seventh week in a row, this time by more than 8,000 lots, the most in nearly a year, and reflecting continued pressure on values from data 10 days ago showing US feedlots buying far more animals for fattening up than had been thought.

"The big coming inventories keep the market in a 'sell rallies' mode," Water Street Solutions said.

Chicago live cattle futures also last week set a 2017 low.

Cocoa buying

By contrast, in  the main New York-traded soft commodities, managed money swung net long by more than 45,000 lots – the biggest turn bullish in positioning in 15 months, led by short-closing in sugar.

Speculators' net longs in New York softs, Aug 1, (change on week)

Cotton: 21,593, (+2,938)

Arabica coffee: -11,296, (+10,469)

Cocoa: -32,355, (+13,095)

Raw sugar: -81,192, (+18,528)

Sources: Agrimoney.com, CFTC

Hedge funds cut their net short in net sugar by more than 18,500 contracts, the fastest pace in 14 months, amid a cocktail of more upbeat price pointers.

"New fuel taxes in Brazil, favouring ethanol production, were coupled with indications that India is facing a shortage and could look to import," Rabobank said.

In cocoa, managed money cut its net short by more than 13,000 lots – the biggest turn bullish in positioning since September 2007.

Market sentiment has been supported by ideas of a recovery in demand for cocoa encouraged by prices which in June hit their lowest in nearly a decade.

© Agrimoney 2017