Crops lead 'massive' turn to commodities by specs
By - Published 09/01/2012

Agricultural commodities led a "massive" boost in speculative investments on rises in raw material prices, as concerns over dry South American weather prompted a revival in long bets on corn and soybean futures.

Speculators raised their net long positions in futures and options over 16 main US-traded commodities by 20.2% in the week to January 3, Standard Chartered said, analysing results from weekly data compiled by the Commodity Futures Trading Commission, the market regulator.

In the agricultural sector, the increase was more than one-half – from net length of 184,891 positions to net length of 279,202 – "largely due to bullish repositioning in corn, sugar and soybeans", StanChart analyst Kuon-Ken Lee said.

Australia & New Zealand Bank, which places a slightly broader array of CFTC data categories within the "speculative" camp, said that the net long exposure across agricultural commodity markets soared, in crop weight equivalent, to 13.4m tonnes from 3.64m tonnes the week before.

"The big movers were a building of net longs in corn, soybeans, sugar and wheat," ANZ analyst Paul Deane said.

'Production estimates are too high'

The rebound in sentiment towards agricultural commodities has been fuelled largely by unusually dry weather, blamed on the La Nina pattern, in Argentina, southern Brazil and Paraguay, threatening in particular corn and soybean crops.

Speculators' net long positions,  January 3, and change on week

Corn: 192,500 lots, +43,847 lots

Sugar: 58,546 lots, +14,754 lots

Soybeans: 33,020 lots, +9,337 lots

Cotton: 14,986 lots, +8,303 lots

Coffee: 6,209 lots, +3,304 lots

Cocoa: -9,694 lots, -224 lots

Wheat: -27,097 lots, +2,155 lots

Data for futures and options, US exchanges. Source: CFTC

Speculators net long in Chicago corn soared by nearly 44,000 lots to 192,500 contracts, and in soybeans by 9,337 lots to more than 33,000 contracts.

"Although the generally more positive mood on the financial markets is likely to have prompted greater optimism concerning the development of prices for agriculturals, fundamental developments will also have pointed to higher prices for some agriculturals," Commerzbank said.

"Many market players currently expect the South American corn and soybean harvests to suffer seriously from the drought."

Investors believe the weather threat will prompt the US Department of Agriculture on Thursday, in its latest Wasde world crop supply and demand report, to cut its estimate for the Argentine crop by 3.2m tonnes to 25.8m tonnes, with a residual downgrade forecast for America's own heat-tested 2011 crop too.

"Corn saw one of the largest bullish moves by speculators, based on the view that… corn production estimates are too high," Mr Lee said.

Odd one out

Chicago wheat saw smaller buying by speculators, who cut their net short position in the grain by 2,155 lots to just over 27,000 contracts, reflecting the improved sentiment in crops.

Speculators have now significantly retraced since net short positions hit a multi-year high above 50,000 lots last year.

Among soft commodities, New York raw sugar saw a large rebound in its popularity, with speculative net length, which in late 2012 declined from more than 150,000 contracts, rebounding by more than 14,700 lots to 58,536 lots.

New York cocoa bucked the bullish trend, with speculators increasing their net short in the bean by 224 contracts to 9,694 amid continued ideas of strong West African production.

World output of cocoa, unlike that of many other farm commodities, tends to rise in La Nina periods.

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