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Corn, sugar bear brunt of rush for short positions
By Agrimoney.com - Published 18/02/2013

Corn and sugar bore the brunt of a sharp turn bearish in hedge fund sentiment towards agricultural commodities, amid improved ideas of supplies which has driven many futures contracts to multi-month lows.

Managed money, a proxy for speculators, cut its net long exposure to Chicago corn futures and options by 56,604 lots – the biggest sell-off since June 2011 – in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC), the US regulator.

In New York raw sugar, speculators' net short– meaning short positions, which profit when prices fall, outnumber long holdings which benefit when values gain – jumped by 18,701 contracts to more than 25,000 lots.

This was the largest net short for raw sugar since 2007.

Short positions in vogue

The shifts were the most dramatic in a week which saw hedge funds turn more negative on all the major grain, oilseed, soft commodity and livestock contracts except cotton and soymeal.

Speculators' net longs in grains and oilseeds, Feb 12, (change on week)

Chicago soybeans: 133,733 (-1,911)

Chicago corn: 126,363, (-56,604)

Chicago soymeal: 47,320, (+1,809)

Kansas wheat: 9,352, (-1,256)

Chicago soyoil: -12,042, (-19,461)

Chicago wheat: -32,415, (-4,739)

Sources: Agrimoney.com, CFTC

Indeed, in wheat, speculator positioning in both Chicago soft red winter wheat contracts and Kansas hard red winter wheat was at its most bearish since May.

In Chicago soyoil, speculators undertook their biggest sell-down of long exposure in nine months, in fact retaking a net short position.

In the livestock complex, speculators' net long position in live cattle futures fell for a fifth successive week, this time to less than 18,000 contracts, and the lowest since October 2009.

Landmark week for sellers

The positioning added to selling pressure which saw many agricultural commodities notch up bearish landmarks last week.

Speculators' net longs in New York softs, Feb 12, (change on week)

Cotton: 60,728, (+1,590)

Cocoa: 16,855, (-1,439)

Coffee: -23,714, (-6,875)

Raw sugar: -25,301, (-18,701)

Sources: Agrimoney.com, CFTC

Chicago corn futures matched their longest losing streak since 1965, of 10 successive sessions, before rebounding on Friday.

Prices have been pressed by concerns over demand for US supplies both from ethanol plants and importers, besides, like soybeans, being undermined by improved South American weather, which has improved prospects for the important Argentine and Brazilian harvests.

Wheat futures fell in sympathy, hitting their lowest levels in seven months in both Chicago and Paris.

Among soft commodities, arabica coffee and sugar set two-year lows, also sunk by a more benign Brazilian weather outlook, while Chicago live cattle futures hit a four-month low, undermined by disappointing exports and falling beef prices, in the fact of soft demand.

Funds quit

The decline is also seen as being fuelled by an exit by some large funds from agricultural commodities.

Speculators' net longs in Chicago livestock, Feb 12, (change on week)

Lean hogs: 33,986, (-8,839)

Live cattle: 17,952, (-1,171)

Feeder cattle: 2,199, (-168))

Sources: Agrimoney.com, CFTC

Calpers, the California pension fund for state employees, in October withdrew 55% of its holdings in commodities, after they lost about 8% a year over five years.

The fund left \$1.5bn in commodities, about 0.6% of its overall investment portfolio, switching the cash to inflation linked bonds.

Barclays, the UK-based bank, last week revealed it would no longer serve hedge funds undertaking speculative bets in agricultural commodities.

'Short-covering bounce'

However, the extent of the negative managed money positioning in commodities may have opened futures up to a sharp rebound, if price-positive news comes through.

In sugar, "a short-covering bounce remains on the cards given the massive short position accumulated by speculative investors", Luke Mathews, at Commonwealth Bank of Australia, said.

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