Hedge fund sentiment on ags drops, notably on soy
By - Published 12/05/2014

Hedge funds cut their bets on agricultural commodity price gains at the fastest rate in six months as sentiment soured on cocoa, hog and soy futures, although - in the latter at least the selldown appeared a little premature.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by nearly 50,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

That was the strongest pace of decline since November in the net long position the extent to which long positions, which profit when values rise, exceed short bets, which benefit from market values.

The sell-off was focused in a few crops, with investors actually turning more positive on the likes of corn and wheat, amid lingering fears over poor US weather.

Cool on cocoa

In New York cocoa, hedge funds cut their net long position by some 3,600 contracts to 54,111 lots, the lowest in nine months, amid growing confidence of a sizeable mid-crop in Ivory Coast, the top producing country.

Speculators' net longs in New York softs, May 6, (change on week)

Raw sugar: 121,075, (+572)

Cotton: 64,378, (+2,477)

Cocoa: 54,111, (-3,632)

Arabica coffee: 41,551, (+284)

Sources:, CFTC

Indeed, ditching long positions in cocoa has been a winning bet for investors, with futures extending their fall, leading the July contract on Thursday to hit a three-month low for a nearest-but-one contract of $2,849 a tonne in New York.

"Funds continue to back away from the market and this is allowing the market to leak lower," said Sterling Smith at Citigroup, adding that "until we see some sort of capitulation we should expect prices to continue work lower".

That said, Mr Smith, and many other commentators, forecast a recovery in prices longer term, as the impact of successive seasons of world production deficit feeds through.

Hog retreat

 In Chicago, lean hogs, hedge funds cut their net long position by more than 3,000 contracts, and for the fifth week in the last five, a move which has proved financially justified, in that lean hog futures this month have fallen from record highs.

Speculators' net longs in Chicago livestock, May 6 (change on week)

Live cattle: 136,483, (+171)

Lean hogs: 67,950, (-3,119)

Feeder cattle: 14,352, (-559)

Sources:, CFTC

Latest US pork export data have been strong, with statistics last week, for March, showing 29% growth year on year to 209.704 tonnes, the highest in 17 months.

However, thanks to higher slaughter weights, pork supplies are currently showing year-on-year growth despite a drop in numbers blamed on the porcine epidemic diahorrea virus (PEDv) although Rabobank last week estimated US pork output falling 6-7% in 2014 as a whole.

 And although US pork supplies are "higher than a year ago, the sharp spike in prices during March and April as well as fears of a supply shortfall in the summer have caused end users to significantly increase prices", quelling demand, a report from Paragon Economics and Steiner Consulting said.

The wholesale price, or so-called cutout, of pork bellies, the cut from which bacon is made, is own by about one-third over the past month.

Soy recovery

However, it was in the soy complex that hedge funds made their biggest sell-off during the week, slashing their net long in soybeans themselves by more than 30,000 contracts, the biggest bearish shift in one week in nine months.

Speculators' net longs in grains and oilseeds, May 6, (change on week)

Chicago corn: 266,479, (+2,088)

Chicago soybeans: 138,044, (-30,832)

Chicago soymeal: 65,628, (+1,910)

Chicago wheat: 45,265, (-9,575)

Kansas wheat: 36,876, (+1,338)

Chicago soyoil: 23,166, (-11,557)

Sources:, CFTC

In Chicago soymeal, they cut their net long by nearly 10,000 contracts to a three-month low of 65,628 contracts, while lowering their net long in soyoil by 11,557 lots.

The more bearish positioning was fuelled by concerns over Chinese cancellations of import orders from Brazil, with many cargoes seen switched to the US, so easing the squeeze in the American balance sheet, with talk of auctions from Chinese state reserves helping too.

However, the announcement of a relatively small amount of soybeans up for auction in China, of 300,000 tonnes, and hopes for a recovery in Chinese processing margins, helped set the stage for a recovery in prices late last week.

The revival gained an extra leg on Friday, when the US Department of Agriculture trimmed its forecast for domestic stocks at the close of 2014-15 to the lowest, as a proportion of demand, on records going back to the 1960s.

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