Corn misses out on hedge funds' hefty short-covering wave
By Mike Verdin - Published 14/03/2016

Corn, and cotton, missed out on a round of short-covering by hedge funds, prompting expectations that futures prices in the grain may have more to gain although the data raised some alarm over sugar values.

Managed money, a proxy for speculators, cut by more than 100,000 contracts its net short position in futures and options in the main 13 US-traded agricultural commodities in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission (CFTC) regulator shows.

The move represented the most bullish shift in positioning in five months by hedge funds - whose record net short holding at the start of the month had appeared to leave them exposed to losses, as a strengthening real and US dryness fears spurred gains in prices of many ags.

However, while hedge funds did cover short positions in many contracts, such as coffee and sugar, they extended sales into a recovery in corn futures over the week, driving their net short position to a record high of nearly 230,000 contracts.

The corn position data "surprised the trade", said Nick Sax, at Minneapolis-based broker Benson Quinn Commodities.

'Aggressive sellers'

Paul Georgy at broker Allendale said: "Managed money funds were aggressive net sellers in corn."

Speculators' net longs in grains and oilseeds, Mar 8 (change on week)

Chicago soyoil: 39,092, (-2,469)

Chicago soymeal: -24,239, (+24,480)

Kansas wheat: -25,081, (+2,702)

Chicago soybeans: -42,906, (+38,552)

Chicago wheat: -92,450, (+15,027)

Chicago corn: -229,176, (-25,339)

Sources:, CFTC
However, it is a move which appears ill-fated, in that it came in the run-up to a US Department of Agriculture's monthly Wasde crop report which did not, as traders expected, lift estimates for US and world corn stocks.

The estimate for domestic corn stocks was held in the Wasde at 1.84bn bushels, while the figure for world inventories was cut by 1.8m tonnes to a, still-large, 207.0m tonnes.

And the prospect of further high-profile USDA data at the end of the month, on US farmers' sowing intentions, may spur hedge funds to reverse their corn selldown, Mr Sax said.

He added: "Regardless" of strong world supplies, "I suspect the market will attempt to square up a portion of that [net short] position ahead of the March intentions report," a dynamic which would provide further support to prices.

Corn futures for May stood up 0.6% at $3.67 a bushel in early deals in Chicago, taking to 3.5% their gains from a March 3 low.

'Decidedly more bearish'

Hedge funds raised their net short in New York-traded cotton futures and options too, to more than 9,000 contracts to the highest level since November 2012.

Speculators' net longs in New York softs, Mar 8 (change on week)

Raw sugar: 79,881, (+38,863)

Cocoa: 24,093, (+2,459)

Cotton: -9,447, (-6,121)

Arabica coffee: -5,490, (+13,873)

Sources:, CFTC
Tobin Gorey at Commonwealth Bank of Australia said: "Funds have continued to add to their short position as market sentiment turns decidedly more bearish," encouraged by fears that China is poised to sell some of its huge state inventories of the fibre although offer prices may be lower than originally expected.

"The latest rumours regarding a release of cotton from the China's reserves suggest that price will be based on the CIF [export] Cotton Outlook A-Index, the China cotton Index and the additions of a 13% value added tax and 1% import duty," said Louis Rose at the Rose Report.

"Such would make the price of reserve stocks higher than originally expected," as reflected in a recovery in cotton futures prices on China's own Zhengzhou exchange.

New York cotton futures for May gained 0.4% to 57.38 cents a pound in early deals in New York.

'Uncomfortably big'

By contrast, hedge funds were strong buyers in other New York soft commodities, encouraged by the strength of the Brazilian real, which boosts the value in dollar terms of assets such as coffee and sugar in which the South American country is a major force.

Speculators' net longs in Chicago livestock, Mar 8, (change on week)

Lean hogs: 43,002, (-1,630)

Live cattle: 26,704, (+4,549)

Feeder cattle: 2,830, (-212)

Sources:, CFTC
In arabica coffee, managed money slashed its net short by nearly 14,000 contracts to a four-month low of 5,490 lots.

"The real influence, expectations for a lower Colombian mid-crop and a lower-than-previously-expected Brazilian arabica crop made speculators a little less bearish," said Rabobank, which itself last week issues a relatively downbeat forecast for this year's Brazilian coffee output.

In raw sugar, speculators near-doubled their net long to nearly 80,000 contracts, raising concerns that the position was somewhat top heavy, and susceptible to selling.

"The non-index funds' net long is again becoming uncomfortably big," said Marex Spectron, the London-based broker.

Cattle vs hogs

In the livestock sector, speculators also continued to rebuild a net long position in Chicago live cattle futures and options, amid some recovery in wholesale beef values, helped by, in January, the first year-on-year rise in US export volumes of the meat since September 2014.

"In recent weeks, beef cut-out values and those cuts from the rib and loin have been increasing," said a report from Paragon Economics and Steiner Consulting.

By contrast, in lean hog futures and options, hedge funds cut their net long position for the first time in 13 weeks, ending the longest bullish streak in positioning since 2013.

"The expansion of the hog breeding herd, the lack of any significant disease pressures this winter, and low feed costs have increased the output potential of the US hog industry for the next two quarters," Paragon Economics and Steiner Consulting said.

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