The hot and dry weather in Brazil, concerns over which fuelled the biggest bullish turn by hedge funds on agricultural commodities in 18 months, may be poised to end, although not before delivering further elevated temperatures.
Centre-east Brazil, beset since December by temperatures which have set a series of records, and suffering rainfall 50% or less of normal levels, will receive rains from February 15-20, consultancy Somar said.
Weather service WxRisk.com said that the GFS weather model, in the six-to-10-day outlook, "has some showers and thunderstorms which drops 0.50-1.5 inches of rain over Parana and Sao Paulo".
Sao Paulo is the top cane, and orange, producing state, and Parana a major soybean and corn grower, while neighbouring Minas Gerais, the biggest coffee state, has also been hit by the drought.
However, WxRisk.com cautioned that weather models "are not in very good agreement", with the European model maintaining the dry outlook.
The extent of the impact of the Brazilian dryness on investor thinking was unveiled in US regulatory data showing that managed money, a proxy for speculators, raised its net long position in futures and options in the main US-traded agricultural commodities by more than 140,000 contracts in the week to last Tuesday.
Speculators' net longs in New York softs, Feb 4 (change on week)
Cocoa: 83,038, (+5,577)
Cotton: 45,242, (+1,295)
Arabica coffee: 7,981, (+13,435)
Raw sugar: -38,227, (+20,430)
Sources: Agrimoney.com, CFTC
And it was reflected in futures prices, which for New York-traded arabica coffee spared 18.8% during the week, with prices of New York raw sugar, as well as of London-traded white sugar and robusta coffee, rising by more than 5%.
In arabica coffee, hedge funds turned from a net short of more than 5,000 contracts to a net long of nearly 8,000 lots, the largest net long since January 2011.
It was also the biggest turn bullish in positioning on arabica coffee, of which Brazil is the top producer and exporter, since June 2010.
"The clear majority of short-term-oriented market players are now betting on rising prices again for the first time in two years," Commerzbank said, flagging a "reshuffling" in speculators' positioning on agricultural commodities.
However, hedge funds also turned more positive on raw sugar too, cutting their net short holding on the sweetener by more than 20,000 lots – and ending an unbroken spree of bearish positioning which had lasted for 13 weeks.
Speculators' net longs in grains and oilseeds, Feb 4, (change on week)
Chicago soybeans: 146,533, (+24,902)
Chicago soymeal: 66,274, (+7,448)
Kansas wheat: 8,301, (+3,468)
Chicago corn: -5,314, (+46,803)
Chicago wheat: -52,963 (+9,538)
Chicago soyoil: -59,141, (+3,871)
Sources: Agrimoney.com, CFTC
And in soybeans, of which Brazil is the top exporter, investors raised their net long in Chicago by nearly 25,000 contracts, the biggest bullish turn in positioning in a year.
"Short-term-oriented market participants also appear much more optimistic about the performance of the soybean price," Commerzbank said, adding that "the drought in Brazil plays a crucial role" in determining supplies of both soybeans and sugar.
In corn too, of which Brazil is the second-ranked exporter, after the US, speculators near-eliminated their net short holding, cutting it by more than 46,000 contracts, the biggest bullish shift in positioning since November 2012.
Speculators' net longs in Chicago livestock, Feb 4, (change on week)
Live cattle: 130,316, (+6,219)
Lean hogs: 44,503, (-1,427)Feeder cattle: 8,989 (-491)Sources: Agrimoney.com, CFTC
Indeed, only feeder cattle and lean hogs among major US-traded agricultural commodities saw declines in hedge funds' net long positioning.
The fallback in the lean hog net long was largely attributed by traders to profit-taking, with hog slaughter weights showing signs of falling from elevated levels, implying tighter pork production, at a time when porcine epidemic diahorrea (PEDv) cases are continuing to rise.