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Crops feel hangover from rally as funds sell down

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Crops have felt a hangover from their strong performance in 2010, with index funds reducing their support for food commodities as part of an annual reprocess of recalibrating portfolios.

Commodity index traders cut their net long position for all three of Chicago's major crops, and in top performers in New York such as cotton and coffee too, in the week to last Tuesday, data from US regulators showed.

The shift came amid the so-called rebalancing period, in which the funds return the weightings of commodities in their portfolios to that of the index being tracked – a process which means selling 2010's top performers, including many farm commodities, whose price growth swelled their representation, while buying laggards such as natural gas.

"Index repositioning has started to show up with the index category," Australia & New Zealand Bank said, while highlighting "little movement" in the latest data in speculators' exposure to crops.

Most effected

The position statistics, released by the Commodity Futures Trading Commission, showed corn taking the deepest selldown in Chicago from the index funds' positioning.

Their net long position – that is the balance of long positions which gain when prices rise over short positions which benefit in falling markets – tumbled by some 31,000 lots to a little over 426,100 contracts, equivalent to a 6.8% drop.

Index funds cut their net long in Chicago soybeans by some 8,000 contracts, or 4.1%, to 188,000 and in wheat by 9,000 lots, or 4.2%, to 205,000.

However, the reduction were more dramatic, in percentage terms, in many soft commodities.

Index funds cut their net long exposure to New York cotton by 10% to 51,000 contracts, and in New York arabica coffee by some 12% to 43,000 contracts.

Sugar in demand

In livestock, the changes were less dramatic, with the net long in Chicago live cattle falling by roughly 3,000 contracts to 134,000 lots, while exposure to feeder cattle was unchanged, and that to lean hogs showing a marginal increase to 93,000.

New York cocoa also saw little change in index traders' exposure, while funds raised their exposure to raw sugar by 10% to 144,000 lots.

The data comes as the CFTC is considering position limits on energy, metal and agricultural commodities, as required under America's Dodd-Frank reforms.

Current proposals, over which strong doubts remain, would "cause 50-70 major grain trading firms to have to cut the size of their trading positions", Darren Dohme at Illinois-based broker Powerline Group said.


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