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Extent of hedge fund wheat shorts may prop prices

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The extent of the losing bets that hedge funds have already placed on wheat derivatives raises doubts over their appetite for more for now – and the potential for price declines.

Managed money, a proxy for speculators, raised their net short position in Chicago wheat futures and options by 10,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission, the US regulator.

The increase took the net short position – the extra popularity of short bets, which profit when prices fall, over long holdings which gain when values rise – to 27,676 contracts, the largest in nearly nine months.

Speculators cut their net long position in Kansas hard red winter wheat futures and options to the lowest since May last year as well.

'Questionable downside'

The positioning raised questions over the potential for hedge funds increasing short exposure, although their net short in Chicago remains well below the record high above 57,000 lots reached a year ago.

Speculators' net longs in grains and oilseeds, Feb 5, (change on week)

Chicago corn: 182,967, (+18,533)

Chicago soybeans: 135,644 (+30,627)

Chicago soymeal: 45,511, (+9,559)

Kansas wheat: 10,608, (-4,612)

Chicago soyoil: 7,419, (+10,133)

Chicago wheat: -27,676, (-10,000)

Sources: Agrimoney.com, CFTC

"With world wheat supplies tight, prices near long-term lows and funds still short, it is questionable how much downside remains for wheat prices this winter," said Jonathan Watters at Benson Quinn Commodities, the Minneapolis-based broker.Chicago wheat futures stood at $7.53 ½ a bushel at 07:20 local time (13:20 UK time), down 0.4% on the day.

Their decline from levels nearing $8.00 a bushel three weeks ago has been blamed largely on spreading by investors who, amid fears over the impact of poor South American weather on corn and soybean harvests, hedged long bets on the row crops against short bets in wheat.

Wrong-footed

In fact, extending long positions in corn and soybeans appears to have left speculators poorly positioned for the US Department of Agriculture's Wasde crop report on Tuesday which, in lifting estimates for world supplies of both crops, was viewed as negative for prices.

Speculators' net longs in New York softs, Feb 5, (change on week)

Cotton: 59,138, (+5,843)

Cocoa: 18,294, (+2,968)

Raw sugar: -6,600, (-707)

Coffee: -16,839, (-6,323)

Sources: Agrimoney.com, CFTC

The net long in soybeans grew by more than 30,000 contracts, the biggest upward shift since June, taking the position to a three-month high of 135,633 lots.

The dynamic was reflected elsewhere in the soy complex too, with hedge funds returning to a net long position in soyoil for the first time in four months.

Cotton gains

Among soft commodities, speculators were positioned better for a Wasde briefing deemed bullish for the crop in cutting, by 300,000 bales, the estimate for US inventories at the close of 2012-13.

Prices gained further on Monday after industry data pegged US sowings at a 30-year low.

The managed money net long in New York futures and options hit 59,138 lots as of last Tuesday, the highest since October 2010, when futures were rallying towards a record high.

In raising their net short position in New York arabica coffee, hedge funds were also placed to exploit a decline in prices of the March contract to its lowest since June 2010.

By Agrimoney.com

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