Hedge funds ended their longest spree of bearish positioning on agricultural commodities on record as they took profits on short positions in grains, and hiked bullish bets on live cattle to a three-year high.
Managed money, a proxy for speculators, raised by more than 55,000 contracts its net long in futures and options in the main 13 US-traded agricultural commodities as of Tuesday, according to data from the Commodity Futures Trading Commission regulator.
The move represented the first raise in the net long – the extent to which long positions, which benefit when prices rise, exceed short holdings which profit when values fall – in 12 weeks, since late October.
And it was led by a reversal in the selling of grains which had the previous week driven hedge funds' net short position in Chicago wheat futures and options to a record high.
In fact, managed money cut its net short in Chicago wheat by more than 16,000 contracts, as it closed short positions which have proved winning bets, with futures tumbling by some 20% since mid-October.
Speculators' net longs in grains and oilseeds, Jan 14, (change on week)
Chicago soybeans: 126,371, (+18,713)
Chicago soymeal: 58,757, (+6,133)
Kansas wheat: 5,594, (-1,106)
Chicago wheat: -56,482 (+16,606)
Chicago soyoil: -60,659, (-10,630)
Chicago corn: -63,931, (+27,520)
Sources: Agrimoney.com, CFTC
And it came in a week which saw futures fall to a three-year low for a spot contract of $5.60 ½ a bushel, after the US surprised investors by raising its estimate for domestic inventories, only for prices to recover some ground the next session after the country won its first order in 11 months at tender by Egypt's Gasc grain authority.
With Egypt the world's top wheat importer, and concerns over the competitiveness of US wheat a major factor behind the decline in Chicago prices, the 55,000-tonne order attracted considerable investor attention.
"The result of the tender was a major surprise, especially to exporters in the EU and the Black Sea," traders at a major European commodities house said.
Speculators' net longs in New York softs, Jan 14 (change on week)
Cocoa: 69,835, (-546)
Cotton: 41,541, (-2,596)
Arabica coffee: -294, (+2,751)
Raw sugar: -52,306, (-14,548)
Sources: Agrimoney.com, CFTC
In rival grain corn too, hedge funds closed short positions as they cut their net short by some 27,500 lots, after the US Department of Agriculture surprised investors by cutting its estimate for domestic inventories at the close of 2013-14, citing greater-than-expected use early in the season.
Hedge funds' net short in Chicago corn futures and options fell below 64,000 contracts as of Tuesday for the first time since August.
Hedge funds also turned more bullish on soybeans, raising their net long by more than 18,000 contracts, with sentiment being underpinned by continued strong demand for US exports, including from China, which it is feared may be about to cancel orders and switch to South American supplies.
Speculators' net longs in Chicago livestock, Jan 14, (change on week)
Live cattle: 118,856, (+13,832)
Lean hogs: 38,481, (-385)
Feeder cattle: 8,051 (-124)Sources: Agrimoney.com, CFTC
Optimism over prices of live cattle, those ready for slaughter, is being underpinned by the relatively small population on feedlots, a hangover from the high grain prices that persisted until the autumn, and implying a squeeze on supplies of fattened animals ahead.
Morgan Stanley last week rated live cattle as one of its most bullish bets in commodities.
Sour on sugar
The few agricultural commodities in which hedge funds extended bearish positioning included New York-traded cotton, in which there has been some concern that a price rally may run out of steam, as higher values discourage consumption.
And managed money extended its sell-off in raw sugar, raising its net short holding by more than 16,000 contracts to 52,306 lots, the biggest such position in nearly six months.
Sentiment in sugar has been undermined by strong late-season production in Brazil and ideas of decent supplies in Thailand, the second-ranked exporter, and India.