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Hedge funds wrong-footed by grain price recovery

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Hedge funds appear to have been wrong-footed by the rebound in US grain and soybean prices last week on weather and Ukraine fears, cutting their bullish bets on corn and wheat in the run-up to the recovery.

Managed money, a proxy for speculators, cut its net long in future and options in the top 13 US-traded agricultural commodities by more than 40,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

This was the third successive week in which hedge funds cut their net long position – the extent to which long holdings, which profit when values rise, exceed short holdings, which benefit when values fall.

And it represented the biggest selldown since the first week of the year, before the sharp improvement in sentiment towards agricultural commodity prices, fuelled by factors such as the US outbreak of porcine epidemic diahorrea virus (PEDv), besides the poor start to the year by some rival investments such as shares.

Hedge funds sell

The less bullish attitude was particularly marked in Chicago soybean futures and options, in which hedge funds cut their net long position by more than 21,000 contracts to the lowest in nearly three months, amid mounting concerns over Chinese imports.

Speculators' net longs in grains and oilseeds, Apr 22, (change on week)

Chicago corn: 236,635, (-13,868)Chicago soybeans: 165,151, (-21,836)Chicago soymeal: 73,293, (-3,391)Kansas wheat: 35,515, (-585)

Chicago soyoil: 29,734, (+5,054)

Chicago wheat: 27,090, (-11,120)Sources:, CFTC

However, hedge funds also cut their net long in Chicago wheat by more than 11,000 contracts, the biggest selldown in five months, amid improved hopes for rain for drought-hit US southern Plains winter wheat, and of some stabilisation in the Ukraine crisis, which has been a big determinant of prices.

In corn, speculators cut their net long by nearly 14,000 lots, as warmer temperatures implied a speed-up in US sowings.

Prices recover

However, the more bearish stance in fact preceded a run-up in prices of all there commodities, in particular wheat, which had since Tuesday's close risen more than 4% as of the end of last week.

Speculators' net longs in New York softs, Apr 22, (change on week)

Raw sugar: 120,050, (+2,412)Cocoa: 65,090, (+1,272)Cotton: 57,248, (+3,982)Arabica coffee: 38,863, (+720)Sources:, CFTC

The CFTC data "showed managed money selling 11,000 contracts in Chicago, though a significant portion of that has been bought back since Tuesday", said Brian Henry at Benson Quinn Commodities.

Corn futures gained more than 2% over the period, lifted by forecasts for rains and cold weather in the Midwest, where farmers are already behind on sowings of the spring-planted crop thanks to poor conditions.

Soybean prices have been supported by some easing in the concerns over Chinese demand, eased by an retreat in concerns that the country was poised to auction supplies from state stocks, and with a rebound in futures on the country's Dalian exchange helping too.

Right on sugar

Hedge funds appeared better prepared for movements in New York soft commodities, raising their net long position in cotton, which at least held steady, supported by decent US export sales, including to top importer China, and by concerns over drought in Texas, the top US producing state.

Speculators' net longs in Chicago livestock, Apr 22 (change on week)

Live cattle: 133,813, (-1,226)

Lean hogs: 71,634, (-619)Feeder cattle: 14,617, (-1,320)Sources:, CFTC

However, on livestock, moves to cut net long position in cattle futures and options appeared premature.

The run up to US Memorial Day, seen as marking the start of the barbecue season, is often a strong period for demand, at a time when supplies are constrained by a historically low US herd.


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