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Speculator sell-downs fuel ag liquidation fears

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Speculators cut their net long exposure to corn, soybeans and wheat derivatives to multi-month lows, fuelling fears that a huge sell-down by Calpers of commodities positions reflected a broader trend of fund liquidation.

Managed money, a proxy for speculators, ended 2012 with a net long position of less than 136,000 contracts in Chicago corn futures and options, the lowest since June, data from the Commodity Futures Trading Commission showed.

For Chicago wheat, speculators raised their net short position – meaning short bets, which profit when prices fall, outnumber long holdings, which gain when values rise - to 19,151, the biggest since May and a sharp contract with bullish stance earlier in the year.

In August, amid heightened fears over damage to the US corn harvest, and to Black Sea wheat crops, speculators held a net long position of more than 80,000 lots in Chicago wheat futures and options.

In soybeans, managed money ended the year with a net long position of a little under 102,000 contracts, the lowest since February.

Rabobank data showed that speculators held a net long of some 418,000 lots in agricultural commodities overall, down from an August high of 956,167 contracts.

Funds sell

The declines were seen as fuelling a drop in prices of the crops, all three of which recorded six-month lows on Friday.

Speculators' net longs in grains and oilseeds, Dec 31, (change on week)

Chicago corn: 135,906, (-4,203)

Chicago soybeans: 101,950 (-7,057)

Chicago soymeal: 38,335, (-3,154)

Kansas wheat: 21,828, (-1,791)

Chicago wheat: -19,151, (-7,252)

Chicago soyoil: -41,600, (+824)

Sources:, CFTC

And they tallied with ideas of funds not only taking a more negative stance towards agricultural commodities, grains and oilseeds in particular, but reducing their exposure to the asset class too.

In the first three trading sessions of 2013, funds have sold an estimated 9,000 Chicago wheat lots, 16,000 soybean lots and 23,000 corn contracts.

'Get me out'

"Funds continue to liquidate," Kim Rugel at Benson Quinn Commodities said, noting that "South American crops look to be getting bigger", signalling a replenishment of diminished world grain and soybean supplies.

The sentiment "remains 'get me out'", Ms Rugel said, flagging the decision by Calpers, the California pension giant, to cut its commodity holdings in October by 56% to $1.6bn, preferring inflation-protected bonds.

Calpers made losses in line with the 8% a year that the GSCI index declined since the fund began ramping up its commodity investments in October 2007.

"This may be an extreme example of fund liquidation but shows the mindset of the investment community towards the commodity markets of late," Ms Rugel said.

"Declining open interest over the past three months confirms this mass exodus as well," with the number of open soybean futures falling below 545,000, from a record 833,271 lots in July 17.

Equities in favour?

Many investors are believed to be taking a more bullish view of shares, although bonds and cash positions are seen more likely than commodities to take the major hit from an equity-friendly stance.

Speculators' net longs in New York softs, Dec 31, (change on week)

Cocoa: 31,241, (-2,087)

Cotton: 28,821, (+2,993)

Raw sugar: 25,496, (+6,496)

Coffee: -23,153, (-77)

Sources:, CFTC

He noted "lots of chatter" about a "potential shift from debt to equities by asset allocators" last week after the US sorted its budget and avoided triggering the fiscal cliff of hefty tax rises and spending cuts.

The stance on fund positioning towards agricultural commodities is being clouded by the so-called "fund rebalancing" exercise, under which index funds adjust portfolio weightings back to those specified by the index they follow, implying selling top performing contracts, and buying laggards.


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