The Ukraine crisis, coupled with concerns over Brazilian dryness and an outbreak of porcine epidemic diahorrea virus, prompted hedge funds to make their second-biggest ever bullish shift in agricultural commodity bets.
Managed money, a proxy for speculators, raised by more than 158,000 contracts its net long position in futures and options in the main 13 US-traded agricultural commodities in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC) regulator.
The increase in the net long - the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – was the second biggest on records going back to 2006, exceeded only by a week in July 2010.
And it came as Russia's invasion of Crimea added to the concerns over Brazilian dryness, US cold and a North American outbreak of porcine epidemic diahorrea virus (PEDv) which had already driven a marked recovery in sentiment on agricultural commodity prices.
"Managed money's rapid return to agri commodity markets continued," Rabobank said.
Indeed, hedge funds - which entered 2014 amid their longest unbroken stretch of bearish positioning in agricultural commodities on record – have now rebuilt a net long of nearly 900,000 contracts, the highest in 18 months.
Speculators' net longs in grains and oilseeds, Mar 4, (change on week)
Chicago soybeans: 208,493, (+5,497)
Chicago corn: 155,122, (+70,606)
Chicago soymeal: 70,132, (-3,456)
Kansas wheat: 28,197, (+4,772)
Chicago soyoil: -3,983, (+13,784)
Chicago wheat: -6,040, (+14,271)
Sources: Agrimoney.com, CFTC
US corn export sales have already exceeded expectations, reaching 93% of the total the US Department of Agriculture expects for the whole of 2013-14, with half the season left.
Many investors forecast that the USDA will, later on Monday in its much-watched monthly Wasde crop report, raise its estimate for US corn shipments this season.
However, managed money also cut its net short position in Chicago wheat futures and options, by more than 14,000 contracts, with Ukraine a major shipper of this grain too.
Speculators' net longs in New York softs, Mar 4, (change on week)
Cocoa: 80,376, (+1,063)
Raw sugar: 64,740, (+42,922)
Cotton: 54,337, (+1,135)
Arabica coffee: 27,872, (+6)
Sources: Agrimoney.com, CFTC
In fact, there has been little disruption to shipments from the Crimea turmoil, although buyers are believed to be shifting demand elsewhere in case of setbacks ahead.
"Unrest in the Ukraine has seen this market do a very robust job on pricing in risk and accounting for the potential increase in both intra-European Union demand for wheat along with international demand," said Jaime Nolan Miralles at FCStone, referring to price gains in particular in Paris, where futures hit a 10-month high on Friday.
"However, it must be noted that despite the fractured nature of Ukraine/Russia, trade flow until now has not been impacted."
Raw sugar futures and options also attracted a surge in buying interest, on concerns for the impact of Brazilian dryness on cane, with the managed money net long rising by nearly 43,000 contracts, to some 65,000 lots.
Speculators' net longs in Chicago livestock, Mar 4, (change on week)
Live cattle: 132,073, (+3,839)
Lean hogs: 77,077, (+7,435)
Feeder cattle: 11,564, (-4)Sources: Agrimoney.com, CFTC
"The increase, and rain arriving in Centre South Brazil sugar areas over the weekend, was enough to prompt some early selling this morning on the opening in New York," said Sucden Financial, as raw sugar futures for May eased 1.0% to 17.83 cents a pound in early deals.
At Commonwealth Bank of Australia, Luke Mathews said that "more questions are being asked regarding the sustainability of the recent rally in prices.
"Speculative investors have now built a net long position, a significant contrast to the imposing net short position which had been accumulated a few months ago."
In arabica coffee, also the subject of concerns over Brazil's dryness, the managed money net long rose by just 6 contracts to 27,872, if still setting a fresh high since May 2011.
That increase was less than many investors had expected, helping arabica coffee futures for May rise 1.7% to 200.20 cents a pound in New York.
Still, Chicago lean hog futures performed best of any of the major agricultural commodities in the week in question, soaring 11%, as concerns over the North American outbreak of porcine epidemic diahorrea virus (PEDv) will curtail pork supplies.
"The trade is extremely concerned that the slaughter will plummet due to the increased cases of PEDv reported in December through February," US Commodities said, noting that "futures now have a huge premium" to hog cash prices.
Indeed, the broker urged caution over lean hog futures saying that "the trade is now dialling in summer production down 10-20% - this is a massive drop.
"The market remains positive but stretched out and overbought. The PEDv fear has pushed sellers to the sideline and is dialling in massive premiums."