The extent of the sell-down by speculators in Chicago wheat has reached such an extent that hedge funds may present a limited danger of fuelling further price declines.
Managed money, a proxy for speculators, sold down their long bets in Chicago wheat futures and options in the week to December 18 to the lowest since May, regulatory data showed.
Indeed, with short bets, which profit when prices fall, increased by more than 14,000 lots, speculators turned net short in Chicago wheat for the first time since mid-June.
That represents a marked turnaround from net long positions – in which long holdings, which benefit when prices gain, exceed short bets – of more than 80,000 contracts in August, and raised doubts about how much more selling pressure speculators will place on the market for now.
The current net short position is already believed to have swollen late last week, with funds as a whole reported to have sold 6,000 lots since December 18.
At Benson Quinn Commodities, Jonathan Watters termed the positioning report, from the Commodity Futures Trading Commission, "a whopper", adding that "it should be noted that the totals don't include break below major support levels in wheat and corn" later in the week.
Speculators' net longs in grains and oilseeds, Dec 18, (change on week)
|Chicago corn: 175,631, (-49,907)|
Chicago soybeans: 129,989 (+6,714)
Chicago soymeal: 45,578, (+7,621)
Kansas wheat: 26,538, (-10,177)
Chicago wheat: -6,433, (-18,352)
Chicago soyoil: -32,508, (-3,902)
Sources: Agrimoney.com, CFTC
"But it is hard to recommend staying short when funds are selling to the end user on such a large scale.
"This is a break that could continue into early January. But downside appears to be limited without further help from corn."
For corn itself, managed money sold nearly 50,000 lots in the latest week, taking their total in a fortnight above 100,000 contracts, but retained a reasonably sizeable net long position of 175,631 contracts.
While considerably more positive than the positioning in wheat, speculators have historically tended to focus long holdings in corn, often balanced against short bets in wheat.
In Kansas wheat, managed money sold more than 10,000 contracts, a historically large sell-off, if leaving speculators with a net long position, of 26,538 lots.
Kansas trades hard red winter wheat, prospects for which have improved for 2013 after rains in drought-hit growing areas on the US Plains.
Among soft commodities, managed money returned to increasing its net long position in New York arabica coffee, prices of which are trading near two-year lows.
Speculators' net longs in New York softs, Dec 18, (change on week)
|Cocoa: 39,653, (+13)|
Cotton: 20,262, (+13,299)
Raw sugar: 12,671, (+6,615)
Coffee: -26,137, (-2,198)
Sources: Agrimoney.com, CFTC
In New York cotton, speculators raised their net long position to the highest in nearly two months, spurred by firm US export sales and a cut in the US Department of Agriculture estimate for domestic inventories at the close of 2012-13.
"The Commitment of Traders data showed another, even larger increase in the hedge fund net long position," Dr John Robinson, cotton marketing specialist at Texas A&M University, said.
"The hedge fund sector has swung back and forth twice between net long and net short over the October-Early December period."