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Cotton, soy lead hedge fund return to bearish positioning on ags

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Hedge funds, for the first time in nearly two months, returned to taking a more downbeat view on agricultural commodities, led by declining sentiment on soybeans and a "huge" swing bearish in positioning on cotton.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by nearly 8,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

The decline interrupted a period of building the net long position – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – which had lasted since late September.

The delayed US corn and soybean harvests, logistical concerns which fuelled a jump in soymeal prices, and a poor start to Brazilian soy sowings and Russian winter wheat development had encouraged short-covering.

Negative on soy

However, in the latest week, hedge funds returned, for the first time in six weeks, to taking a more negative view of soybeans, cutting their net long position by more than 10,000 lots.

Speculators' net longs in grains and oilseeds, Nov 18, (change on week)

Chicago corn: 186,954, (+147)Chicago soymeal: 58,897, (-8,206)

Chicago soybeans: 30,733, (-10,620)Kansas wheat: 12,519, (+753)Chicago soyoil: 8,267, (-2,788)Chicago wheat: -11,881, (+19,254)Sources:, CFTC

In the US, there were signs of the cash market for soymeal retreating a little too, with Rabobank highlighting "weakening US export sales" of the feed ingredient.

Indeed, prices of soymeal fell by 5.3% over the week to last Tuesday, fuelling a drop of some 4% in futures in soybeans themselves in Chicago.

'Big swing'

But the biggest turn bearish was seen in New York-traded cotton futures and options, in which hedge fund positioning came in net short to the tune of 18,336 lots for the week – the biggest such switch since October last year.

Speculators' net longs in New York softs, Nov 18, (change on week)

Arabica coffee: 39,157, (+1,180)Cocoa: 34,999, (-1,170)Cotton: -3,454, (-18,336)Raw sugar: -54,211 (-1,420)Sources:, CFTC

The bear attack on cotton followed upgrades by the US Department of Agriculture on November 10, in its monthly Wasde crop report, to estimates for domestic and world stocks of the fibre at the close of 2014-15.

And Australia & New Zealand cautioned of the threat of further price declines, citing the relationship of cotton values to those of synthetic fibres, and of rival crops such as soybeans.

However, cotton futures have largely stabilised over the past week or so, helped by a slow US harvest and Friday's surprise interest rate cut by China, the world's top cotton consumer and importer.

'Negative feature'

The downbeat turns in cotton and soy positioning overshadowed a rash of short-covering in Chicago wheat futures and options, in which the net short fell by more than 19,000 lots during the week – also the biggest turn bullish in positioning since October last year.

Speculators' net longs in Chicago livestock, Nov 18, (change on week


Live cattle: 110,171, (+6,272)Lean hogs: 55,690, (+6,300)Feeder cattle: 7,202, (+702)Sources:, CFTC

The number of gross short positions fell by more than 14,000 lots, dropping below 100,000 contracts for the first time since June.

However, the extent of the position change was termed by broker Benson Quinn Commodities as a "negative feature" for future prices, given the reduced potential for further support from short-covering.

Cocoa buy signal?

In cocoa, hedge funds cut their net long position for a seventh successive week, taking it below 35,000 lots for the first time in 16 months, with Rabobank noting that as "supply-side concerns have been alleviated, while the main harvest progresses across West Africa".

The extent of the bearish streak could prove a buying signal, with managed money often reducing its net long in cocoa for seven successive weeks, but only once for eight weeks, on data going back to 2006.

In the livestock complex, hedge funds raised their net ling in Chicago live cattle for the first time in six weeks, helping prices back above 170 cents a pound, close to October's record high for a spot contract of 171.975 cent a pound.

Futures have been supported in part by the prospect of Thanksgiving and year-end holidays, and increased demand, but also by the US freeze, with cold weather typically hampering efforts to put weight on cattle.

However, trading has yet to begin in futures after a USDA report late on Friday, termed "negative" for prices by Allendale in showing bigger-than-expected placements on feedlots last month.

Placements dropped 0.9% from October 2013, rather than the 4.2% fall investors had expected.


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