Expectations grew of a pullback in grain prices after data showed hedge funds having already been "much, much more active" in buying than had been expected, provoking doubts over appetite for further purchases.
Managed money, a proxy for speculators, hiked its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by more than 330,000 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
However, the surge in buying – the second largest on data going back to 2006, and which drove hedge funds back to a net long in ags – again disguised a stark divergence in hedge funds’ attitude towards soft commodities and grains.
In New York-traded soft commodities, such as coffee, cocoa and cotton, managed money raised to a record 183,600 lots its net short - the extent to which short holdings, which profit when values fall, exceed long bets, which benefit when prices gain.
By contrast, in the main grains, including the soy complex, speculators swung net bullish in positioning by a record 341,025 contracts – enough to put them back in a net long position for the first time in four months.
The buying reflected the dent to grain production hopes from dryness in parts of the US, and in areas of Australia, the European Union and Ukraine too, which has curbed crop production hopes, sending prices sharply higher until a pullback during the second half of last week.
Speculators’ net long in Chicago grains, July 11 (change on week)
Corn: 100,964, (+147,679)
Kansas wheat: 73,111 (+18,185)
Chicago wheat: 44,685, (+26,682)
Soyoil: 42,996, (+23,278)
Soybeans: 19,048 (+89,264)
Soymeal: -7,210, (+35,757)
Sources: Agrimoney.com, CFTC
The buying spree raised ideas as that funds - wary of creating an excessively net long position in grains, which would be vulnerable to a rapid reversal on a more positive crop production news - may have sated their appetite for such bets for now.
Indeed, Mr Reilly cautioned that "corn, soybeans and wheat futures may trade lower" after the data showing "managed money added a large amount of longs as of last Tuesday", with a slightly wetter Midwest weather outlook viewed as a potential pressure on prices too.
Grain futures indeed eased in early deals on Monday, with corn futures leading declines, dropping 1.0% to $3.85 ¾ a bushel, after the regulatory data showed managed money swinging net long in the grain by a record 147,679 contracts.
Cotton: 22,510, (-3,900)
Arabica coffee: -39,805, (+2,771)
Cocoa: -48,157, (-6,966)
Raw sugar: -117,748, (-4,515)Sources: Agrimoney.com, CFTC
The shift in corn was sufficient to build the largest net long in the contract for a year.
In Chicago soybean futures and options, meanwhile, managed money swung net bullish by 89,264 contracts, also the biggest such move on record, and returning funds to a net long position in the contract.
"Funds are now in their preferred position of net long in the soybean market," said ag advisory group Water Street Solutions.
’Too long in winter wheat’
In Chicago soft red winter wheat, meanwhile, in which funds have historically been more willing to hold a net short position, speculators raised their net long to a three-year high of 44,865 contracts.
Live cattle: 114,911, (-3,862)
Lean hogs: 84,189, (+6,578)
Feeder cattle: 13,896, (-708)
"The winter wheat markets simply do not need to trade to higher values," said Benson Quinn Commodities.
While funds "have been sellers since the report, I believe they are too long the winter wheat markets".
However, the case for selling down Minneapolis spring wheat was deemed less strong, with funds having already cut their net long during the week by 2,859 contracts to a well-below-record 11,158 lots.
’Few weather concerns’
In soft commodities by contrast, hedge funds extended their net short bets in both New York-traded cocoa and raw sugar futures and options to the highest on record, amid ideas of ample supplies.
Jul 11: 303,390, (+330,243)
Jul 3: -26,853, (+168,555)
Jun 27: -195,408, (-132,124)
Jun 20: -63,284, (+14)
Jun 13: -63,298, (+176,502)
Jun 6: -239,800, (+4,808)
May 30: -244,606, (-89,453)
Sources: Agrimoney.com, CFTC
Meanwhile, in cotton, speculators cut their net long position to 22,510 contracts, amid ideas of a supply rise ahead which has kept New York futures near to 10-month lows.
"The market has few weather concerns at present so the bias is for prices to fall some more yet," said Tobin Gorey at Commonwealth Bank of Australia.
In the livestock sector, hedge funds raised their net long in Chicago lean hog futures and options to the highest since late 2013, spurring the rally in futures, which last week reached their highest since late 2014.
The rally has been fuelled by weaker-than-expected growth in pork supplies, as slaughter weights have come in short of forecasts.
"US hog dressed weight has posted year-on-year declines for nine consecutive quarters," said livestock experts at Steiner Consulting, flagging the role of changing producer techniques.
"Changing production practices are likely pulling-down hog weights, including reduced use of feed additives", such as ractopamine, with reduced use of antibiotics likely have an impact too.
Meanwhile, US pork exports have been buoyant.
"The major surprise of 2017 has been the strength in foreign demand for US pork."
By Mike Verdin