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Hedge funds extend short-covering in ags, led by soy

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Hedge funds extended their wave of short-covering in agricultural commodities as sharply improved sentiment towards the soy complex trumped a heap of negative bets on sugar following Brazil's election result.

But the extent of the short-covering in soy derivatives raised concerns that the trend may struggle to continue.

Managed money, a proxy for speculators, raised by more than 40,000 contracts its net long in futures and options in the top 13 US-traded agricultural commodities in the week to last Tuesday, according to data from the Commodity Futures Trading Commission.

That extended above 140,000 contracts the increase in the net long during October, which proved to be an unexpectedly strong one for prices, in part thanks to cross-market liquidation by funds of positions earlier in the month, amid jitters over the health of major economies.

The extent of short positions in many agricultural commodities, notably soybeans and wheat, meant upward pressure on prices as funds covered their holdings.

At nearly 400,000 lots, hedge funds had their highest net long in ags in three months.

Soaring soymeal

However, the price recovery also reflected supply and demand fundamentals, notably the impact of a delayed US harvest – slowed as a knock-on effect of a late spring sowing season and cold summer weather, which delayed development, besides autumn rains.

Speculators' net longs in grains and oilseeds, Oct 28, (change on week


Chicago corn: 141,788, (+14,836)Chicago soymeal: 45,642, (+8,069)Kansas wheat: 14,781, (-72)Chicago soyoil: 13,670, (+9,829)Chicago soybeans: 8,382, (+24,719)Chicago wheat: -43,280, (+7,667)Sources:, CFTC

Soymeal futures soared more than 30% last month, lifted also by strong domestic and foreign demand, and by US logistical hiccups which prevented deliveries of the feed ingredient, meaning many livestock producers bought twice in an effort to ensure supplies.

Hedge funds raised their net long in soymeal by more than 8,000 contracts in the week to last Tuesday, lifting positive bets too in soyoil, the other major soybean processing product.

Soybean shorts covered

Still, the greatest shift more bullish in positioning was in Chicago-traded soybeans themselves, in which hefty covering of short positions turned hedge funds net long in the oilseed for the first time in 16 weeks.

In fact, hedge funds are rarely net short in soybeans for long.

The latest run represents the longest period of net short in soybean futures and options on records going back to June 2006.

The only other run of note during that period, from July to October 2006, lasted 13 weeks.

'Anything but bullish'

The extent of the latest wave short-covering raised questions over whether the trend of bullish positioning would continue into November, particularly with the prospect next Monday of monthly US Department of Agriculture reports expected to raise the estimate for domestic production.

Speculators' net longs in New York softs, Oct 28, (change on week)

Arabica coffee: 42,886, (-4,880)

Cocoa: 40,618, (-8,921)

Cotton: 9,633, (+5,085)

Raw sugar: -50,421 (-10,756)Sources:, CFTC

"The question is do they start to build a long position again? We don't see the conviction for that considering record crops and abundant carryouts."

At Benson Quinn Commodities, Kim Rugel said: "We are starting a new month with little to no reason seen at this time for funds to start building a short position.

"I would suspect, at least by the end of next week, soybeans have turned lower ahead of [US Department of Agriculture reports] that are expected to be anything but bullish."

At Commonwealth Bank of Australia, Tobin Gorey said that a clearing of the net short in soybeans should mean that futures, "in the face of high-ish price levels and harvest pressure, should subside".

Grain movements

Still, the more positive sentiment towards the soy complex in the latest week was also reflected in positioning on corn, for which rain has also slowed the US harvest.

Speculators' net longs in Chicago livestock, Oct 28 (change on week)

Live cattle: 108,195, (-1,161)Lean hogs: 51,359, (-3,827)Feeder cattle: 7,121, (+143)Sources:, CFTC

In Chicago wheat - for which slow Corn Belt harvests have hampered winter sowings, while a dearth of rainfall has stroked concerns for Russia's crop – speculators maintained a steady pace of short covering, cutting their net short position to a five-month low of 124,962 contracts.

Sour on sugar

The investment shifts contrasted with a more negative stance on most soft commodities, particularly in raw sugar, in which hedge funds raised their net short by 10,756 contracts to more than 50,000 lots for only the second time in nine months.

The bearish turn in positioning in raw sugar followed the re-election on October 26 of Dilma Rousseff as Brazilian president, a move seen by many investors as boding ill for New York-traded futures in the sweetener.

Ms Rousseff's victory has been viewed as likely to enhance weakness in Brazil's currency, so lowering the value, in dollar terms, of assets in which the country is a major player.

Brazil is the top producer and exporter of sugar, besides of coffee too.

Furthermore, Ms Rousseff during her previous term in office imposed stringent caps on gasoline prices, in an effort to control inflation.

The move has, as a knock-on effect, limited prices of ethanol too, in turn curtailing values of sugar, which competes with the biofuel for cane.

'Caught investors by surprise'

In the livestock complex, hedge funds cut their net long in Chicago-traded lean hog futures to a seven-week low, as higher weights continue to offset falling numbers of animals being slaughtered – a dynamic evident in a drop of some 20% in cash prices last month.

Speculators' positioning in the top 13 US-traded ags, (change on week)

Oct 28: 390,374, (+40,831)

Oct 21: 349,543, (+45,762)

Oct 14: 303,781, (+52,016)

Oct 7: 251,765, (+1,960)

Sept 30: 249,805, (+4,847)

Sources:, CFTC

ticipants by surprise," Paragon Economics and Steiner Consulting said in a report.

"Hog slaughter numbers remain below year ago levels but with carcass weights still hovering near record levels, overall pork supplies are currently near year-ago levels."


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