Hedge funds, for a fifth successive week, raised their net long position in agricultural commodities by more than 40,000 contracts, as they covered more of the negative bets on corn and soybeans which have proved surprise loss-makers.
Managed money, a proxy for speculators, lifted its net long holding in futures and options in the top 13 US-traded agricultural commodities, from coffee to cattle, by 42,117 contracts in the week to last Tuesday, data from the Commodity Futures Trading Commission regulator show.
This took the overall net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall - to a four-month high of 482,975 contracts, double that at a nadir in mid-September.
The more positive positioning on agricultural commodities has in fact reflected a scramble to short bets, which had proved highly profitable from early May to the end of September in many agricultural commodities amid expectations of huge harvests.
Speculators' net longs in grains and oilseeds, Nov 11, (change on week)
|Chicago corn: 186,807, (+23,134)Chicago soymeal: 67,103, (+7,066)|
Chicago soybeans: 41,353, (+22,656)Kansas wheat: 11,766, (-3,761)Chicago soyoil: 11,055, (-13,611)Chicago wheat: -31,135, (+382)Sources: Agrimoney.com, CFTC
However, factors such as slow US corn and soybean harvests, a disappointing start for US winter wheat, and poor one for Russian seedlings, and logistical problems which have put a premium on soymeal, have undermined ideas of overabundant supplies.
The price revival has spurred hedge funds to close their short positions, in turn bringing upward pressure on futures, and encouraging further short covering.
Corn consumers wrong-footed
This position covering has been particularly evident in corn, in which hedge funds have cut their short positions by more than 140,000 contracts in the past five weeks, as the tardy US harvest has slowed the refilling of pipelines.
Speculators' net longs in New York softs, Nov 11, (change on week)
|Arabica coffee: 37,977, (-1,810)Cocoa: 36,169, (-1,635)Cotton: 14,882, (+2,056)Raw sugar: -52,791 (+7,822)Sources: Agrimoney.com, CFTC|
"Corn buyers that had been expecting a large harvest have driven basis values positive across the US to satisfy short-term needs."
By contrast, the number of long positions on corn has fallen too, by 30,000 contracts, and is at its lowest since July, indicating a reluctance to take a bullish stance on the grain.
'May be a surprise'
For soybeans, hedge funds have also cut their net short positions notably, by more than 47,000 contracts over the past five weeks, fuelled by a slow US harvest, a tardy start to South American sowings, and by soymeal rally.
Speculators' net longs in Chicago livestock, Nov 11, (change on week
Live cattle: 103,899, (-2,215)Lean hogs: 49,390, (+1,558)Feeder cattle: 6,500, (+475)Sources: Agrimoney.com, CFTC
In wheat, by contrast, as in corn, speculators have proved more willing to cut short positions, by 37,265 contracts since October 7, thank raising long bets, in which they are broadly flat since then.
The short-covering wave in wheat actually stalled in the week to November 11, a fact reflected in a drop of more than 2% in futures over the period, although hedge funds are believed to have resumed since cutting their negative positions.
"Managed money almost even on the week may be a surprise to some," given a further run-up in prices late last week to a three-month, said Brian Henry at the Benson Quinn Commodities.
However, "the majority of" the buying in wheat last week "took place after the Tuesday report cut-off" for the CFTC data.
Less sour on sugar
Among soft commodities, speculators in the week to last Tuesday, took a less negative stance on sugar prices, cutting their net short by nearly 8,000 contracts – reflecting an increase in long positions for the first time in more than a month.
Sentiment on sugar was supported somewhat by data showing a drop in output from Brazil's Centre South region in the second half of October, and by a decision by Brazil to lift the ceiling on gasoline prices which, in raising hopes for ethanol values, increases potential too for raw sugar, a competitor for cane.
Over the week to last Tuesday, March raw sugar futures "rallied 3.5% off a contract low following Unica's second-half October harvest report, which showed an anticipated slowdown in the pace of Brazil's Centre/South harvest, following rain delays", Rabobank said.
Hedge funds also raised their net long in cotton, reflecting a drop in negative bets - although they may wish they had waited to close these positions.
New York cotton futures on Thursday fell below 60 cents a pound for the first time in five years, undermined by an upgrade by the US Department of Agriculture earlier in the week to its estimate for domestic inventories at the close of 2014-15.