Corn and sugar missed out on a round of covering by hedge funds of some of their extensive short bets in agricultural commodities, which represented the first such move since June.
Managed money, a proxy for speculators, reduced its net short position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by 63,636 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
That represented the first cut in 10 weeks in the net short - the extent to which short holdings, which profit when values fall, exceed long bets, which benefit when prices gain – and came as a surge in oil prices spread to values many other commodities.
Furthermore, improved hopes for China-US rapprochement on trade improved hopes for ag trading.
In all three ag complexes – grains, livestock and soft commodities – hedge funds reduced short bets.
‘Shorter than thought’
However, signally, in both Chicago corn futures and options, and in New York sugar, speculators extended net short positions – despite both crops being associated with energy markets, and liable to gain from increases in fuel prices.
In corn, the managed money net short increased by more than 34,000 lots, to a four-month high of 170,626 contracts.
Funds were “shorter than thought” in corn, while in soybeans, which attracted net buying of more than 43,000 lots, “not as short as previously believed”, said Benson Quinn Commodities.
“Investor sentiment on the US-China trade dispute seemed to improve as both President Trump and Chinese leader Xi Jinping looked to reduce tensions,” said Societe Generale, estimating at $2bn the level of inflows into soybeans.
“The Chinese government excluded agricultural products, including soybean and pork, from additional tariffs.”
Some observers attributed the extent of the divergence in corn and soybean positioning to the closure of spreads placed between the two.
Long corn-short soybean bets had been popular while the poor US spring curtailed hopes for the country’s output of both crops, but with the US-China trade war curtailing hopes of a soy price recovery.
Terry Reilly at Futures International, terming the net short in corn as “impressive”, flagged the potential for a further reversal of this trend, saying that “corn versus soybeans appears to have more upside in short covering”.
‘In a battle’
In New York raw sugar, hedge funds extended their net short position for a seventh successive week, this time by 21,345 lots to 234,839 – a record amount on data going back to 2006.
This despite the boost to values of ethanol – with which sugar competes for a share of the cane crop in countries such as Brazil – from the surge in oil prices caused by strikes on Saudi Arabian oil installations two weekends ago.
Marex Spectron, while terming “massive” the fund net short, noted that speculators would gaining some comfort from observations that “producers have fallen way behind on their selling due to the long decline in prices.
“The main bear argument is that the producers are way behind on their pricing and will have to catch up at some stage, so they may ‘throw in the towel’ and start pricing heavily, giving the funds the opportunity to get out of their shorts.”
The sugar market was amid “a battle between those who believe the funds will start to cover shorts and find few sellers till we get to 1.00-1.50 cents a pound higher than now, and those who believe the producers will run out of time and have to sell”.
The gross commercial short in raw sugar is, at 355,027 lots, the lowest in nearly a year.
Spring wheat short
The CFTC data also showed an increase in the managed money net short in Minneapolis spring wheat futures and options, of 266 lots to a historically high 23,071 contracts, despite the slow pace of the Canadian and northern US harvest, a factor which is spurring concerns over the quantity, and in particular quality, of the crop.
Some observers view short-covering as spurring the recent gains in Minneapolis futures, which have risen by 5.2% since last Tuesday’s data were taken.
Minneapolis spring wheat is not included in the overall Agrimoney managed money tables.