Hedge funds returned, with gusto, to bearish positioning in agricultural commodities as coronavirus worries bedded in, selling at their quickest rate in five months, with the soy complex taking a particular hit.
Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities by 151,929 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
The cut in the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – was the largest since August last year, and reflected overall selldowns in all three ag sectors, grains, livestock and soft commodities.
However, the selling was particularly severe in grains, in which hedge funds returned to a net short position for the first time since before Christmas.
This move was led by selling in soybeans, soymeal and soyoil as coronavirus spread in China - by far the top soybean importer - enhancing concerns over its economic growth, and also over whether it would deliver on commitments made under its phase one trade deal with the US.
In soybeans, hedge funds hiked their net short position in Chicago futures and options by more than 31,400 lots week on week.
However, by historical standards, it was soymeal which suffered the most notable selldown, to 64,377 lots, the largest net short on data going back to 2006.
The selling reflected an increase in the gross short position of some 16,000 contracts to 104,689 lots, also the most in at least 14 years, and came amid a nine-session losing streak in Chicago soymeal prices.
This selling came despite a strong run of US soymeal export sales data, amid concerns over the availability of supplies from Argentina, where farmer withholding of soybean crops amid worries over export taxes and currency depreciation has in supporting prices undermined crush margins.
US export sales of 641,919 tonnes in the week to January 16 were the largest for any week since 1991.
‘Funds too short’
Hedge funds were over the week “aggressive sellers in beans and meal, which isn’t a surprise”, said Benson Quinn Commodities.
However, the broker mulled whether the selldown had gone too far, saying that it would “lean towards managed money being too short in soybeans and soymeal”, a factor which could be supportive for prices if it encourages closing of such positions.
It has previously noted that for soymeal, “breaching [below] the $300-a-short-ton mark has been an area that has attracted end-user coverage”, with the Chicago March lot on Monday standing at $290.00 a short ton.
The broker also said that that corn had attracted “a bit more managed money selling than expected”, although terming the resulting net short position of some 56,000 contracts as “manageable”.
By contrast, in Chicago wheat, speculators “may be too long”, having raised their net long position for a sixth successive week, this time to a 17-month high of 52,161 lots.
Coffee vs cocoa
Among New York-traded soft commodities, arabica coffee futures and options attracted particular selling, of a net 14,698 contracts, the most in 19 months.
“This position has most likely been further decreased, following the period of mixed but overall softer trade that has since followed,” said merchant I&M Smith, with sentiment undermined by mounting confidence in a large 2020 harvest in Brazil, the world’s top coffee producer.
By contrast, in cocoa, hedge funds raised their net long to 66,572 contracts, the highest in more than five years, encouraged by worries over a dent to Cote d’Ivoire production prospects from dry and warm weather.
Furthermore, “ideas are that demand is currently very strong”, said Jack Scoville at Price Futures.