Hedge funds backed away from exposure in agricultural commodities as coronavirus fears spread – a trend which fostered substantial selldowns in sugar and wheat, but record net buying in soymeal.
Managed money, a proxy for speculators, reduced its net long position in the top 13 US-traded agricultural commodities by just 3,439 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission shows.
However, that modest decline disguised significant changes within contracts, as hedge funds reacted to the spread of coronavirus concerns largely with withdrawal, and a reduction of exposure.
All the 10 major grain and soft commodity contracts saw managed money positioning head away from extremes closer to zero during the week.
Richard Feltes at RJ O’Brien noted a situation in which “managed funds not only trim their wheat short but reduce short positions in soybeans, soymeal and corn”.
This was a “sign that players are seeking shelter amid the unprecedented combo of coronavirus and,” now, a Russia-Saudi Arabia price “war” in the oil market, after Russia’s refusal to join Opec in crude production cuts.
‘Much more manageable’
For wheat, funds were in the week to last Tuesday notable sellers of both Kansas City hard red winter - which speculators sold down at the quickest in six months, in fact opening up a small net short position – and Chicago soft red winter, the world bellwether.
In Chicago wheat, managed money slashed its net long by 26,583 lots, the most in more than a year, to 15,404 contracts.
“Funds have healed up a long Chicago wheat position to much more manageable levels,” said Benson Quinn Commodities.
The broker added “the selling in wheat may take some pressure of the market” early this week, in signifying less ammunition for further long-closing transactions.
‘Less left to sell’
Among soft commodities, New York raw sugar, in which hedge funds had held the biggest net long position, suffered the biggest selldown, of more than 42,000 lots, the most in seven months.
“You can take that either as proof that they are in selling mode, or that they have less left to sell,” said Marex Spectron, although adding that “we think the former is a safer view”.
At 142,028, hedge funds retained a substantial net long in raw sugar futures and options as of last Tuesday, albeit one seen as likely reduced significantly further given a further cut in in futures prices since then.
Still, Sucden Financial flagged the potential for a rapid revival in sugar prices “should there be a turnaround and a recovery in other markets”, given that “liquidation has continued apace since” last Tuesday, and noting “the oversold nature of the market”.
Record soymeal shift
By contrast, Chicago corn and soybeans, in which hedge funds had held substantial net short positions, attracted net buying – of 39,362 lots in the case of the oilseed, the most of 2020.
However, it was soymeal which saw the biggest round of short-covering, with managed money slashed its net short by 58,788 lots, the most on data going back to 2006.
The shift cut the net short from a record level of 77,112 lots as of February 25 to an eight-month low as of last Tuesday.
Besides the closing of short bets, the reversion in soymeal was – unlike in corn and soybeans – driven largely by the addition of long positions.
Prices of soymeal, unlike those of other commodities, saw a marked increase over the week to last Tuesday, amid ideas that an increase in Argentine export prices would drive trade to the US, and with official data showing a marked drop in soymeal stocks.
As of the end of January US soymeal inventories stood at 302,321 tonnes, down 20% year on year, and 11.6% month on month.