Hedge funds accelerated bearish positioning on agricultural commodities to the fastest pace in nearly a year as hopes rose for grain, sugar and cotton supplies – with the extent of the selldown potentially setting the scene for greater price stability.
Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cocoa to lean hogs, by more than 126,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.
This reduction in the net long position – the extent to which long bets which benefit when prices gain, exceed short holdings, which profit when values fall – was the largest since July last year.
And it reflected more bearish switch in investments on most contracts, with only cocoa and live cattle emerging an increased net long position.
Hedge funds' less positive sentiment was particularly evident in Chicago-traded corn, soybeans and wheat, in all of which they reduced their net long by well over 20,000 contracts.
Speculators' net longs in grains and oilseeds, Jun 10, (change on week)
|Chicago corn: 146,436, (-27,724)Chicago soybeans: 80,143, (-24,007)Chicago soymeal: 68,261, (-2,368)Kansas wheat: 24,657, (-5,360)|
Chicago wheat: -28,172, (-27,135)Chicago soyoil: -19,560, (-5,460)Sources: Agrimoney.com, CFTC
The Wasde upgraded hopes for corn crops in the likes of the European Union and Ukraine, with benign conditions leaving many observers foreseeing increased expectations too for the US harvest, the world's biggest.
In wheat, expectations for Chinese, EU and Russian output were upgraded, more than offsetting a downgrade to the US hard red winter winter crop, which is now being tested by harvest rains after being beset for drought for most of the growing season.
The less bullish twist in hedge fund positioning reflects a shift in attention "to the improving new crop production and stocks outlook for grains and oilseeds", Rabobank said.
'Flipped from long to short'
The extent of the selling turned speculators net short in Chicago wheat for the first time in three months, representing a huge bearish switch in positioning – by more than 70,000 lots in four weeks.
Speculators' net longs in New York softs, Jun 10, (change on week)
|Raw sugar: 75,886, (-26,231)Cocoa: 68,627, (+3,264)Arabica coffee: 38,789, (-20)Cotton: 22,552, (-8,759)Sources: Agrimoney.com, CFTC|
In corn, the net short long has fallen by nearly 110,000 contracts during the four weeks, and in soybeans by more than 50,000 contracts to the lowest in 10 months.
In all three crops the bearish positioning has been driven by a rise in short positions rather than a drop in long bet, but in particular corn, in which the gross short holding has risen by 83,000 lots.
'Reduces pressure on prices'
However, the extent of the change in positioning has raised some ideas of an easing in pressure on prices, despite the continuing talk of benign prospects for US corn and soybean crops, and for wheat crops in most producing countries.
Speculators' net longs in Chicago livestock, Jun 10 (change on week)
|Live cattle: 126,109, (+822)Lean hogs: 53,851, (-1,576)Feeder cattle: 14,105, (-788)Sources: Agrimoney.com, CFTC|
"That reduces pressure from this source on prices, and should allow prices to show greater stability, even if US weather continues to be near ideal.
"In fact, that is what you have already seen in the last few sessions. And this could be the pattern of things for now."
Wheat futures in fact stood 1.0% higher at $5.92 a bushel in Chicago in early deals on Monday, setting course for what would be the first time in more than a month when prices have risen for two successive sessions.
'Now started to go seriously short?'
Among New York-traded soft commodities, investors also slashed their net long position in raw sugar futures and options by 26,000 contracts, taking the decline in three months to more than 66,000 contracts.
Broker Marex Spectron said: "This fairly dramatic increase in hedge funds' shorts can be taken two ways.
"It either means that the longs are less vulnerable, and the shorts more so, or that these funds have now started to go seriously short, as they were earlier in the year."
Rival Sucden Financial said that the CFTC data "was viewed as bullish as the funds have put on a decent sized short over the reporting period", and, indeed, sugar futures stood 0.5% higher at 17.13 cents a pound as of 09:00 New York time (14:00 UK time).
In cotton, speculators cut their net long for a fifth successive week, this time to 22,552 lots, the lowest in six months.
This decline, however, has been driven by a cut in long positions, down 29,000 over the two weeks, with short positions raised by some 12,700 lots.
The rains in the southern Plains, while raising fears for wheat quality, have reduced concerns over spring crops such as cotton and, indeed, the USDA in the Wasde raised by 500,000 bales to 15.0m bales its forecast for this year's domestic harvest.