Hedge funds returned to a net long position in Chicago wheat for the first time in six months as they made a sharp rise in bullish positioning on ags – an increase potentially spurred by the weakness in other commodities.
Managed money, a proxy for speculators, lifted its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to sugar, by more than 55,000 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
That represented the second-largest positive shift in seven months in hedge funds' net long – the extent to which long bets, which profit when values rise, exceed short positions, which benefit when prices fall.
And it was led by the three main Chicago contracts – corn, soybeans and wheat – for which prices have been raised by a cocktail of supply concerns.
In Chicago wheat, hedge funds raised their gross long position in futures and options nearly to 92,000 lots, the biggest since May, and enough to outnumber short positions for the first time since early June.
The positioning reflects persistent concerns for Russian wheat exports, amid ideas that the country will attempt to put a squeeze on shipments in an effort to guarantee domestic supplies, and put some constraint on food inflation – which has been sent soaring by bans on some purchases from the West.
Moscow in August barred ag imports from countries such as Australia, the European Union and the US in return for sanctions imposed by these nations on Russia over its role in stoking conflict in eastern Ukraine.
Comments from Russian officials on grain exports have appeared contradictory, although the latest report, on Monday, from new agency Tass quoted farm minister Nikolai Fyodorov as saying that the country has no plans for restrictions.
Russia is viewed as a key source of competitively-priced wheat supplies.
Indeed, "the spectre of Russian export restrictions is likely to keep significant shorts out of the market for the time being, especially headed into the holidays," said Jonathan Watters at Minneapolis-based broker Benson Quinn Commodities.
Also offering some support to prices have been deteriorating prospects for the Australian harvest, with rain hurting prospects for quality and quantity in Western Australia.
Abares, the official Australian commodities bureau, last week cut its forecast for the country's wheat exports in 2014-15.
However, there are ideas that broader fund moves are at work too, with many brokers last week noting purchases by funds potentially seeking exposure to a commodity class which has fared relatively well during a period of tumbling oil prices, which has dragged down values of most raw materials.
Both Brent crude and the CRB commodities index hit five-year lows last week.
"The beating in the crude oil market is forcing liquidation of long positions in that market," Benson Quinn Commodities said.
"For margining purposes, it may be forcing institutional short position holders in the grain markets to cover," reducing their exposure to an agricultural commodities market in which short positions have been unusually popular in many contracts.
"There is a case to be made for institutional traders identifying the ag sector as their best option to put capital to work," the broker added.
In corn, hedge funds hiked their net long position to more than 230,000 lots, the highest in nearly seven months, while lifting their net long in soybeans by more than 28,000 lots to 43,644 contracts, the biggest since June.
Sentiment in both crops has also been helped by some hindrance to early sowings in South America, and by US exports which, for corn especially, have proven stronger than investors expected.
However, hedge funds cut their net long in New York-traded arabica coffee futures and options to less than 34,000 lots for the first time in four months, as rains diminish concerns somewhat for Brazilian output next year, after a drought-affected 2014.
And in raw sugar, while speculators trimmed their net short, it remains, at 55,400 lots, historically high – and ironically questioning appetite for further sals.
At Commonwealth Bank of Australia, Tobin Gorey said: "There is almost nothing good to say for sugar at the moment.
"Investor selling is a big black cloud but… investors will not go on selling indefinitely. So perhaps there is a silver lining."
Hedge funds also cut their bullish positioning on livestock, cutting their net long in Chicago-traded live cattle futures and options below 100,000 lots to the lowest level of 2014.
Livestock prices have been hurt by a retreat in cash market values, spurring ideas that meat processors have secured needs for the holiday season – and potentially even overbought, with beef and pork prices easing.
Live cattle for February hit a two-month low of 160.70 cents a pound on Friday, when feeder cattle – it those ready to be placed on feedlots – hit a two-month lwo fo 221.25 cents a pound.
The resurgence in grain prices is also seen as reducing feedlots' appetite for paying up for animals.