Hedge funds rebuilt their net long position in agricultural commodity derivatives at the fastest pace in eight months, led by increasingly bullish sentiment on corn, and a mass closure of bets on falling sugar prices.
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 cattle, by more than 56,000 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
The increase 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 in eight months.
It took the net long above 500,000 contracts for the first time since July.
And it came amid some revival over supply concerns for many commodities, in particular wheat, with harvest-time rains threatening quality downgrades in Argentina and Australia, even as a lack of rain is provoking concerns over winter wheat seedlings in Russia and parts of the US.
Still, hedge funds, having a stack of short positions in Chicago wheat in the previous week, made few changes in the latest one – although the data were taken before the jump in prices in the latest two sessions on concerns over a squeeze on Russian exports.
Speculators' net longs in grains and oilseeds, Nov 25, (change on week)
|Chicago corn: 207,196, (+20,242)Chicago soymeal: 57,973, (-924)|
Chicago soybeans: 37,819, (+7,086)
Chicago soyoil: 20,987, (+12,720)Kansas wheat: 13,783, (+1,264)Chicago wheat: -12,103, (-222)Sources: Agrimoney.com, CFTC
"Bottom line, speculators aren't nearly as short as they were six weeks ago and the 'liquidation risk' is much lower from here," one US broker said, referring to the prospect of price support from mass closure of short positions.
"We see this as a good hedge opportunity and are recommending to get sold out of 2014 wheat and sell the first 25% of 2015 wheat," the broker said, although adding that if hedge funds "show signs of building a long position, we need to respect that".
Hedge funds have not since June held a net long in Chicago wheat.
The biggest turn positive in positioning was in corn, in which hedge funds raised their net long by more than 20,000 lots, taking it above 200,000 contracts for the first time in five months.
Speculators' net longs in New York softs, Nov 25, (change on week)
|Arabica coffee: 40,688, (+1,531)Cocoa: 35,383, (+384)Cotton: -6,248, (-2,794)Raw sugar: -35,595 (+18,616)Sources: Agrimoney.com, CFTC|
Rabobank on Monday forecast a drop of 3m-4m acres (1.2m-1.6m hectares) in US sowings of corn in 2015, and a fall of 8% in plantings in Brazil of so-called safrinha corn, which is planted early in the calendar year, typically on land vacated by the soybean harvest.
'Commercial buyers prevalent'
Hedge funds also turned notably less bearish in raw sugar, cutting their net short in New York-traded futures and options by more than 18,000 contracts to 35,595 lots.
Speculators' net longs in Chicago livestock, Nov 25, (change on week
|)Live cattle: 109,559, (-612)Lean hogs: 55,212, (-478)Feeder cattle: 6,855, (-347)Sources: Agrimoney.com, CFTC|
Brazil's real strengthened notably, boosting the value in dollar terms of assets such as sugar in which the country is a major player.
At Commonwealth Bank of Australia, Tobin Gorey also noted the boost to sugar consumption prospects from lower prices.
"Commercial buyers have been prevalent, arresting each decline in prices," he said, if "wondering how long that will persist," given the extent of supplies built up by a succession of years of world production surplus.