Hedge funds are particularly bullish about, well, cattle. At least, they were in the week to last Tuesday, regulatory data show.
Sure, analysis of the latest Commodity Futures Trading Commission data on managed money positioning shows that speculators are getting attracted to grains, with all that Chinese buying of US corn going on.
Their net long in futures and options in grains, including the soy complex, as of last Tuesday rose 35,823 lots week on week to 784,257 contracts - within 50,000 lots of the record high set in August of the US drought year of 2012.
Corn itself attracted notable buying, of a net 14,734 lots, to 364,229 contracts, for Chicago futures and options although still remains a bit shy of the record of 429,189 lots, actually set in 2010.
More unexpected, perhaps, is the growth in the net long in Kansas City hard red winter wheat - now at 60,239 lots, the highest since August 2018, and less than 13,000 lots from the record high. South Plains dryness, and ideas of the unwinding of short Kansas City-Chicago spreads look to be playing a role.
Still, for real bullish enthusiasm, look to Chicago live cattle, in which managed money raised its net long by 25,576 lots week on week.
That was a record buying spree, on data going back to 2006.
One spur to the buying appears to be a strong beef market, with choice beef prices as of last Tuesday up 9.1% for 2021, and select beef up 11.1%, a trend attributed by observers such as Steiner Consulting to buyer concerns “about future inflation”, prompting a bit of stockpiling.
The price gains have continued since, with the total January gain at 11.4% for choice and 13.8% for select – in turn helping send packer margins soaring. As of Friday, they $379.65 per head of cattle - up from $182.60 per head at the close of December.
Unsurprisingly, that is being reflected in firm cattle prices, as packers attempt to make the most of the widened margins, at a time when weakened placements of animals for fattening on feedlots in the autumn has raised some concerns about supplies of animals for slaughter ahead.
US beef exports are proving buoyant too, with commitments for 2021, at 255,500 tonnes, up 18% year on year.
Not that is seems – perhaps to the chagrin of funds - that cattle producers have been quite as downbeat as feedlots.
A US Department of Agriculture briefing late on Friday showed the US beef cow herd, while down 0.6% year on year, shrinking at less than half the pace that investors had expected.
The number of beef heifers, ie the future breeding herd, retained showing a marginal increase rather than the 1.9% decline that investors had expected.
Live cattle futures had a mixed performance on Monday, with nearer-term contracts falling, while those for later in 2021 showed modest gains.
The briefing in fact might end up being more bullish for those whose cattle interest is aimed more at dairy.
The USDA report showed heifers retained for dairy cow herd replacement falling by some 2%, compared with expectations of 0.6% growth.
“Margin uncertainty”, in the face of high feed costs, “appears to have given dairy producers pause, especially since the current dairy herd at 9.44m head is the highest in 25 years”.