Corn missed out on a rash of short-covering by hedge funds in grains, raising ideas that it might attract some buying ahead, amid ideas that sugar could, at least, find fresh appeal among speculators too.
Managed money, a proxy for speculators, reduced its net long position in futures and options in the top 13 US-traded agricultural commodities, from cattle to wheat, by 41,049 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
The change reduced the net short - the extent to which short holdings, which profit when values fall, exceed long bets, which benefit when prices gain – to a four-week low of 154,194 contracts.
And it reflected in the main short-covering in grains, including the soy complex, in which hedge funds cut their net short back below 350,000 lots.
In New York-traded soft commodities, hedge funds turned more bearish for an 11th successive week, the longest such spree on data going back to 2006.
The turn less bearish on positioning in grains reflected in part short-covering in soyoil, after the US ruled that Argentina and Indonesia were dumping unfairly-subsidised biodiesel exports on the US, and a decision likely to prompt Washington to impose steep import tariffs.
Speculators' net long in Chicago grains, May 9 (change on week)
Kansas wheat: 14,052 (+13,540)
Soymeal: -37, (+4,906)
Soyoil: -12,851, (+16,537)
Soybeans: -34,335 (+13,332)
Chicago wheat: -107,892, (+16,746)
Corn: -208,642, (-24,012)
Sources: Agrimoney.com, CFTC
The extent of the position changes was more than had been expected, in being markedly more dramatic than implied by adding up daily data on market estimates for fund trades, said Terry Reilly at broker Futures International.
Investors have "bought back a chunk of their short positions", said Tobin Gorey at Commonwealth Bank of Australia.
This provoked ideas among some observers of pressure from prices, in opening up greater prospect for fresh short positions in Chicago and Kansas City.
Speculators' net longs in New York softs, May 9, (change on week)
Cotton: 98,794, (-3,064)
Arabica coffee: -10,774, (+1,717)
Raw sugar: -15,948, (-10,016)Cocoa: -43,728, (+1,061)Sources: Agrimoney.com, CFTC
"Ultimately, I expect the report to offer resistance in the winter wheat markets.
"Barring a new supportive input, I would look for a weaker tone" to trading in wheat markets early this week.
However, such thinking was not unanimous, with ag advisory group Water Street Solutions saying that the net short position was still large enough to "provide support underneath the market" and short-covering boosts to prices.
CBA's Tobin Gorey said that speculators "probably have more to do" in short closing.
'Potential for short-covering'
In Chicago corn futures and options, hedge funds hiked their net short position by 24,000 lots to 208,642 contracts, amid relief over lower-than-expected delays to US sowings.
Speculators' net longs in Chicago livestock, May 9, (change on week)
Live cattle: 126,102, (-4,364)
Lean hogs: 24,293, (+9,338)
Feeder cattle: 16,772, (-674)Sources: Agrimoney.com, CFTC
However, funds "were more short than expected" in corn, said Futures International's Terry Reilly, with the net short indeed the second highest on records going back to 2006.
The data was viewed by Benson Quinn Commodities as creating ammunition for a boost to prices from short closing, with the broker saying that "the potential for short-covering does exist with a new bullish market catalyst", potentially from a weather threat to crops.
"It would be rare not to have a weather market at some point during the summer," the broker said.
Water Street Solutions advised producers wishing to price their 2017 corn harvest to "look for December futures opportunities toward the $4.15-a-bushel area as summer approaches".
The contract on Monday stood at $3.87 ¾ a bushel.
"Extended rallies will require inclement weather which the trade is suspect of right now with extremely low drought presence in the drought monitor," the group added.
'Funds will buy heavily'
There was some idea that hedge funds could return to buying New York-traded sugar soon too, after in the latest week positioning more bearishly on the sweetener for an 11th successive week, the longest such spree in more than two years.
Managed money net long in top 13 US-traded ags and (change on week)
May 9: -154,194, (+35,047)
May 2: -189,241, (+41,965)
Apr 25: -231,206, (-68,232)
Apr 18: -162,974, (-50,324)
Apr 11: -112,650, (-83,231)
Apr 4: -29,419, (-99,680)
Mar 28: 70,261, (-162,981)
Sources: Agrimoney.com, CFTC
However, with prices now close to ethanol parity – the level at which sugar loses its manufacturing premium over the biofuel for Brazilian cane processors – the idea of a "floor" for values of the sweetener is raising some ideas of funds returning to net purchases.
Talk from last week's annual sugar industry gathering in New York "confirmed the probability that trade and funds will buy heavily if prices descend towards the lower end of the ethanol parity range", said Marex Spectron.
However, the broker added that "producers will sell heavily if prices rise".
Elsewhere among soft commodities, the data showed funds trimming their net long in New York cotton futures and options slightly in the week to last Tuesday, to 98,794 contracts.
However, that remains close to the record high of 106,034 lots set in March, and leaves funds on course for hefty gains from the jump in cotton prices since Thursday.
July cotton futures at one point in early deals on Monday took to 12.9% their gains in three sessions.
In cocoa and coffee, by contrast, hedge funds trimmed historically large net short positions.
By Mike Verdin