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Hedge funds pile up bearish bets on ags, as supply hopes revive

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Hedge funds slashed their bullish position in agricultural commodities, as they piled on short bets at the fastest rate in nearly two years - with only lean hogs and arabica coffee escaping the charge.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by 173,212 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

The plunge in the net long - the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – was one of the fastest on records going back to 2006.

And it reflected active selling in all three ag sectors - grains, soft commodities and livestock – with the number of new short bets far exceeding long bets close, to take open interest (ie, the number of live contracts) back above 1.5m.

'Good selling in all markets'

Indeed, the number of short bets rose by more than 135,000 contracts, the most for any week since November 2015.

Managed money net long in top 13 US-traded ags and (change on week)

Aug 15: 97,738, (-173,212)

Aug 8: 270,950, (-68,777)

Aug 1: 339,727, (-20,483)

Jul 25: 360,210, (+29,667)

Jul 18: 330,543, (+27,153)

Jul 11: 303,390, (+330,243)

Sources:, CFTC

The selldown came in a week in which the US Department of Agriculture surprised investors with bigger-than-expected estimates for stocks of major grains in 2017-18, sending prices tumbling.

'Precarious position'

Indeed, in Chicago soybean futures and options, the extent of the selling was viewed as larger than had been expected, driving managed money back into a net short position – and seen by some commentators as a potential overreaction to improved US growing conditions.

Speculators' net long in Chicago grains, Aug 15 (change on week)

Soyoil: 46,030, (-18,985)

Corn: 39,802, (-27,271)

Kansas wheat: 34,609, (-14,326)

Soybeans: -14,399, (-27,312)

Soymeal: -25,575, (-11,218)

Chicago wheat: -34,236, (-20,135)

Sources:, CFTC

Water Street Solutions said that hedge funds' net short in soybeans represented a "precarious position if the drier trend in much of the 'I states' keeps the big yield expectations from being realised".

Illinois and Iowa, which with Indiana form the so-called I states, are particularly important corn and soybean producing areas, and have been surrounded this year by worries over limited rainfall.

With China, the top soybean importer, "stepping up purchases" at current price levels, the market "should stabilise here", Water Street Solutions added.

'Plenty of room to add shorts'

However, Benson Quinn Commodities was more reassuring over bears in the main grains, saying that "there is plenty of room to add short positions or liquidate length", on top of sales already made.

Speculators' net longs in New York softs, Aug 15, (change on week)

Cotton: 29,596, (-4,390)

Arabica coffee: 285, (+1,510)

Cocoa: -35,530, (-8,560)

Raw sugar: -117,762, (-32,139)Sources:, CFTC

And funds "appear to be too long" in Kansas City hard red winter wheat, despite cutting their net long position to the lowest in two months.

In Chicago corn, Water Street Solutions said that it was "interesting to note" that speculators "are not shedding longs but rather adding new short positions", which rose by some 22,000 lots week on week.

Rabobank said that "improving US crop conditions", underlined by a smaller-than-expected cut by the US Department of Agriculture on August 10 to its forecast for the domestic corn yield, "set a bearish tone amid a significant agri-fund sell off".

'Even higher than the market expected'

In New York-traded soft commodities, an increase in bearish positioning was led by a renewed selling spree in raw sugar, in which hedge funds hiked their net short by 32,000 lots, the most in nine months, to take it to a record 117,762 contracts.

This net short, reflecting strong sugar production in Brazil, was termed by Sucden Financial as "perhaps even higher than the market expected", and a contributor to a firm start to the week for raw sugar futures, which stood up 0.8% at 13.51 cents a pound for October delivery.

A bigger-than-expected short position, in implying that less selling pressure remains unfulfilled than had been thought, is often taken as a positive sign for prices.

Meanwhile, speculators returned to selling cocoa for the first time in a month, amid fresh hopes for West African supplies, which have spurred renewed pressure on prices.

"It is not only that cumulative shipments in Ivory Coast, the largest growing country, have been a good quarter higher since the season began in October than in the same period last year - the outlook for the next main crop is also positive thanks to the favourable weather," Commerzbank said.

"Cocoa growing in West Africa has been profiting this season from a good mix of rain and sun, as well as a mild Harmattan season – last year, these hot desert winds caused considerable damage."

Coffee, hogs escape selldown

Indeed, arabica coffee was alone among major softs in escaping a selldown, despite the recovery in prices of the bean going into reverse as, according to Rabobank, roasters prove "reluctant to buy above 130 cents a pound".

Speculators' net longs in Chicago livestock, Aug 15, (change on week)

Live cattle: 81,175, (-13,593)

Lean hogs: 81,149, (+5,663)

Feeder cattle: 12,594, (-2,456)Sources:, CFTC

US hog slaughter is "higher than a year ago, but still under the levels indicated" by US Department of Agriculture herd data, according to Paragon Economics.

"Pork demand, especially export demand, has been excellent for much of this year."

However, hog prices suffered a weak finish to last week, amid weakness in the cash market, spurred by ideas of rising supplies.

By Mike Verdin

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