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Hedge funds return to net long in ags, amid commodities revival

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A trend of more positive thinking on commodity prices fuelled a return by hedge funds to a net long position in ags – although largely thanks to improved hopes for wheat values, which were dented by US data.

Managed money, a proxy for speculators, swung net bullish by 27,688 lots in the week to last Tuesday in its positioning on the top 13 US-traded agricultural commodities, analysis of data from the Commodity Futures Trading Commission regulator shows.

The shift returned hedge funds to a net long position - the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall - of 13,384 lots, a marked turnaround from a net short of 130,477 lots three weeks before.

And it reflected a broadly more upbeat view on prices of raw materials, with ag advisory group Water Street Solutions saying that "commodity indices are trading back at early-year highs," although they have traded back somewhat from late-September peaks fuelled by the recovery in oil prices.

"Global demand is good and ownership in commodities is generally growing."

Energy is proving particularly popular, with Societe Generale noting that "money managers hold record long positions on Brent crude, heating oil and gasoil".

'Dashed hopes'

In ags, the return to a net long position was fuelled mainly by grains, over which hedge funds were more upbeat in their positioning than New York-traded soft commodities for the first time in two months.

Speculators' net long in Chicago grains, Sep 26 (change on week)

Soyoil: 75,629, (-17,241)

Soybeans: 28,320, (+14,573)

Kansas wheat: 11,418, (-997)

Soymeal: -5,492, (+11,427)

Chicago wheat: -64,699, (+14,869)

Corn: -133,442, (+1,164)

Sources: Agrimoney.com, CFTC

"This, along with firming cash markets, assisted a 2.4% week-on-week rally in Chicago wheat, as managed money sold 11,846 gross shorts - the most in 11 weeks."

However, the betting proved ill-fated, as the US Department of Agriculture made a surprise upgrade to its forecast for the US spring wheat crop, besides estimating domestic all-wheat inventories above market expectations too.

"USDA dashed hopes of widespread spring wheat abandonment on Friday's wheat report," Water Street Solutions said, with Chicago prices down nearly 3% on Monday from pre-report levels.

'Supportive trade is ahead'

The CFTC report also revealed hedge funds moving net positive on corn futures for the first time in nine weeks, amid ideas that a seasonal low in prices has been set.

Speculators' net longs in New York softs, Sep 26, (change on week)

Cotton: 57,166, (-6,173)

Arabica coffee: -13,151, (+3,331)

Cocoa: -33,826, (+5,673)

Raw sugar: -70,267, (-2,871)Sources: Agrimoney.comn, CFTC

"History would tell us supportive trade is ahead," although adding that "the large farmer long position will weigh on rallies".

However, among oilseeds, hedge funds slashed their net long position in soyoil, amid worries that the Environmental Protection Agency is poised to cut the mandate for US use of biodiesel (which is made from vegetable oils).

"Ongoing unwinding of [soybean crush] product spreads also featured," Rabobank noted, with speculators slashing their net short in soymeal.

'Oversold, overbought'

Among the big four New York-traded soft commodities, selling exceeded buying for the first time in a month, as hedge funds removed further risk premium from cotton prices, with hurricanes deemed to have caused only localised damage to the US crop.

Speculators' net longs in Chicago livestock, Sep 26, (change on week)

Live cattle: 92,358, (+5,706)

Lean hogs: 53,626, (-3,106)

Feeder cattle: 15,744, (+1,333)Sources: Agrimoney.com, CFTC

Rabobank flagged a "strong supply outlook, derived from an extended Indian monsoon and strong Centre South Brazil harvest reports".

Still, SocGen retained an assessment that sugar had been "oversold" and was "vulnerable to short covering" – an assessment it removed from cocoa, in which hedge funds cut their net short to a seven-week low.

The bank retained an assessment of speculators having "overbought" Chicago-traded feeder cattle, making the contract "vulnerable to profit taking".

By Mike Verdin

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