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Funds extend bullish ag bets, led by 'heightened bullish activity' in softs

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“Heightened bullish activity” in the softs complex ensured hedge funds extended their rebuilding of a net long position in ags, despite a grains selldown ahead of what was expected to prove a bearish Wasde briefing.

 

Managed money, a proxy for speculators, in the week to last Tuesday raised by 21,761 contracts its net long position in futures and options in the top 13 US-traded agricultural commodities overall, analysis of data from the Commodity Futures Trading Commission shows.

 

The shift took the net long – the extent to which long positions, which gain when prices rise, exceed short bets, which profit when values fall - to 125,361 lots, a five-month high.

 

However, the overall buying disguised a divergence in strategy on soft commodities, which attracted what Societe Generale termed “heightened bullish activity, with $1.3bn bullish flows”, and that on grains, in which funds proved net sellers for a third successive week.

 

Grains selldown

The net selling in grains - which amounted to 46,883 contracts (including the soybean complex) - came ahead of a US Department of Agriculture Wasde briefing on world crop supply and demand which was expected to lift forecasts for US corn and soybean harvests, and the Russian wheat crop.

 

In Chicago soybeans, hedge funds cut their net long for a third successive week, this time by 17,355 contracts, while in soft red winter wheat, selling a net 16,710 lots to return to a net short position.

 

Kansas City hard red winter wheat attracted a third week of net selling, and while speculators proved marginal net buyers of Chicago corn futures and options, this only having already built up a large net short in the grain, of more than 170,000 contracts.

 

In fact, the selling appears to have proved ill-fated, with futures in all three commodities in fact posting marked gains over the past week, spurred by factors including last Monday’s derecho storm through Illinois and Iowa, an uptick in wheat tenders by importers, and continuing buying by China of US soybeans.

 

‘Long-building’

By contrast, in New York-traded soft commodities, hedge funds raised their net long by 56,246 contracts to 227,370 lots, the highest since late February, in the early days of global Covid-19 concerns.

 

The shift reflected an increasing number of long bets, rather than the hefty short-closing, of more than 50,000 contracts, which marked the previous week.

 

The week to August 4 “was notably marked by some of the largest short liquidations ever witnessed, while this week has been more active in terms of long-building”, Societe Generale said.

 

All four of the key New York soft commodity contracts – arabica coffee, cocoa, cotton and raw sugar – attracted buying, although with that in the sweetener, at 28,618 contracts, equivalent to $282m on SocGen calculations, particularly large.

 

‘Open up bullish potential’

The buying in sugar reflected dryness concerns in Brazil, the bank said.

 

“The market expects Brazil to record massive sugar-cane production this year, which would be bearish for prices, but the drought could potentially jeopardise this consensus and open up bullish potential.”

 

Such concern comes “in a context where other key growers, such as Thailand, the second-largest exporter after Brazil, face a dimmer production outlook, and Asian import demand remains firm”, the bank said, tallying with an assessment made separately from producer Adecoagro.

 

“Cotton also registered $225m of long building, as lingering high temperatures threatened crops in West Texas, the biggest US growing region,” the bank said.

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