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Hedge funds placed for cotton windfall - but losses on hogs


Funds extended bearish betting in ags, and none too soon, with prices falling anew, thanks to the turn worse in US-China trade relations which have left funds with big gains on cotton, but losses on hogs.


Managed money, a proxy for speculators, expanded its net short position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by 31,928 contracts week on week, analysis of data from the Commodity Futures Trading Commission regulator shows.


The shirt took the net short – the extent to which short holdings, which profit when values fall, exceed long bets, which benefit when prices gain – to a seven-week high of 92,740 contracts.


And it positioned them to profit from the latest slide in prices spurred by worries over demand for US crops, in particular since President Donald Trump last week threatened tariffs on a further $300bn of imports from China, worsening trade relations with a country which is usually a huge buyer of US ags.


The Bcom ag subindex is down 3.3% since last Tuesday, when the latest CFTC data are taken from.


‘Not short enough’

By ag complex, most of the selling came in grains, which attracted net selling of 41,217 contracts, reducing the net long to a minimal 2,098 lots.


In Chicago corn futures and options, speculators cut their net long by 41,264 lots, the largest selldown in four months, with managed money raising its net short in soybeans by more than 15,000 lots, the most in three months.


In fact funds were overall “more short in corn and soybeans than expected”, said Terry Reilly at Futures International.


However, for wheat, in which hedge funds were small net buyers in both Chicago soft red winter wheat and Kansas City hard red winter wheat futures options, such purchases raised ideas of having created extra scope for fund sales.


“With price action since this [CFTC] report, funds are not short enough once again,” said Benson Quinn Commodities.


“Heading into the Wasde could offer resistance” this week, the broker said, referring to the prospect on August 12 of the US Department of Agriculture’s benchmark briefing on world crop supply and demand.


Coffee, cotton selling

In New York-traded soft commodities, managed money was, overall, less severe in its selling, expanding its net short by 2,157 lots to a two-month high of 161,795 contracts.


However, that disguised a hefty gain in the net short in arabica coffee futures and options, of 11,456 contracts – the biggest such selldown in a year.


“This net short-sold position… has most likely been further increased, following the period of mixed but overall more negative trade that has since followed,” said merchant I&M Smith said, with prices undermined by waning fears over the threat from frost to Brazilian plantations.


In cotton futures and options, speculators proved small net buyers, but remained net short by 43,791 lots, close to the record high of 45,230 contract set the previous week.


The selling left managed money well placed for the latest slump in cotton prices, which on Monday hit their lowest since March 2016, and at one point saw three-session losses top 10%.


Cotton, as a large US export to China in normal times, is particularly sensitive to trade relations between the two countries and, as an industrial commodity, is also vulnerable to concerns of world economic setbacks.


‘Lack of export business’

However, where funds have not proved so astute is in their positioning on Chicago lean hogs – a contract also vulnerable to China-US relations, with the former a huge importer of pork, and the latter a large exporter.


Speculators in the latest week raised their net long by 6,265 lots, the biggest buying spree in three months – but ahead of a price slump of 11.2% since last Tuesday for Chicago’s best-traded October contract.


“The lack of [pork] export business with China is weighing heavily on hogs,” said Karl Setzer at AgriVisor.


USDA data on Thursday showed net cancellations by China of 12,200 tonnes in orders of US pork.

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