Hedge funds extend bearish ag spree, despite cattle, wheat reversals


Gloom over corn and soybean prices fuelled a further cut by hedge funds on bullish agricultural commodity bets, even as they baulked at raising their record-bearish holding in wheat, and hiked bets on a rally in cattle.

Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from cotton to cattle, by more than 40,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

The sell-down took the overall net long - the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall - to 341,144 lots, its lowest in nearly four months, and well below a mid-June high of more than 950,000 contracts.

But it reflected in the main bearish bets on a few contracts, particularly Chicago-traded corn and soybeans and New York cocoa, with the majority of ags showing an increase in bullish positioning.

That would tally more with separate data on commodity exchange-traded products, which shows an increase in long-only exposure to crops last month, with net inflows of $63m, taking it to $2.00bn, with assets invested in long-only in livestock nudging $1m higher to $28m, according to Societe Generale.

Investors have minimal exposure to either crops or livestock through short-only exchange-traded products.

'Carving out a low'

Indeed, on wheat, hedge funds reversed - a little - after driving net short positions in both Chicago and Kansas City contracts to record highs the previous week, fuelling a drop in prices to their lowest since 2006.

Speculators' net longs in Chicago grains, August 2 (change on week)

Soybeans: 106,338, (-15,351)

Soymeal: 56,761, (+325)

Soyoil: -16,830, (+388)

Kansas wheat: -28,079, (+1,189)

Corn: -104,432, (-38,894)

Chicago wheat: -129,058, (+1,126)

Sources: Agrimoney.com, CFTC

For the first time in seven week, managed money turned less bearish on both contracts, ending a run of increased net short bets which, in Kansas City, matched the longest in five years.

Extreme net short, or net long, positions often raise concerns over whether a sharp price correction is imminent as holdings are closed, with France's poor harvest, the near-closure of the US winter crop harvest and signs of improved demand for US supplies, offering fundamental cause for less bearish thinking.

"Wheat continues to be set for a short covering rally out of its oversold condition," said ag advisory group Water Street Solutions.

"It may take a few weeks, but wheat should be carving out a low here."

At broker Benson Quinn Commodities, Brian Henry said that "I wouldn't be surprised to see more short covering early next week".

'Packers want inventory'

Among New York-traded soft commodities, hedge funds were notable buyers in cotton, driving their net long position above 70,000 contracts for the first time in three years, encouraged by resilient demand for the fibre shown by data on both Chinese state auctions and US export sales.

Speculators' net longs in New York softs, August 2 (change on week)

Raw sugar: 246,764, (-2,748)

Cotton: 76,468, (+8,944)

Arabica coffee: 32,616, (-1,796)

Cocoa: 16,847, (-6,829)

Sources: Agrimoney.com, CFTC

Bullish positioning has proved a profitable strategy, with December futures coming close to 78 cents a pound on Friday for the first time, for a nearest-but-one contract, for two years, and taking to 20% month-on-month gains.

And among Chicago livestock, traders piled back into both live and feeder cattle contracts, encouraged by increased US slaughter, taken as a sign of improved demand, at what is typically a firm seasonal period for prices.

At broker Country Futures, Jerry Stowell flagged talk of meat processors "weighing cattle back up and putting back on feed," adding that "packers want inventory as we approach Labor Day," on September 5.

Water Street Solutions also advised investors to "look for additional supportive trade as we work into" the Labor Day weekend, adding that "typically August trade is supportive" to cattle prices, which appear to have found a "summer bottom".

'Potentially bearish report'

However, hedge funds' improved bullishness in these contracts was more than offset by their increasing selldown in cocoa, supported by improved ideas on West African production, and Chicago-traded corn and soybeans, in which largely benign weather has boosted yield hopes.
Speculators' net longs in Chicago livestock, Aug 2, (change on week)

Lean hogs: 45,371, (-249)

Live cattle: 40,021, (+11,715)

Feeder cattle: -1,643, (+1,435)

Sources: Agrimoney.com, CFTC

The managed money net long in soybeans fell by 15,351 contracts to a three-month low of 106,338 lots "as crop ratings remained excellent and funds position themselves for a potentially bearish US Department of Agriculture Wasde report", Rabobank noted.

The USDA will on Friday release its monthly Wasde briefing on world crop supply and demand, expected to raise estimates for both domestic corn and soybean yields.

In corn, speculators raised their net short to a three-month high of 104,432 contracts, in a seventh successive week of bearish positioning, the longest such run in some 17 months.


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