Hedge funds pile out of grains, leaving room for short-covering

04.04.2017

Managed money, a proxy for speculators, reduced the size of its net long position in the most commonwealth grain futures and options by 158,058 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

Speculators' net long in Chicago grains, Mar 28 (change on week)

Soybeans: 37,916 (-27,753)

Soymeal: 29,533, (-29,801)

Kansas wheat: -1,756 (-16,955)

Soyoil: -19,748, (+5,417)

Corn: -155,512, (-73,821)

Chicago wheat: -136,150, (-15,145)

Sources: Agrimoney.com, CFTC

The size of the net-short position, or the extent to which bearish bets outstrip bullish ones, now stands at 245,717.

This is the most bearish speculators have been on grains since March last year.

Massive net-short in wheat

The size of the net-short position in wheat, and the rapid increase in the size of the corn short-position, could give prices some support, as it leaves plenty of room for short covering.

The size of the net-short position in wheat is now at its second highest level on record.

The only time funds have been more bearish was back in October 2016.

"Funds are huge shorts in Chicago which should provide price support moving forward," noted Water Street Solutions.

Rapid selling could turn to buying in corn

Speculators' net longs in New York softs, Mar 28, (change on week)

Cotton: 105,422, (-166)

Raw sugar: 56,417, (+12,483)

Arabica coffee: -1,592, (-10,714)

Cocoa: 40,734, (+65,968)

Sources: Agrimoney.com, CFTC

Corn markets could also benefit from short covering.

"The funds sold many more corn contracts than what the trade expected," said Terry Reilly, at Futures International.

"I would assume managed money did reduce their short position after today's crop report," said Steve Pridel, at Benson Quinn Commodities.

"Still, managed money is carrying a very large short position compared to the start of March where they were a net long 80,000 contracts," Mr Pridel said.

"Any planting hiccups i.e. delayed planting or more acres shifted away from corn could result in a furry of fund short covering."

Still room for selling in soybeans

But funds are still holding a net-long position in soybeans, just about, which could limit short-covering potential.

Speculators' net longs in Chicago livestock, Mar 28, (change on week)

Live cattle: 119,382, (+10,842)

Lean hogs: 38,514, (-7,443)

Feeder cattle: 16,006, (+3,939)

Sources: Agrimoney.com, CFTC

True, the size of that short position has plummeted, after speculators cut bullish bets for six weeks in a row, to the lowest level in over a year.

But there could be more selling to come, particularly after Friday's US planting data showed even bigger than expected soybean sowings.


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