Hedge funds turn more bearish on grains than on soft commodities

12.09.2017

Hedge funds became more bearish on grains than New York-traded soft commodities as concerns waned over dryness damage to corn output – while hurricane worries prompted a surge in betting on cotton price rises.

Managed money, a proxy for speculators, expanded its net short position in futures and options in the top 13 US-traded agricultural commodities, from wheat to coffee, by 2,566 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

However, the relatively small gain in the net short – the extent to which short holdings, which profit when values fall, exceed long bets, which benefit when prices gain – disguised contrasting movement between the three ag complexes.

While hedge funds raised their net short in grains by nearly 19,000 lots, while selling down in Chicago-traded livestock for an eighth successive week, the longest such spree in two years, they were net buyers of nearly 24,000 lots in the four-main New York soft commodities – arabica coffee, cocoa, cotton and raw sugar

'Approaching threat'

The buying in softs was down in part to a further retreat among hedge funds from bearish bets on raw sugar futures options amid, now confirmed, talk of India allowing a quota of imports with reduced tariffs and of a slowdown in Brazilian production.

Speculators' net longs in New York softs, Sep 5, (change on week)

Cotton: 56,180, (+20,601)

Arabica coffee: -29,913, (-6,265)

Cocoa: -48,162, (-648)

Raw sugar: -116,186, (+10,296)

Sources: Agrimoney.comn, CFTC

Sucden Financial flagged the role of "the large fund short" in encouraging a "stalling in the long term down trend" in sugar futures, as speculators were encouraged to cover a net short position which reached a record high last month.

However, the CFTC data revealed a particular surge of buying in cotton, in which hedge funds hiked their net long holding by 20,601 contracts, the biggest swing bullish in positioning in two years, as Hurricane Irma threatened fresh damage to the US crop, after that wrought by Hurricane Harvey.

Rabobank noted that the fund buying on "the approaching threat of Hurricane Irma on US cotton" helped cotton futures for December soar 7% during the week to last Tuesday, with the lot going on to set a contract high on Friday.

Softs vs grains

Hedge funds' buying in softs reduced their overall net short in the four contracts to 138,081 lots, albeit still a relatively high number, not too far from a record of 183,200 contracts set two months ago.
Speculators' net long in Chicago grains, Sep 5 (change on week)

Soyoil: 88,634, (+21,763)

Kansas wheat: 14,985, (-3,075)

Soybeans: -11,944, (+16,423)

Soymeal: -36,344, (-192)

Chicago wheat: -86,570, (-9,041)

Corn: -109,723, (-44,778)

Sources: Agrimoney.com, CFTC

Indeed, according to Societe Generale, speculators remain "oversold" in arabica coffee, cocoa and raw sugar, leaving these contracts "vulnerable to short-covering" which would put upward pressure on prices.

In the main US grain contracts, however, including the soy complex, hedge funds extended their net short position to 140,962 lots.

That made managed money more bearish on grains than on soft commodities for the first time since June.

'Getting out of position'

That is contrary to the trend of data going back to 2006 which, on average, see hedge funds being more bearish on soft commodities than grains, by a margin of more than 100,000 lots.

Managed money net long in top 13 US-traded ags and (change on week)

Sep 5: -130,477, (-2,566)

Aug 29: -127,911, (-47,245)

Aug 22: -80,666, (-178,404)

Aug 15: 97,738, (-173,212)

Aug 8: 270,950, (-68,777)

Aug 1: 339,727, (-20,483)

Sources: Agrimoney.com, CFTC

Indeed, Water Street Solutions raised ideas that hedge funds could be caught out on short betting on grains, saying that they were "potentially getting out of position if the final yield estimates aren't achieved", with the US corn and soybean harvests in their early stages.

However, none of the grain contracts fell into the area deemed by Societe Generale as "oversold".

The main target of selling in the complex was corn, in which hedge funds raised their net short nearly to 110,000 contracts, a three-month high.

In Chicago wheat, they also raised their net short to a three-month top, thanks to an eighth successive week of net selling, the longest such streak in three years.

'Steady Chinese buying'

However, Chicago soybeans bucked the trend, with managed money reducing its net short in the oilseed by more than 16,000 lots, fuelling a rise of 3.3% in prices during the week.

Speculators' net longs in Chicago livestock, Sep 5, (change on week)

Live cattle: 77,857, (-3,153)

Lean hogs: 59,693, (-4,516)

Feeder cattle: 11,016, (+19)

Sources: Agrimoney.com, CFTC

Rabobank flagged the supportive effect to prices of "limited Midwest rains, leading to subsequent yield concerns, and steady Chinese buying from the US".


agrimoney

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