Hedge funds turn record bullish on soft commodities

16.08.2016

Hedge funds boosted bullish bets on soft commodities to record levels, holding massive long positions in New York-traded sugar and cotton, according to data from the Commodity Futures Trading Commission (CFTC) regulator.

Managed money, a proxy for speculators, lifted its net long position on the main New York traded soft commodities, arabica coffee, cocoa, raw sugar, and cotton, to the tune of 28,684 lots, in the week to last Tuesday,

This brings the net long across softs – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – to 401,379 lots.

This is the most bullish managed money has been on records going back to 2006.

Record sugar long

The increase in hedge fund bull positioning is being driven by massive longs in cotton and raw sugar.

Managed money is more bullish in cotton than at any time since August 2013, and in raw sugar, speculators are net-long by a record 270,180 lots.

Hedge funds have been trending more bullish on sugar since the autumn of last year, reflecting the fact that the sugar market has swung into deficit, with demand outstripping supply.

But the size of the of the long has raised concerns for analysts, as it leaves plenty of room for fund selling, which could trigger a rapid down-turn, although prices remain robust.

Robin Shaw, at Marex Spectron, said "we have all forgotten the fund long". "But it is still with us, as big as ever."

A touch more bullish on grains

Managed money turned a bit more bullish on grains, but they are still holding a hefty net short position, which is supportive for prices.

And funds sold out of Chicago corn futures, extending the size of the managed money net short to its highest level since April.

Funds turned positive on soybeans, adding length at the fastest rate since May of this year

But after the previous two months of fund selling, there is still plenty of room for a rally, with the length well short of the levels seen in early summer.

"Funds look to be defending their long positions on the anticipation of longer term good balance sheet dynamics despite the record anticipated yield," said Water Street Commodities.

And although hedge funds trimmed their net short in wheat again, it still remains very large, which raises hopes for further short covering.

Brian Henry, at Benson Quinn, said that the cuts to the Kansas City and Chicago shorts could be followed by more short covering early this week.


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