Hedge funds resume selling in ags, led by corn, cotton, hogs 

Hedge funds returned to a bearish bias on ags – although not by much, as improved sentiment towards cocoa and wheat prices offset some of the impact of data-fuelled sales in corn and cotton.

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 8,255 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

It was the eighth time in nine weeks that hedge funds have cut their net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall.

However, it was a relatively small decline, in terms of the bearish swing in positions over the nine weeks, during which the net long has fallen by 590,000 contracts, to a little over 367,000 lots.

‘Precariously perched’

The CFTC data for the latest week did show a marked drop in the net long in cotton, of nearly 12,000 contracts, the biggest sell-off in seven months.

The shift was encouraged by the boost to supplies from an extension to China’s state auction programme, and to a surprise US Department of Agriculture upgrade to its forecast for this year’s domestic crop.

“Improved West Texas and Indian rainfall – highly favourable for production – were coupled with a confirmed extension to the Chinese reserve auction,” said Rabobank.

And the sell-down, which came amid a marked drop in futures prices, may not be over yet, given that speculators retain, at 66,977 lots, a relatively large net long position, Tobin Gorey at Commonwealth Bank of Australia said.

While hedge funds “have made deep cuts to what was a record long position”, the net long “is still very large and the rationale for momentum investors to maintain it remains under threat from improving crop weather,” Mr Gorey said.

“The market looks somewhat precariously perched in our view.”

Less bullish on hogs

In corn and soybeans too, managed money cut its net long position in a week in which the USDA made surprisingly large upgrades to forecasts for domestic yields.

In Chicago corn futures and options, speculators raised their net short by more than 24,000 lots to a four-month high – extending to an eighth week their run of bearish positioning on the grain, the longest such spree in some 17 months.

Meanwhile, in the livestock complex, hedge funds cut their net long in Chicago-traded lean hogs for a sixth successive week, the longest streak of bearish positioning in 19 months, encouraged by an uptick in US slaughter rates to above year-ago levels, a trend which many observers see continuing.

“Weekly average slaughter for the fourth quarter of 2016 is forecast by the Livestock Marketing Information Center to be up about 3% year-over-year,” Paragon Economics and Steiner Consulting noted.

‘Bullish scenario’

However, hedge funds for a third successive week cut their net short position in Chicago wheat, amid ideas that further price falls could be harder to come by after futures hit a 10-year low.

“Challenges in EU production, a more competitive position of US supplies and heading in to planting decision time should have wheat [futures] confirming a seasonal bottom,” said ag advisory group Water Street Solutions.

While ample world supplies “will keep the wheat market from putting together a bullish scenario, there should be better prices to come the next weeks and months”.

And managed money turned more bullish on soyoil in particular, hiking their net long by 31,854 contracts – making it the third-biggest week for buying on records going back to 2006.

Purchasing was encouraged by a recovery in values of rival vegetable oil palm oil, after official data showed Malaysian palm stocks showing a surprise fall last month, undercut by disappointing output and buoyant exports.

‘Arrivals disappointing’

Speculators also continued to rebuild their net long position in New York cocoa futures and options, after earlier hopes for West African output appeared overdone.

“Arrivals in Côte d’Ivoire continued to disappoint and rainfall over Ghana was on the low side,” Rabobank noted.

During the week, ag trading giant Olam International widened to 320,000 tonnes, from 308,000 tonnes, its forecast for the world cocoa deficit in 2016-17

Nonetheless, with cotton selling in vogue, and decent Central American weather encouraging a cut in the net long in arabica coffee futures and options, the overall managed money net long in New York-traded soft commodities fell from its record high set the previous week.

Source: agrimoney

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