Hedge funds were wrong-footed by coffee markets last week, betting on arabica futures ahead of a sharp fall in prices.
Data from the Commodity Futures Trading Commission (CFTC) regulator showed that managed money, a proxy for speculators, moved net long in Arabica over the week to August 18 by
A net long means that the number of long positions, which benefit when prices rise, outnumbered short bets, which profit when prices fall, indicating bullish sentiment from speculators.
Speculators increased the size of their arabica net long position by 9,769 lots to 6,194 lots.
This is the first time hedge funds have been long on arabica since February.
The speculator enthusiasm proved misjudged, as front month arabica 4.0% in New York front month arabica between August 18 and the end of last week, and prices are finding fresh lows on Monday.
Arabica prices came under pressure from technical selling, and the news of some beneficial rains in Brazil, the world’s biggest coffee exporter.
Arabica prices were also hurt by the continued volatility in the Brazilian real.
A weaker real is bearish for arabica because sellers will accept lower dollar denominated prices.
The real has been falling against the dollar thanks to economic uncertainty in Brazil, which is struggling with a large government deficit and deeply entrenched political opposition to spending cuts.
Fresh concerns for the real have been raised by the recent Chinese slowdown, as the Brazilian economy is closely linked with China thanks to commodity exports and direct investment.
Speculators had more luck with sugar, of which Brazil is also the world’s largest sugar exporter.
The net short of the managed money on raw sugar increased by 4,611 lots to 65,553 lots.
US data drives selloff
The CFCT report showed the extent of the speculator sell off fallowing the August 12 US Department of Agriculture supply and demand estimates.
Soy and corn prices plummeted on the news that the USDA had increased its estimates for US production, where trade had expected a reduction, and the CFTC shows the scale of the hedge fund withdrawal.
In the week to August 18 speculators scrambled out of corn, cut their position by 27,429 lots to a net long of 73,636, the smallest long position since June of this year.
Hedge funds also pulled back from soybeans, slashing their long position by 39,669 lots to a net long of 19.684, the biggest cut since May of this year.
The USDA data was less bearish than for other grains, and speculators actually reduced their size of their net short position in Chicago wheat by 9104 lots to a net short of 3546 lots.
And funds increased their net long in cotton by 22,592 lots, to 50,730 lots, after the USDA cut its US cotton forecast.