Hedge funds turned bearish on agricultural commodities at the fastest pace in more than two years, encouraged by bigger-than-expected upgrades by US officials to their estimates for domestic supplies of the main grains.
Managed money, a proxy for speculators, slashed by more than 178,000 contracts its net long position in futures and options in the main 13 US-traded agricultural commodities in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC) regulator.
The drop in the net long – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – was the largest since April 2013, when a US announcement of bigger corn stocks than it had thought sent Chicago futures in the grain limit down.
It was the third largest on records going back to 2006.
Again, a US Department of Agriculture report was at the centre of the selldown – although this time, a benchmark Wasde crop report which lifted the forecast for domestic stocks of corn, soybeans and wheat at the close of 2015-16 to levels above those that market had expected.
Much of the selling related to Chicago corn, in which hedge funds rebuilt a substantial net short position – cutting their gross longs to a six-month low while simultaneously piling on short bets.
The Wasde too hiked the estimate for China’s corn stocks at the close of 2015-16 by 23.8m tonnes – more than harvested this year by Ukraine, the world’s fourth-ranked corn exporter.The USDA, in the Wasde, not only lifted its estimate for the domestic corn yield by more than the market had expected, by 1.3m bushels an acre to 169.3 bushels per acre, but also cut its estimate for the use of the grain in making ethanol in 2015-16 to below year-ago levels, thanks to growing competition from sorghum.
Indeed, the Chinese figure prompted some talk, fuelled by Shanghai-based consultancy JCI, that China could even emerge as an exporter of the grain.
Hard vs soft
However, hedge funds also made a substantial increase to their net short position in Chicago soybeans, lifting it by 31,825 lots, the most in five months, to more than 52,000 lots – a historically high figure, if still well below the record high above 100,000 contracts set in May.
Indeed, in Kansas City, speculators raised their net short by 4,247 lots to 20,575 lots – the highest on records going back to 2006.And in wheat, they extended a trade of betting on lower prices – but in particular of Kansas City hard red winter wheat, rather than the better-traded Chicago soft red winter wheat, the world bellwether, on which traders usually focus their attention.
In Chicago, the net short rose by a more modest 2,704 contracts to 20,945 lots, well below a record high of 111,409 lots set in May.
The USDA, in the Wasde, also raised its estimate for domestic wheat inventories at the close of the season by more than investors had expected, by 50m bushels to 911m bushels, reflecting a downgrade in export expectations to a 44-year low.
However, the bulk of that upgrade reflected hard red winter wheat, for which stocks were seen increasing by 44% to 426m bushels over 2015-16, while soft red winter wheat inventories were forecast dropping by 7.8% to 142m bushels.
Softer on softs
Hedge funds also turned more bearish on most New York-traded soft commodities – the exception being cocoa, in which they lifted their net long holding to a three-month high amid concerns over a sluggish start to the season for exports from Ivory Coast, the top producer
London cocoa futures have set a series of four-year highs over the past week.
In raw sugar, hedge funds reduced their net long for the first time in seven weeks, amid profit-taking on futures which remain some 25% higher than in late August.
And in the Chicago livestock complex, speculators cut their net long position overall, reflecting a continued cut in lean hog futures, prices of which have been undermined by strong pork supplies, with the weekly kill rate returning close to the 2007 record high of 2.47m head.
(Source – http://www.agrimoney.com/news/hedge-funds-hike-bearish-ag-bets-at-fastest-pace-in-2-years–9007.html)