Hedge funds returned to cutting bullish positioning on agricultural commodities, reflecting scrambles to sell in soybeans and livestock – although not fast enough to avoid positions heading under water.
Managed money, a proxy for speculators, cut by more than 68,000 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 reduction in the net long – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – was led by a fall of more than 50,000 lots in the net long in the grains and soy complex.
However, by historic standards, a drop of nearly 15,000 lots in the net long in Chicago-traded livestock was more notable being the largest in nine months.
Hedge funds proved particularly bearish on live cattle futures and options, cutting their net long by 9,750 contracts week on week, the biggest weekly selldown in the contract in more than a year.
“It is not terribly unusual for beef prices to soften past Labor Day,” which the US is celebrating on Monday, Paragon Economics and Steiner Consulting said.The shift reflected in part a seasonal tendency, with beef demand often seeing a downturn after the end of the summer barbecue season.
However, this year, the tendency is seen as having been encouraged by strong US cattle slaughter rates, with rates over July and August up more than 5% year on year for steers and by roughly 10% for heifers.
Overall cattle slaughter so far in 2016 is, at 20.00m head, up 4.3% year on year.
‘No hurry to book product’
Furthermore, supplies of rival meats are seen as strong too, with hog slaughter up by approaching 3% year on year over July and August, reducing the pressure on buyers to commit to supplies.
Indeed, lean hog futures have fallen by more than 30%, on a front contract basis, since hitting a 19-month high in June, although recent weakness has focused more on live cattle, which on Friday set a five-year low of 101.375 cents a pound, for the spot October contract.”Retailers/foodservice operators are in no hurry to book additional product until they get a chance to assess clearance over the long weekend,” Paragon Economics and Steiner Consulting said.
Hedge funds’ latest selldown protected them from some of the declines but – with the October live cattle contract, for instance, down 11% over the past month – many appear to be nursing hefty paper losses in the livestock sector.
The gross number of short bets held by speculators in live cattle, at 73,396 lot, was at its highest as of Tuesday in 13 months – with all but a handful likely under water.
‘Downside risks remain’
In soybeans too, many hedge funds appear ill positioned, with a fall in Chicago futures below all major moving averages, most lately the 200-day, as US yield prospects have improved indicating that all but the oldest or newest positions are showing a loss.
At Commonwealth Bank of Australia, Tobin Gorey said that while the CFTC data “showed that investors again trimmed their bullish positions… the funds are still very long so downside risks remain” to prices.Opinion differs as to whether a cut in the net long position in Chicago below 100,000 contracts for the first time in four months will reduce the pressure for more selling.
However, Benson Quinn Commodities, terming the net long figure “manageable”, said that it “should be friendly to trade on Tuesday” when US markets reopen on Tuesday, as was a separate CFTC number indicating a slowdown in producer selling.
Benson Quinn Commodities was sanguine too over the impact on wheat prices of CFTC data showing hedge funds had raised their net short in Chicago wheat futures and options to the third highest level on record.
The broker said that “the short position in Chicago has a supportive tilt to it,” in price terms, given some recovery in prices from 10-year lows, which could encourage funds to take profits on short holdings.
“I wouldn’t rule out additional short covering on Tuesday.”
(Source – http://www.agrimoney.com/news/hedge-funds-flee-tumbling-cattle-market—but-not-fast-enough–9898.html)