Hedge funds, again, lift bets on ag commodity price rises

Agricultural commodities grew further in affections of hedge funds, who extended upbeat bets on sugar to a 15-month top, with hogs firmly in favour too, although sentiment cooled towards the main Chicago grains.

Managed money, a proxy for speculators, raised by more than 57,000 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.

It represented a third successive week of hedge funds increasing their net long – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – after a sustained selldown which had driven it below 25,000 lots, a low level by historical standards.

The overall net long is now nearly 350,000 contracts, the highest since July.

Sweeter on sugar

The increase in the latest week reflected a further rise in the net long in New York raw sugar futures and options, which have sweetened in appeal to investors for a cocktail of reasons, including some recovery of the real, which boosts the value of assets in which Brazil is a major player, and worries over dryness in India.

Speculators' net longs in grains and oilseeds, Oct 13, (change on week) Chicago corn: 92,224, (-25,505) Chicago soymeal: 30,690, (+11,029) Chicago soybeans: 2,107, (+21,263) Chicago soyoil: 18,543, (+5,239) Kansas wheat: -4,572, (+2,212) Chicago wheat: -16,526, (-4,577)

Hedge funds have, in three weeks, turned from a net short of 13,357 lots in raw sugar to a net long of 117,090 contracts, the biggest in 15 months.

The dramatic switch reflects in particular closing of bets on sugar price falls, with the gross short falling to 51,303 lots, the lowest in nearly two years.

'Fits the pattern'

Speculators turned more positive on price prospects for other soft commodities too, slashing their net short in New York-traded arabica coffee by more than 10,000 contracts to 2,860 lots.

Speculators' net longs in New York softs, Oct 13 (change on week) Raw sugar: 117,090, (+29,081) Cotton: 38,601, (+11,685) Cocoa: 31,275, (-463) Arabica coffee: -2,860, (+10,567)

While still meaning that hedge funds are betting on price falls overall, that represented their most upbeat positioning, bar one week, in seven months.

As in sugar, arabica coffee prices have been supported by revival in the real, and with dry weather in the key Brazilian state of Mato Grosso raising concerns over the success of the ongoing flowering period, ahead of the 2016 harvest.

In cotton, managed money rebuilt its net long for a third successive week, encouraged by reduced expectations for US production, in part thanks to hurricane damage to weeks ago.

Most of the increased net long was down to covering of short bets, with John Robinson, cotton marketing specialist at Texas A&M University saying that "short liquidation fits the pattern of slightly decreasing open interest and slightly increasing prices" early last week.

Grains reversal

Hedge funds also extended to a sixth week an increase in positive positioning on Chicago lean hog futures and options, taking their net long to a 10-month high above 43,000 contracts.

Speculators' net longs in Chicago livestock, Oct 13, (change on week) Lean hogs: 43,144, (+5,556) Live cattle: 269, (-8,908) Feeder cattle: -400, (+227) Sources: Agrimoney.com, CFTC

The more upbeat thinking has been attributed to hopes for increased ham demand in the run up to Thanksgiving, next month, besides the potential threat of the turn of porcine epidemic diahorrea, which struck most frequently in winter months.

However, in the main Chicago grains, hedge fund optimism retreated, in particular in corn, in which speculators cut their net long by more than 25,000 contracts, encouraged by a surprise increase on October 9 in the US Department of Agriculture's forecast for the domestic yield this year.

In Chicago wheat, speculators returned to increasing their net short for the first time in five weeks – ending the longest streak this year of positive positioning by managed money.

Hopes for further gains in wheat prices, after a recovery from an early-September low, have eroded with softness in rival grain corn, and with ideas of rain for the southern Plains, where dryness has raised concerns over establishment of winter wheat seedings.