In Commodity News 04/05/2015
The extent of hedge funds’ downbeat view on grain prices, and improved sentiment towards soft commodities, was underlined by data showing bearish bets on wheat hitting a record, while those on sugar were significantly cut.
Managed money, a proxy for speculators, cut its net short position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by 51,000 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
However, the less bearish stance overall disguised a sharp difference in positioning between that in grains, in which managed money extended its net short position to a record high, and that in livestock and soft commodities, in which speculators took a more upbeat stance.
Indeed, commodities overall have come regained some more bullish kudos with investors, helped the recovery in oil prices, and the weakness in the dollar, in which many major raw materials are denominated.
Negative on grains
The downbeat positioning on grains in the latest week was led by an increase of more than 27,000 lots in the net short on corn to a 16-month high of 92,383 lots.
Sentiment on corn prices has been undermined by improved weather for US sowings, which has led to ideas that last week was one of the fastest ever for plantings.
US Department of Agriculture data later on Monday will reveal the actual extent of sowings last week.
Meanwhile for Chicago soft red winter wheat, hedge funds extended their net short above 100,000 lots for the first time, nudging their net short on Kansas City hard red winter wheat to a record high too.
Selling in wheat has been encouraged by wet weather which is easing drought in the southern US Plains, besides by some improved hopes for crops in Europe and the former Soviet Union too.
‘Useful blip or two’
“The story of good weather and good crops continues just about everywhere,” traders at a major European commodities house said, although noting the potential for the large short holdings to provoke price rises, if hedge funds are persuaded to cover shorts.
“The huge fund short position on the Chicago wheat futures,” which is equivalent to well over 14m tonnes, net of long positions, “have to be bought in sometime and is likely to provide a useful [upward] blip or two” to prices, the traders said.
However, there are doubts as to whether hedge funds are keen for now to cover their short holdings.
‘No short-covering yet’
In corn, “shorts positions will be quick to cover” if a buying signal emerges, “but without a reasonable catalyst I don’t see much change to the current [negative price] trend,” Benson Quinn Commodities said.
For wheat, “I don’t think we are at levels that will trigger additional short covering”, the broker said.
Hedge funds – which have historically often viewed excessive net short, or net long, holdings as a cause for some alarm, and to retreat in their positioning – have in 2015 shown an increasing willingness to stick with large net short positions.
In New York-traded raw sugar futures and options, for instance, they set a record net short position for four successive weeks in March.
Sweeter on sugar
However, the managed money net short in raw sugar has dropped significantly since, and in the latest week fell at its fastest rate in 10 months, helped by the prospect of the expiry of the May futures contract, and by some less negative ideas on prices of the sweetener.
The recovery of the Brazilian real – boosting the value in dollar terms of assets such as sugar in which the country is a major player – has helped encourage short covering in sugar.
With Brazilian sugar exports less competitive, mills have so far in the 2015-16 cane crushing season, which began last month, turned to producing more ethanol than had been expected, rather than turning cane into sugar.
Hedge funds also in the latest week lifted their net long position substantially in cotton, amid improved expectations for US exports, and with wetness in the US South East slowing plantings in a major growing area.
Indeed, hedge funds returned to a net long position in soft commodities overall, for the first time in two months.
In livestock, speculators raised their net long holdings too, encouraged by stronger cash markets for both cattle and hogs.
