Monday, July 15, 2013

Hedge funds record gloomy on corn price prospects


Hedge funds surprised many analysts by turning their most downbeat ever on corn prices despite fears over hot Midwest weather which revived futures from multi-year lows.

Managed money, a proxy for speculators, cut its net long exposure to major US-traded agricultural commodity futures and options by nearly 54,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission.

The shift left the total net long-position at a little over 120,000 contracts, some 50,000 contracts above an April figure which represented the lowest on records going back to 2006, and well below net long levels of more than 470,000 tonnes reached in February.

And it came despite turn hotter in the Midwest weather outlook which sent futures sharply higher, with corn futures rising 6% in the first two days of last week, recovering from July 5 levels which represented the lowest for Chicago's benchmark December contract since December 2010.

Hopes for supplies

Indeed, hedge funds only deepened their exposure to falling corn prices, hiking their net short position – the extent to which short positions, which profit when values fall, outnumber long bets, which benefit when prices rise – by nearly 36,000 lots to a record 55,767 contracts.

Speculators' net longs in grains and oilseeds, July 9, (change on week)
Chicago soybeans: 112,188, (+1,376)
Chicago soymeal: 48,308, (-4,826)
Kansas wheat: -7,866, (-2,215)
Chicago soyoil: -38,050, (-2,226)
Chicago wheat: -47,844, (+2,308)
Chicago corn: -55,767, (-35,824)
Sources:, CFTC

Rabobank said that the move reflected "longer-term expectations of supply improvements" for corn, which a number of brokers, such as ANZ, have restated despite the weather twist, especially with a turn less threatening over the weekend in the weather outlook.

Deutsche Bank on Monday said that while forecast show that "hot weather pushes into the Midwest in the intermediate forecast, a locked-in heat pattern is unlikely, though variability will continue.

"We continue to see a replenishment in inventories relative to use in corn and soybeans, driving new crop prices lower."

'Encourage some buying interest'

Ben Bradbury at Benson Quinn Commodities said that "the larger-than-expected short position held by managed money on the [CFTC] report may encourage some buying interest to begin the week, particularly so if the extended weather outlook turns drier".

Speculators' net longs in New York softs, July 9, (change on week)
Cocoa: 31,761, (-3,835)
Cotton: 59,642, (+2,339)
Arabica coffee: -26,848, (-975)
Raw sugar: -58,833, (-14,706)
Sources:, CFTC

However, with models currently showing cooler temperatures setting in over the weekend, presenting more benign conditions for crops, including corn - which is beginning to undertake its important and heat-sensitive pollination period – grain and oilseed prices fell on Monday.

December corn futures stood 1.3% lower at $5.02 ½ a bushel at 12:45 UK time (06:45 Chicago time), with November soybean futures down 0.4% at $12.52 ¼ a bushel.

Hedge funds have proven less willing to take short bets in Chicago soybeans, lifting their net long exposure by 1,376 contracts to 112,188 lots in the week to last Tuesday, with many investors seeing a far greater chance of world soybean supplies remaining constrained at the close of 2013-14.

Net shorts

Speculators also turned a little more positive – or at least, less negative – on prospects for Chicago wheat futures and options, reducing their net short position, amid growing signs of demand for the grain.

Speculators' net longs in Chicago livestock, July 9, (change on week)
Lean hogs: 59,305, (+450)
Live cattle: 43,100, (+3,687)
Feeder cattle: 1,496, (+533)
Sources:, CFTC

However, after a record bearish shift the previous week, the net short in wheat remained historically high, at nearly 48,000 contracts.

But hedge funds returned to increasing bets on falling raw sugar prices, which are under pressure from dry weather in Brazil, which is helping cane harvesting, and rains in India, boosting growing conditions, with other factors, such as weaker Brazilian economy, also playing a role.

"The markets' refocus on very good global production prospects has pushed prices 8% lower over three weeks," Luke Mathews at Commonwealth Bank of Australia said

'Further shorts will have been added'

The managed money net short in sugar rose by nearly 15,000 contracts to 58,833 contracts, a level which until April would have been a record high.

The CFTC data "yielded few surprises" for sugar investors, Nick Penney at Sucden Financial said, adding that investors were increasingly bearish on price prospects.

"Activity since July 9 suggests further shorts will have been added," he said.

"We expect more to be added if we break through 16 cents."

New York's October contract fell to 16.03 cents a pound in early deals on Monday, before nudging back to 16.06 cents a pound, unchanged on the day.

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