by Agrimoney.com
Hedge funds should be slow to curb their bearishness over corn futures, but take care over getting too downbeat over sugar, for which the scope for further price falls appears limited, Macquarie said.
Managed money, a proxy for speculators, cut its net long position in futures and options in the major US-traded agricultural commodities for a sixth successive week in the week to December 3 – albeit by only 873 lots, according to data from the Commodity Futures Trading Commission, the US regulator.
The trend reflected in the main a further collapse in the net long position that hedge funds hold in New York raw sugar, which dropped by more than 39,000 contracts – the biggest bearish shift in positioning on records going back to 2006, and one termed "larger than expected" by broker Sucden Financial.
In just five weeks, hedge funds' net long position in raw sugar futures and options has tumbled from a near-record 200,000 contracts to 73,489 lots, reflecting a firm finish the Brazilian production season and improved hopes for Indian and Thai output.
Limited downside
However, Macquarie cautioned investors over getting too downbeat on sugar price prospects.
Speculators' net longs in grains and oilseeds, Dec 3, (change on week)
Chicago soybeans: 151,078, (+4,910)
Chicago soymeal: 58,531, (+4,522)
Kansas wheat: 20,684, (+1,551)
Chicago soyoil: -35,594, (-9,264)
Chicago wheat: -64,013 (+2,028)
Chicago corn: -118,814, (+22,237)
Sources: Agrimoney.com, CFTC
"Prices need to fall back further in the short-term to encourage more demand to absorb the carried-over surplus from last season," the bank said.
"But should prices touch 16 cents a pound, we would recommend getting long again."
The bank highlighted that, besides the growing number of short bets, speculators maintain a gross long position of more than 150,000 contracts in New York raw sugar futures and options.
"There are already many gross longs that are happy to position themselves at today's prices, which could be attractive in the longer term."
Raw sugar futures for March delivery rose 0.8% to 16.72 cents a pound in early deals on Monday.
'Prices to fall further'
By contrast, Macquarie urged hedge funds to be cautious over continuing to cover their historically large net short position in Chicago corn futures and options, which they have reduced by more than 60,000 contracts over the last five weeks, to 118,814 lots.
Speculators' net longs in New York softs, Dec 3 (change on week)
Raw sugar: 112,627, (-23,918)
Cocoa: 77,526, (+2,037)
Cotton: 7,360, (+2,392)
Arabica coffee: -21,516, (+1,420)
Sources: Agrimoney.com, CFTC
"Prices are likely to fall further in the short term as fresh supplies hit the market," the bank said, flagging the impact of the record US harvest, which is expected to see stocks more than double over 2013-14.
"Farmers are undersold compared to previous seasons, and we recommend staying short in the near term."
While the corn market may see "some support" return in 2014-15, assuming weaker prices discourage sowings while boosting consumption, "even then US stocks would remain comfortable at above 15.5% of consumption".
'Very comfortable with shorts'
The CFTC data also showed hedge funds taking a breather on boosting their net short position in Chicago wheat futures and options, after a five-week selling spell.
Speculators' net longs in Chicago livestock, Dec 3, (change on week)
Live cattle: 91,142, (+11,436)
Lean hogs: 60,432, (-3,542)
Feeder cattle: 8,142, (+623)
Sources: Agrimoney.com, CFTC
They reduced their net short, although by a modest 2,000 contracts from the record 66,000 contracts set the previous week.
While prices of US soft red winter wheat, the type traded in Chicago, are "looking very cheap on the world market, nonetheless, funds have managed to establish a record large position and appear very comfortable maintaining shorts", Jonathan Watters at Benson Quinn Commodities said.
Indeed, the net short position "has likely grown substantially" since last Tuesday, after Canada depressed prices by on Wednesday hiking its official estimate of the domestic harvest to a record 37.5m tonnes.
'Strong buying demand will emerge'
Among soft commodities, speculators raised their net long position in New York cotton futures and options in the latest week, but only by 341 lots, leaving it at a relatively low 7,701 contracts.
Bullish sentiment in cotton has been depressed by improved prospects for the US harvest, and concerns over Chinese sales from its huge reserves, a result of a generous support programme for farmers.
"However, at the low 70s cents a pound, we believe strong buying demand will emerge, and being too short could be risky - especially bearing in mind that China is committed to maintaining its existing support programme for 2013-14," Macquarie said.
In the livestock complex, speculators turned more negative on lean hog futures, for which prices sank sharply last week, undermined by rising US slaughter numbers and record animal weights.
However, they turned more bullish on live cattle, in which US cold weather, which curtails weight gains in animals, has limited the temptation among investors to act on negative technical signals and take profits.
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