Monday, March 31, 2014

Coffee in vogue as hedge funds up bullish ag bets


Hedge funds extended their bets on rising commodity prices for an eighth successive week, led by grains and by arabica coffee, in which they were at their most bullish in six years.

Managed money, a proxy for speculators, raised its net long position in futures and options in the major 13 US-traded agricultural commodities in the week to last Tuesday by 11,000 contracts, data from the Commodity Futures Trading Commission regulator showed.

While a relatively small increase in the net long – the extent to which long positions, which profit when values rise, exceed short bets, which benefit when prices fall – the rise extended an unbroken spree going back to early February, and unusually long, if not unprecedented, buying streak.

It reflected increased net long positions in most contracts, in grain, livestock and soft commodities segments.

'Managed money likes corn'

In live cattle, hedge funds nudged their net long position above 137,458 contracts, the highest since September 2010.

Although US data on March 21 showed feedlots taking on far more cattle for fattening than investors had expected, beef supplies ahead are still seen as constrained, in part thanks to the outbreak of porcine epidemic diahorrea virus, which is limiting supplies of rival meat pork.

In grains, speculators raised their net long position further in both Chicago-traded and Kansas City-traded wheat, amid fears over the impact of US dryness on values.

In corn, hedge funds raised their net long position to the highest since late 2012, encouraged by the rise in wheat prices, and concerns that cold soil temperatures could slow spring sowings.

"Take a look at the [CFTC] report. Managed money likes corn," said Brian Henry at Benson Quinn Commodities.

Speculators' net longs in grains and oilseeds, Mar 25, (change on week)
Chicago corn: 239,287, (+11,427)
Chicago soybeans: 185,429, (-13,243)
Chicago soymeal: 70,573, (+540)
Kansas wheat: 42,592, (+3,901)
Chicago wheat: 36,492, (+12,456)

Chicago soyoil: 21,698, (-11,775)
Sources:, CFTC

Six-year high

However, it was arabica coffee which achieved the most notable turn bullish in hedge fund positioning, which the net in New York futures and options topping 43,000 contracts for the first time since March 2008.

The bean has been lifted by concerns over dryness in Brazil, the major producing country.

And although prices fell significantly in the week to last Tuesday, amid talk of rains for Brazil's coffee belt, the decline appears to have been used as an excuse by hedge funds to cover net short positions.

The gross short in New York arabica coffee fell to 5,168 contracts, the lowest since May 2011.

Speculators' net longs in New York softs, Mar 25, (change on week)
Raw sugar: 114,438, (+2,076)
Cocoa: 69,48, (-5,891)
Cotton: 68.016, (+440)
Arabica coffee: 43,416, (+3,578)
Sources:, CFTC

'Suspected of reselling cargoes'

The few contracts in which speculators turned more bearish included soybeans in which they cut their net long position by some 13,000 contracts, reflecting the concerns over Chinese processors which, lumbered with negative crushing margins, are believed to be cancelling or at least selling on import orders from the US and Brazil.

Speculators' net longs in Chicago livestock, Mar 25, (change on week)

Live cattle: 137,458, (+507)

Lean hogs: 74,494, (+3,616)
Feeder cattle: 14,990, (+1,369)

Chinese buyers are believed to be selling some orders from Brazil to processors in the US Gulf, which have been paying rich prices for domestic supplies,

"Chinese crushers are suspected of reselling cargoes of Brazilian beans to the US for April-July shipments and could be as many as 8-10 cargoes," US Commodities said.

Meanwhile, there has been some expectation of US growers planting significant amounts of soybeans this year, in part at the expense of corn, further information on which will be revealed on Monday with a US Department of Agriculture plantings report.

Indeed, there has been growing talk of corn vs soybean spread bets playing a role in contrary moves in futures of the grain and the oilseed.

Mini bear raid'

Managed money also cut its net long position in Chicago soyoil, by nearly 12,000 contracts, reflecting weaker edible oil markets amid what broker Jefferies Bache termed "demand concerns".

Rival palm oil retreated in Kuala Lumpur too, depressed by data showing March drops in Malaysian exports of the vegetable oil, besides by rains which eased concerns of a production downturn.

Among New York soft commodities, cocoa was out of favour, suffering a reduction of nearly 6,000 contracts in hedge funds' net long to less than 69,000 contracts, the lowest since September.

Marex Spectron noted a "mini bear raid" in cocoa last Monday, attributed to liquidation by large discretionary funds, and encouraged by the return of much-needed rains to some key cocoa-growing areas.

The market is too preparing for pressure from the mid-crop harvest in Ivory Coast, which starts on April 1.

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