Monday, April 7, 2014

Hedge funds' bullish spree on ags tests 'record'


Hedge funds' raised the stakes in their bets on agricultural commodity prices for a ninth successive week, one the longest sprees on record, as a  US corn planting hopes added to concerns over weather setbacks to a number of crops.

Managed money, a proxy for speculators, raised its net long in future and options in the top 13 US-traded agricultural commodities by more than 49,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission regulator.

Hedge funds have raised their net long position – the extent to which long holdings, which benefit when prices rise, exceed short bets, which profit when values fall - in agricultural commodities every week since early February.

That nine-week spree matches the longest unbroken run of bullish positioning on records beginning in 2006, with the last time occurring in 2006 itself.

Strong quarter

The rise in long bets also underlined a bullish finish for a quarter which proved unexpectedly strong for agricultural commodity prices, as concerns over drought in Brazil's coffee belt sent arabica coffee futures soaring more than 60% in New York, while dryness in the US Plains lifted wheat prices 19% in Kansas City.

Lean hog futures rose nearly 50%, lifted by concerns over losses to the US herd from porcine epidemic diahorrea virus (PEDv).

Grain prices also received a boost from tensions in Ukraine, a major corn and wheat exporter, culminating in Russia's annexation of Crimea.

And the quarter ended with data showing that US corn stocks were lower than investors had anticipated, with US farmers' plans for sowing the grain this year below expectations too.

Over the quarter, hedge funds raised their net long in the main US ag contracts by nearly 950,000 lots, to 1.17m lots.

Speculators' net longs in grains and oilseeds, Apr 1, (change on week)
Chicago corn: 275,836, (+36,549)
Chicago soybeans: 193,446, (+8,017)
Chicago soymeal: 72,679, (+2,106)
Kansas wheat: 45,709, (+2,757)
Chicago wheat: 45,025, (+8,533)

Chicago soyoil: 11,864, (-9,834)
Sources:, CFTC

Surprise data

In the latest week, to April 1, the increase in the managed money net long was driven by corn, in which hedge funds increased their exposure to rising Chicago prices by more than 36,000 lots to 275,836 contracts, the highest since late 2012.

Speculators' net longs in New York softs, Apr 1, (change on week)
Raw sugar: 121,827, (+7,389)
Cocoa: 69,650, (+702)
Cotton: 63,305, (-4,711)
Arabica coffee: 39,956, (-3,460)
Sources:, CFTC

The US Department of Agriculture on March 31, in a much-anticipated report on domestic grain stocks, revealed inventories of corn which, while u0 30% year on year to 7.01bn bushels, were 90m bushels below market expectations.

The USDA also curtailed expectations of 2014 corn production prospects by estimating sowings at a four-year low of 91.7m acres, down some 3.7m acres year on year.

However, the figure was more than 90m bushels below market expectations, with traders expecting inventories to have shown a bigger rise after last year's record harvest.

And the USDA, in a separate closely-watched report, curtailed expectations of corn harvest prospects for this year by estimating sowings at a four-year low of 91.7m acres, down some 3.7m acres year on year.

Sweet on sugar

In Chicago, hedge funds also raised their bets on rising wheat prices, lifting their net long position above 45,000 contracts for the first time in 16 months.

Betting on rising wheat futures has been a winning strategy for much of the time since early February, when Chicago futures began a recovery from three-year lows, although prices eased back last week, undermined by ideas of rain to refresh drought-hit US winter wheat seedlings.

Among New York-traded soft commodities, hedge funds proved particularly keen on raw sugar, in which they raised their net long position above 120,000 contracts for the first time since November.

The sweetener has been supported by concerns of an El Nino weather pattern, which tends to bring deleteriously heavy rains to Brazil's central cane belt, following on from the drought which began in late December.

Speculators' net longs in Chicago livestock, Apr 1, (change on week)

Live cattle: 138,954, (+1,496)

Lean hogs: 73,922, (-572)
Feeder cattle: 15,429, (+439)
Sources:, CFTC

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