Monday, May 23, 2016

Futures: "Hedge funds' spree of bullish bets on ags spurs fears of sell-off"


From Agrimoney:
Hedge funds raised bets on rising agricultural commodity prices to the highest in nearly two years, provoking concerns of a sell-off in the offing – particularly in sugar, in which bullish betting hit a record high.
Managed money, a proxy for speculators, lifted its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by nearly 65,000 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows. 
The buying took the net long - the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall - nearly to 680,000 contracts, the highest since June 2014, and supporting talk around in the market of funds moving cash into ags. 
As noted last week, many brokers have reported that the prospect of US interest rate rises, and potentially higher inflation, has prompted many investors to switch out of equities into commodities. 
'General supply concerns'However, the extent of the hedge fund net long, in raising questions over how much appetite funds have left for betting on ag price rises, raised market concerns on Monday of profit-taking by investors, in anticipation of a potential wave of position-closing by speculators.
Speculators' net longs in New York softs, May 12 (change on week)

Raw sugar: 215,954, (+22,614)

Cocoa: 32,823, (-9,402)

Cotton: 23,175, (-3,314)

Arabica coffee: 17,603, (+14,485)

Sources:, CFTC
This dynamic was seen as a factor in a weak performance by ag commodities in early deals on Monday, but appeared a particular debate in the sugar market, in which managed money raised its net long to 215,954 contracts, the highest on readily available records. 
Morgan Stanley, highlighting that "poor weather conditions in Brazil could slow" the cane harvest in the top sugar-producing country, said on Monday that "general supply concerns have led net non-commercial positioning to rise to the highest levels in more than 20 years". 
A series of reports last week flagged that - with Indian output set to fall strongly, and Chinese output in structural decline – the world appears poised for a second successive season of production deficit in 2017-18. 
On Friday, the US Department of Agriculture warned that world sugar stocks "are approaching what appear to be historically low levels", giving estimates implying that – on a stocks-to-use basis – supplies will become tighter than in 2010-11, when New York raw sugar futures topped 36 cents a pound. 
'Funds don't eat sugar'However, raw sugar futures - which on Friday hit 17 cents a pound for the first time since October 2014 - showed small losses in early deals on Monday, amid concerns that the extent of fund buying already in sugar made for a top-heavy position....

Also at Agrimoney:
AM markets: ag markets bow under weight of hedge fund cash