Thursday, December 29, 2016

Futures: Hedge Funds Position for Showdown Against Index Funds in Grains

Last Chg
Corn 347-4-0-6
Soybeans 1014-4-2-0
Wheat 403-6+2-2

From Agrimoney, Dec. 28:
Hedge funds sold down heavily in ags in the run up to Christmas - leaving themselves vulnerable to a clash with index funds, which many observers believe fuelled buying pressure in grains evident in Tuesday's rally.
Managed money, a proxy for speculators, cut its net long position in futures and options in the top 13 US-traded agricultural commodities, from corn to sugar, by 51,632 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.
The selling was led by grains (including the soy complex) in which the net long - the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – was cut by 44,259 lots to less than 29,000 contracts.
That selldown in grains was more significant than many observers expected, according to Terry Reilly at Chicago broker Futures International.
"The CFTC report showed funds less long than estimated for soybeans, and more short than expected for Chicago wheat," and less bullish than expected on corn too, he said.
Fund showdown
However, this selling potentially leaves hedge funds on track for a showdown in index funds, for which the early-year period brings a crucial portfolio rejig which is expected, this time, to bring buying in grains. 
During the so-called "rebalancing" process, index funds rejig their portfolios to the weightings of the index they follow....