Hedge funds hike bullish ag bets to a one-year high, despite livestock selldown


by Mike Verdin, Agrimoney

12 Mar 2018


Hedge funds hiked their net long bets in agricultural commodity futures to the highest in a year, fuelled by a surge in buying in grains and, in particular, corn, which far offset selling in the livestock complex.


Managed money, a proxy for speculators, hiked its net long position in futures and options in the top 13 US-traded agricultural commodities, from coffee to corn, by 221,876 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.


The buying surge lifted the net long - the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – to 510,635 lots, the highest in a year, and representing an astonishing about-turn in hedge fund sentiment this year.


Six weeks before, the speculative net long hit a record of 393,914 lots.


‘Came as a shock’


The recovery in sentiment has been evident somewhat in the New York-traded soft commodities complex, in which managed money halved its net short position to some 47,000 lots in the latest week, driven by short-covering in raw sugar futures and options.


Funds in the latest week proved net buyers of cocoa for a seventh successive week, a streak not exceeded since 2013, amid worries over West African cocoa supplies, raising their net long to an 18-month high of 31,943 contracts.


“Arrivals in Ivorian ports disappointed while technical trading ensued,” Rabobank said.


However, more significant was buying in raw sugar, in which speculators slashed net short betting by nearly 30,000 lots in the week to Tuesday - although they may wish they had not, with New York futures on Wednesday tumbling to an eight-month low, weighed by data showing record Indian production.


While to market funds the India data “did not come as a surprise… to funds, especially system funds, who only react to headlines, it came as a shock. So they sold,” said Marex Spectron.


“We should not underestimate the effect of headlines.”


‘Staggering buying’ ...