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Hedge funds hike net short in wheat to record top – boding well for prices?

Hedge funds hike net short in wheat to record top – boding well for prices?

Hedge funds, deterred by data showing the biggest US wheat stocks in 29 years, turned their most bearish ever on Chicago wheat futures and options – ironically, raising hopes of support for prices of the grain.

Managed money, a proxy for speculators, raised by a modest 3,959 contracts its net long position in futures and options in the main 13 US-traded agricultural commodities in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC) regulator.

However, the marginal change in the overall net long – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – hid some more marked changes in holdings in individual commodities.

In Chicago soft red winter wheat futures and options, the world benchmark, hedge funds raised their net short by 20,000 lots – the biggest selldown in three months.

That took the net short to 151,417 contracts, by a distance the biggest on records going back to 2006.

Price pressure

The spree of bearish bets came in a week in which the US revealed that its wheat inventories had, as of the start of last month, hit their highest since 1987, boosted by a bumper harvest and hefty stocks left over from last season.

Chicago soft red winter wheat futures for December closed on October 3 at $3.95 ½ a bushel, within 2% of a contract low, and within striking distance of decade lows.

However, the extent of the net short, at a time when prices are already at lowly levels, raised ideas that the position may be “crowded”, and liable to being reversed by hedge funds, placing upward pressure on prices.

“Some context is that last year we grew 359m bushels of soft red wheat – the fund’s current net short position in Chicago wheat is 757m bushels,” said ag advisory group Water Street Solutions.

‘Looks supportive’

At broker Benson Quinn Commodities, Brian Henry said that the extent of the net short position “looks supportive with Chicago wheat trading below $4.00 a bushel”.

“We’ll have to keep an eye on Chicago prices early [in the] week.”

In fact, Chicago’s December lot stood 2.3% higher at $4.03 ¾ a bushel in late morning deals.

Coffee, cotton sales

New York-traded arabica coffee was also a notable target of selling, with hedge funds cutting their net long position by 6,311 lots, the biggest selldown in four months.

Among soft commodities, cotton suffered a notable selldown too, of nearly 6,000 lots, encouraged by the ramp up of the US harvest, and the subsequent pressure on prices as supplies of the fibre swell.The decline, which spurred a 4% drop in prices over the week, was fuelled by “expected favourable rainfall across key regions of Brazil” said Rabobank, with the precipitation boosting hopes for the setting of flowers, which will develop into the cherries harvested next year.

‘Too much supply’

By contrast, in the livestock sector, may hedge funds appear to have called time on the downturn in lean hog prices, as Chicago futures headed for a seven-year low of 47.625 cents per pound, reached on Wednesday.

“Too much supply will continue to rule this market through the January-to-March quarter of 2017, making rallies sales opportunities,” said Water Street Solutions.

Indeed, the managed money positioning, driven by an increase in gross long positions, came even amid a week in which a quarterly US Department of Agriculture briefing showed the US herd bigger than investors had expected.

“The USDA reported more market hogs than anticipated,” a dynamic reflecting a bigger-than-expected rise in the number of sows farrowed and also a bigger than anticipated jump-up in pigs weaned per litter during the June through August timeframe”, Paragon Economics and Steiner Consulting said.

However, hog futures have risen a little since Wednesday’s low, rewarding – so far – investors’ more bullish take.

(Source – http://www.agrimoney.com/news/hedge-funds-hike-net-short-in-wheat-to-record-top—boding-well-for-prices–10018.html)

Hedge funds hike net short in wheat to record top – boding well for prices? Reviewed by on . Hedge funds, deterred by data showing the biggest US wheat stocks in 29 years, turned their most bearish ever on Chicago wheat futures and options – ironically, Hedge funds, deterred by data showing the biggest US wheat stocks in 29 years, turned their most bearish ever on Chicago wheat futures and options – ironically, Rating: 0
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