Hedge funds favoured hard wheat over soft, coffee over cocoa, and cattle over hogs as they raised their bullish bets on agricultural commodities for a second successive week – for the first time in three months.
Managed money, a proxy for speculators, lifted by a little ov 30,000 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.
It was only the fourth week in the past 14 weeks that hedge funds have in ags raised their net long – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall.
And the dynamic reflected switches within ag sectors, rather than the long soft commodities-short grains betting which has been prevalent for the past three months.
Wheat vs wheate
In grains, the trend saw hedge funds cutting their net short in Kansas City hard red winter wheat futures and options for a third successive week, to a three-month low, while raising their net short in Chicago soft red winter wheat some 5,000 contracts from the record high.
The dynamic reflected the mounting concerns over the quality of the world’s record wheat harvest in 2016-17, with Australian officials last week adding China to the list of countries suffering trouble with the specifications of the domestic harvest.
And worries have grown over Canada’s huge, high-protein spring wheat crop too, thanks to moisture which, on ripe crops, encourages kernel sprouting and quality downgrades.
“The wheat market has uncovered a bid in the Minneapolis market,” where spring wheat is traded, as rains fall on last of Canadian wheat harvest,” said Minneapolis-based broker Benson Quinn Commodities.
In the last session, Minneapolis’s spot December contract closed “above the high side of its recent trading range, there appears to be more upside too had in this market”.
Indeed, the premium Minneapolis wheat futures to Chicago ones topped $1 a bushel at one point, December basis.
Return to a big surplus ahead?
Meanwhile, among New York-traded soft commodities, besides raising their net long in raw sugar to within an ace of a record high, hedge funds also favoured arabica coffee – while cutting their net long in cocoa futures and options below 16,000 lots for the first time in seven months.
The cocoa selldown reflected growing expectations that 2016-17, which starts next month, will see a recovery in output in the key producing region of West Africa.
“In the West African cocoa areas, rainfall has improved moisture levels,” said Commerzbank, adding that “this improves the outlook for the main crop, harvesting of which is soon due to begin”.
Indeed, “estimates of [world production] surpluses of 200,000 tonnes and more in the 2016-17 season are already doing the rounds on the market”.
‘Increasing reports of insufficient moisture’
In arabica coffee, by contrast, in which hedge funds raised their net long above 46,000 lots for the first time since October 2014, buying has been spurred by ideas of too little rain for the flowering period in Brazil, ahead of the 2017 harvest.
“Market participants certainly have taken on board the increasing reports of insufficient moisture levels which continue to affect key growing areas in Brazil,” Commerzbank said.
“This threatens to hamper blossoming and the development of coffee berries for the next crop.”
Rabobank noted “more speculative money coming to the [coffee] market on the back of lower Brazil branch growth estimates”.
In sugar, meanwhile, Rabobank flagged market concerns about “a lower cane availability in Brazil this season, as reported by a handful of mills”, and indeed highlighted by Agrimoeny.com last week.
Hog bears, cattle bulls
In the Chicago-traded livestock sector, meanwhile, hedge funds showed a marked preference for live cattle, in which they raised their net long by nearly 4,000 lots, compared with lean hogs, in which they cut their net long by more than 5,000 contracts to the lowest in nearly eight months.
The reduction in bullish sentiment towards lean hogs reflects growing estimates for US pork production, at a time when the dollar’s rally, until the past few days, had was under
Paragon Economics and Steiner Consulting said: “US hog slaughter rates are running “about 3% higher than a year ago and higher than the 2.2% increase implied” by a key US Department of Agriculture report on the sector released in June.
Meanwhile, the “weight of barrows and gilts marketed by producers is currently running at around 209 pounds per carcass… 2.5 pounds (+1.2%) higher than what it was in mid-August.
“It is not unusual for hog weights to increase into September but the pace of the increase in recent days has exceeded expectations.”
Hogs down, cattle reviving
Lean hog futures for October on Monday touched a 10-month low, for a spot contract, of 53.775 cents a pound.
Live cattle futures for October, by contrast, have staged a recovery since falling below 100 cents a pound earlier this month for the first time since 2010.
Cattle futures have been helped by news that China was reopening US beef, after a ban on some imports dating from a finding of bovine spongiform encephalopathy, or mad cow disease, in Washington state in 2003.
(Source – http://www.agrimoney.com/news/hedge-funds-prefer-hard-wheat-to-soft-coffee-to-cocoa-cattle-to-hogs…–9969.html)