Actualités

Hedge funds returned to taking a more negative stance on agricultural commodities, largely through increasing bets on falling values of sugar, which have paid off, and of wheat, in which they have been caught out.

Managed money, a proxy for speculators, decreased its net long position in US traded agricultural commodity futures and options by more than 47,000 contracts in the week to last Tuesday, regulatory data show.

The decrease, the first in six weeks, reflected in part a return to taking a more negative stance on corn, after a week in which US farmers planted the grain at a record pace, easing concerns over a yield penalty from sowings which had been running at a historically slow level.

Hedge funds also returned in New York arabica coffee to building a net short position, meaning short holdings, which profit when prices fall, outnumber long ones, which benefit when values rise.

Arabica coffee futures have come under pressure from expectations of a strong Brazilian harvest, at a time when producers still have significant quantities of last year’s crop to sell.

‘Mills to close’

However, speculators raised their net short position in New York-traded raw sugar futures and options by even more, 12,687 contracts to just under 78,000 contracts, not far short of the record high reached earlier this year.

Going short on sugar has proved a winning bet, with prices of the sweetener setting a series of near-three-year lows last week, depressed by ideas of a strong Brazilian cane harvest, and with selling fuelled by what Deutsche Bank termed “muted” sentiment at New York sugar week.

Indeed, it was “a common belief” at the gathering “that some Brazilian mills would close next year owing to poor financial condition” caused by the poor sugar prices, the bank reported.

Prices recovered somewhat on Friday, by 0.5% to 16.84 cents a pound, in part on concerns over the extent of the net short position revealed in the US regulatory data.

Indeed, Tom Kujawa at Sucden Financial termed the extent of the bearish positioning “perhaps the best chance of a short-term upside correction” in prices, given that extreme net short positions question where further selling will come from.

Down on wheat

Hedge funds also hiked their net short position in Chicago soft red winter wheat, and by more than 20,000 contracts – the fastest turn bearish in positioning since September 2011.

The sell-down, which was also evident in Kansas-traded hard red winter wheat, was fuelled by the prospect of the northern hemisphere harvest, and a jump in supplies, so weighing on prices.

Furthermore, wheat felt pressure from the sell-down of fellow grain corn thanks to the pick-up in the pace of US spring sowings.

However, prices of wheat, like corn, recovered in the second half of last week, by 2.5% in Chicago, in part thanks the return by many farmers to the back foot, following fresh Midwest rains.

Chinese order

Wheat futures have also been lifted by improved demand ideas, with the US Department of Agriculture on Thursday reporting weekly export sales of more than 950,000 tonnes, twice as much as many investors had expected.

On Friday, the USDA also confirmed the sale of 180,000 tonnes of soft red winter wheat to China for 2013-14 delivery, part of what was believed to be a larger order.

“The trade indicates this was only a portion of the tonnage actually booked, with speculation ranging on how much larger this massive programme can or will get,” Jonathan Watters at broker Benson Quinn Commodities said.

“Some expect substantial purchases to come if the board declines into harvest.”

Further buying

Indeed, on Monday, China’s CNGOIC think tank revealed that the country had in fact bought up to 650,000 tonnes, of the grain last week.

The CNGOIC said that the purchase price, of $320-328 a tonne, was 11.6% cheaper than domestic values, which have been elevated by ideas that last year’s harvest was far smaller than official forecasts say, having been damaged by fusarium blight.

Furthermore, this year’s crop has suffered weather damage in many areas.

And the quality of much wheat in state inventories is also believed to be of questionable quality.

While US markets were closed on Monday for the Memorial Day holiday, Mr Watters said that development in the wheat market “don’t exactly call for wheat to fall apart as we head into harvest”.