Hedge funds accelerated their selldown in agricultural commodities to drive their net long in the top US-traded contracts below 1.0m lots for the first time since January – leaving them ill-placed for a rebound in coffee prices.

Managed money, a proxy for speculators, in the week to last Tuesday cut by 117,632 contracts its net long position in futures and options in the top 13 US-traded lots, analysis of data from the Commodity Futures Trading Commission shows.

The dip took the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – to 970,424 contracts, the lowest in nearly five months.

Hedge funds have now sold down a net 314,410 contracts since April 19, when their bullish positioning peaked at 1.28m contracts, the second largest number on records going back to 2006.

Sugar selling

This time, New York-traded soft commodities led the decline, with raw sugar suffering net selling of 22,278 contracts as market sentiment suffered from factors including a softening in oil prices, amid global economic growth worries.

Weaker oil values undermine values of ethanol, in turn depressing sugar, which competes with the biofuel for cane in countries such as Brazil.

StoneX last Tuesday also depressed sentiment by forecasting a world sugar production surplus of 4.1m tonnes in 2022-23, helped by strong Asian output, while data from Brazil showed the new season’s cane harvest winding up faster than many investors had thought.

A further reversal in the Brazilian real, after its early-year rally, was also – given the South American country’s status as the top sugar exporter – viewed as undermining prices of the sweetener, cutting its value in dollar terms.

Hedge funds vs roasters

The real, and world economic worries, were also viewed as encouraging a selldown in arabica coffee futures and options, which also suffered a fourth successive week of selling, driving the managed money net long below 20,000 contracts for the first time in more than a year.

This even as the New York July contract fell by 6.5% during the week to close last Tuesday at 203.80 cents a pound, the weakest finish for a nearest-but-one lot in six months.

However, hedge funds’ build of their largest number of short bets in coffee since August left them wrong-footed by the 6.8% rebound in coffee futures since Tuesday, to 217.70 cents a pound, on fresh Brazilian frost worries, besides weakening expectations for the rain-beset Colombian arabica crop.

Indeed, trade investors proved more canny, stocking up on extra beans during the price dip to send the commercial gross long in arabica, as shown by separate CFTC data, up by more than 10,000 contracts to more than 100,000 lots for only the third time in six months.

Soybeans vs wheat

Among grains and oilseeds, the soy complex again took the biggest hit as a weak pace of US spring sowings fuelled ideas that farmers may switch more land to soybeans, which have a later close to their sowings window than the likes of corn.

Net selling of 22,592 contracts in soybeans themselves representing the biggest such move in six months, with managed money cutting its net long in soymeal to the lowest since Christmas.

Wheat bucked the trend, with investors pulling out of a three-week selling spree in Chicago soft red winter wheat – even as the market was braced for gains on Thursday’s US Department of Agriculture forecasts, and the weekend’s news of India’s wheat export ban.