Hedge funds returned to bullish betting on agricultural commodities as India’s wheat export ban, and questions over Brazil’s sugar output prospects, sparked a surge of investment in the sector.

Managed money, a proxy for speculators, lifted its net long position in the top 13 US-traded ags, from cocoa to cattle, by 21,435 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission shows.

The rise in the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – represented a reversal in fund strategy, after three weeks of significant selling.

And it came as investors overall returned to ags en masse. Open interest, ie the number of live contracts in futures and options, soared by nearly 240,000 lots week on week – the largest such shift, bar one, in a year.

Wheat, sugar buying

Much of the investor attention focused on Chicago wheat, in which hedge funds lifted their net long position to a 14-month high of 26,586 lots.

The bullish betting came in a week during which India announced a wheat export ban, sending wheat prices soaring, with values hitting record highs on European markets.

However, New York raw sugar also attracted notable buying, of more than 23,000 contracts to a net long of 181,850 lots, as futures staged a sharp rebound back to 20 cents a pound.

‘Quality varies widely’

The 7.8% raw sugar price rally in the week to last Tuesday was attributed to largely to waning expectations for Brazil’s Centre South cane crop in the 2022-23 crushing season, as started last month.

“Estimates of Centre South Brazil cane tonnage are coming down slightly, as it becomes clear that the quality of this year’s cane varies widely,” broker Marex said last week.

Talk of Brazil cancelling sugar export contracts, as mills switch a greater proportion of their cane to making ethanol instead, underpinned prices of the sweetener too.

Furthermore, cane was caught up somewhat in the Brazil frost concerns which surrounded in the main the coffee market.

Indeed, in arabica coffee, managed money proved a net buyer for the first time in five weeks, as speculators closed short bets at the quickest pace in more than a year.

Net buying

Chicago soybeans also attracted net buying, for the first time in a month, as the pace of US corn sowings accelerated from a slow start – reducing expectations that farmers might switch some land from the grain to the oilseed, which has a slightly later planting window.

In corn itself, hedge funds raised both long and short positions largely in line, reflecting a market caught between downward price pressure from the improved US sowing prospects, and support from the strength in wheat, a rival in uses such as livestock feed.