Hedge funds cut their bullish bets on grains to a nine-month low as the US eased concerns over the world supply squeeze, with cotton attracting fresh short positions too.

Managed money, a proxy for speculators, cut its net position in futures and options in the top 13 US-traded agricultural commodities, including the likes of raw sugar and hogs, by nearly 17,000 lots in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission shows.

The shift reduced the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – below 500,000 lots for the first time since August 2020, and reflected in the main selling in grains.

The net long in grains and the soy complex dropped by 46,621 contracts to 343,995 lots, suffering a fourth successive week of net selling for the first time this year.

Corn selldown

The further retreat in bullish betting came in a week which ended with a US Department of Agriculture Wasde report which was poorly received by investors, after it pegged world supplies of corn, soybeans and wheat at the close of 2022-23 above levels traders had expected.

Managed money was particularly downbeat on corn, cutting their net long in Chicago futures and options in the grain to a 21-month low of 151,174 lots.

The USDA in the Wasde lifted its forecast for global corn inventories at the close of 2022-23 by 2.49m tonnes, compared with market expectations of a flat figure.

The upgrade included a larger-than-expected increase to the estimate for US corn stocks, reflecting ideas of recent feed consumption falling short of expectations.

Longest selling streak in eight years

For Chicago soft red winter wheat, the world benchmark, hedge funds cut their net long by a more modest 6,444 lots – although this did represent an eighth successive week of net selling, matching the longest such streak since 2014.

The USDA in the Wasde raised its estimate for world wheat inventories by 700,000 tonnes, compared with expectations of a small downgrade, with the revision including a larger-than-expected figure for the ongoing US harvest.

In Chicago soybean futures and options, managed money cut its net long below 100,000 lots for the first time since January.

While the Wasde cut forecasts for US and world soybean stocks at the close of 2022-23, in part factoring in a reduced figure for US sowings, the downgrades fell short of market expectations.

Fibre selling

New York cotton also suffered notable selling, as hedge funds continued their rediscovered appetite for short positions on the fibre, driving the total above 10,000 lots for the first time in nearly two years.

Although the Wasde cut the forecast for US cotton stocks at the close of 2022-23, the downgrade was overshadowed by concerns over world demand amid waning economic growth hopes, to which cotton, as an industrial commodity, is particularly attuned.

China, the world’s top importer, separately last Tuesday cut its forecast for its cotton imports in 2021-22 by 250,000 tonnes (1.1m bales) to 1.75m tonnes (8.0m bales). The USDA cut its own forecast by 300,000 bales to 8.20m bales.

Dr John Robinson at Texas A&M University also flagged pressure on cotton prices from “a continuation of inactive physical trade, seasonally weak old crop export sales, weaker new crop export sales, and sub-par export shipments”.

December cotton futures on Friday touched a nine-month low of 82.54 cents a pound, but have since recovered to 91.67 cents a pound on Monday, rising alongside many other markets, buoyed by reduced expectations for the next rise in US interest rates.