Hedge funds extended their selldown in wheat to the longest in eight years, amid hopes for a deal to safeguard Ukraine grain exports from Russian attack, and as grains continued to attract short bets.
Managed money, a proxy for speculators, cut by 15,599 lots its net position in futures and options in the top 13 US-traded agricultural commodities in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission shows.
That shrank the net long – the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall – to 482,567 lots for the first time in 23 months.
And it was focused in the main on grains, with hedge fund returning to more bullish stances on the other two ag sectors – soft commodities, and livestock.
Wheat selling spree
Indeed, managed money reduced its net long in grains, including the soy complex, by more than 41,000 lots over the week to 302,619 contracts, the lowest since August 2020.
The shift included a ninth successive week of net selling in Chicago soft red winter wheat futures and options, the longest such spree since July 2014.
Hedge funds also undertook a ninth week of selling in hard red winter wheat, reducing their net long to a 15-month low, while proving net sellers in Minneapolis spring wheat (not included among the top 13 US-traded ag contracts) for the seventh week in a row.
The positioning came in a week in which futures felt pressure from growing hopes of a deal between Kiev and Moscow to safeguard grain shipments from Ukraine’s Black Sea ports.
An agreement was indeed signed on Friday, sending wheat futures tumbling to multi-month lows on international markets, although prices recovered some of this ground on Monday after a missile strike by Russia on the key Ukrainian port of Odesa.
Shorts back in fashion
Grain prices were also undermined by growing confidence in US corn production this year, after weekly official data showed the crop’s condition stabilising, rather than declining as investors had expected.
Hedge funds cut their net long in Chicago corn futures and options for a fifth successive week, to a 21-month low of 125,303 contracts.
Across grains, speculators continued to show a revived appetite for short positions, raising their gross shorts in the complex to a seven-month high of 212,780 lots.
Short bets have proved profitable over most of the last two months, as grain prices have fallen from highs, undermined by pressure from northern hemisphere harvests, reduced global economic confidence and a strong dollar, as well as hopes for Ukraine grain exports.
However, wheat prices rebounded sharply on Monday, after weekend missile strikes by Russia on the Ukrainian port of Odesa raised doubts about Moscow’s commitment to safe grain shipments.
Cotton vs sugar
Among New York-traded soft commodities, hedge funds extended selling in cotton futures and options to a fifth successive week, driving their net long below 35,000 lots for the first time in nigh on two years.
Negative influences on prices included, some, rains for US cotton crops, and “a continuation of light/moderate demand in inactive physical trading, seasonally weak old crop export sales, modest new crop export sales, and sub-par export shipments,” said Dr John Robinson at Texas A&M University.
However, managed money undertook net buying in raw sugar, spurred by ideas of strong demand fuelled by a widened refining premium.
An enhanced premium of white sugar, which is immediately available for human consumption, over raws is often seen as a sign of a market shortfall.
Sugar futures have since tumbled, undermined by recession concerns, and a cut by Brazilian energy giant Petrobras to its gasoline price.
A reduced gasoline price weighs on values for ethanol, in turn undermining values of sugar, which competes with the biofuel for cane.