Lean hogs suffered their biggest selldown on record by managed money, as hedge funds returned to being a net seller in ags, encouraged by growing world economic jitters and strength in the dollar.
Managed money, a proxy for speculators, in the week to last Tuesday cut by more than 57,000 contracts its net long in futures and options in the top 13 US-traded agricultural commodities, analysis by GrainPriceNews of Commodity Futures Trading Commission data shows.
The selldown, the biggest in nearly three months, reduced the net long to 643,148 contracts. The net long is the extent to which long bets, which profit when values rise, exceed short holdings, which benefit when prices fall.
The shift came in a period in which the dollar saw a “massive rally”, contributing along with concerns of rising interest rates and economic slowdown to a “bearish overall commodity market environment”, ADM Investor Services noted,
However, selling was particularly acute in lean hogs, in which hedge funds slashed their net long by 25,535 contracts – the fastest pace on data going back to 2006.
‘Sharp, three-day selloff’
The move – which reflected in the main a more than doubling in the number of short bets, to nearly 30,000 lots – came in a week in which Chicago lean hog futures tumbled by 7.6% on a spot contract basis to a nine-month low.
US hog, and pork, prices typically weaken at this time of year, as the exchange itself highlights, with the end of the US summer grilling season heralding a seasonal downturn in demand.
The previous record net selldown in hogs, of 20,478 contracts, was set in September last year.
However, the impact this time was enhanced by higher slaughter rates which “helped trigger a sharp, three-day selloff”, ADM Investor Services said, while economic slowdown provokes demand concerns.
Indeed, the pork cutout – the total value of the meat obtained from a carcass – dipped last Tuesday below 100 cents a pound, falling by nearly $6 week on week to $99.01.
A year before, the cutout stood at 111.95 cents a pound.
Demand for US pork exports has fallen too, with total export commitments – completed shipments and unfulfilled orders combined – down by 19.3% at 12.5m tonnes for this year up to September 22, US Department of Agriculture data show.
The decline reflects in particular a slump in purchases by China, which has seen its own herd record from the lows caused by African swine fever.
Chinese pork imports from all origins fell by 64% year on year to 1.07m tonnes for the January-to-August period, customs data show.
‘Very sharp break’
Also encouraging hedge funds to sell lean hogs, and other US-traded agricultural commodities, was strength in the dollar, which gained 3.5% during the week against a basket of currencies to reach its highest in 20 years.
A strong dollar depresses values of dollar-denominated assets, making them less affordable to buyers in other currencies.
The greenback’s gains fuelled selling in the grains and soy complex too, of more than 22,000 contracts – of which corn contributed 10,000 contracts, despite waning expectations for this year’s US harvest yield.
“The surge in the US dollar, a collapse in energy markets and a very sharp break in the stock market helped to keep the demand tone bearish,” ADM Investor Services said.
However, in New York soft commodities, hedge funds proved net buyers overall, thanks largely to purchases of raw sugar, in which they raised their net long by nearly 9,000 contracts during the week.
Buying was encouraged by data showing that Brazilian sugar output for the first half of last month came in a little below expectations, plus too anticipation of a weak delivery of the sweetener against the expiry of the October raw sugar lot, which can be interpreted as positive for prices.
Marex said that the relatively small delivery, of 741,000 tonnes, against the October contract on its expiry on Friday “forces people to reconsider” an assumption that the market had “outgrown the ‘we-are-going-to-run-out-of-sugar-in-the fourth quarter’ syndrome.
“The relatively small delivery implies that the holders of the millions of tons of Centre South Brazil raws which remain to be shipped out of this crop, either believe that they will be able to sell it at better than 74 points premium to March [futures], or have already committed all/most of that sugar to destination buyers.
“The latter explanation would be frighteningly bullish,” Marex said, if adding that this “means it is probably not the correct one”.