Sugar left a sour taste with many hedge funds as worries over wet weather in Brazil and India prompted them to crystalise losses amid biggest short-covering spree in nearly three years.

Managed money, a proxy for speculators, slashed its gross short position in futures and options in New York raw sugar by 43,200 contracts in the week to last Tuesday, GrainPriceNews analysis of Commodity Futures Trading Commission data shows.

That represented the biggest selldown in the sweetener since December 2019 – and one which left many funds out of pocket. Price average lines imply that most short positions taken out since July were closed at a loss as prices, as measured by the March 2023 lot, rallied by 4.6% during the week.

The price gain was spurred by concerns over wet weather in India delaying the start to the country’s cane processing season, and in Brazil cutting prospects for the late crush in the key Centre South region.

Czarnikow on Friday downgraded its forecast for Centre South sugar output in 2022-23, citing the setback from wetness to cane harvesting.

‘Worried about a global recession’

By contrast in cotton, managed money raised gross short bets to 17,851 lots, the most in two years, in positioning which proved largely more profitable, coming for a period which heralded Wednesday’s limit-down close in New York’s December contract.

Cotton futures were sunk by a US Department of Agriculture Wasde report which, citing “major macroeconomic concerns”, made an unusually large downgrade to expectations for world consumption of the fibre in 2022-23.

Dr John Robinson, cotton marketing expert at Texas A&M University, also noted that weekly US export sales “continued weak, with cancellations, while actual export shipments were sub-par level”.

Jack Scoville at Price Futures said: “Traders are worried about a global recession and demand in that recession” for the fibre, which as an industrial commodity is particularly vulnerable to world economic fortunes.

“It is possible that the continued Chinese lockdowns will continue to hurt demand for imported cotton for that country, and that a weaker economy in the West will hurt demand from the rest of the world.”

Soy sellers

For the four main New York-traded soft commodities overall, also including cocoa and arabica coffee, managed money raised its net long – the number of long positions, which benefit when prices rise, minus the short positions, which profit when values fall – by 73,421 lots during the week to Tuesday.

That represented the biggest buying spree in the complex since August 2020, with cocoa also attracting substantial purchases amid worries over the spread of black pod disease in plantations in Ivory Coast, the top producing country.

By contrast, in the main Chicago grains and oilseeds, hedge funds proved net sellers for a third successive week, this time by a modest 5,588 lots, reflecting expectations that the Wasde would increase expectations for the US soybean harvest.

In fact, the report revealed a surprise yield downgrade, prompting a rally in soybean futures.

Speculators were more upbeat on corn ahead of the Wasde, lifting their net long in the grain to the most in four months, amid forecasts of a US yield downgrade, which were realised in the briefing.