Hedge fund positioning data revealed the extent of the market surprise at the Ivory Coast port strike which sent futures soaring, showing that it spurred a record level of closing of short bets – many at a loss.
Managed money, a proxy for speculators, covered 23,488 short positions in New York cocoa futures and options in the week to last Tuesday, GrainPriceNews analysis of Commodity Futures Trading Commission data shows.
That represented the largest short-closing spree on data going back to 2006, and helped fuel a surge in cocoa futures which drove the best-traded March contract up by 7.3% during the week, to a five-month high.
Indeed, the rally appears to have left many funds closing their short positions, which profit when prices fall, at a loss.
Dock shock
The rally was sparked by a dockworkers’ strike at San Pedro, one of the two main ports in Ivory Coast, which is by far the world’s biggest cocoa producing and exporting country.
The dockers asked exporters for a pay rise to 105 CFA francs ($0.16) per bag, from 30 CFA francs per bag, with settlement eventually reached at the end of last week at, reportedly, more than 50 CFA francs.
While news of the agreement initially prompted a retreat in prices, as Commerzbank had warned of, March futures on Tuesday recovered by 1.9% to $2,548 per tonne, back within $30 per tonne of Friday’s high.
There remain concerns of industrial action spreading to other ports in Ivory Coast, where deliveries from inland are flagging too, standing at 466,000 tonnes so far since the 2022-23 season started on October 1, down by 12% year on year.
Nonetheless, volumes picked up in the latest week, to November 13, to reach 118,000 tonnes, up from 80,000 tonnes a year before, and amid reports of decent prospects for the ongoing main crop harvest.
Softs in demand
On a net basis, including extra long positions purchased as bets on cocoa price rises, managed money lifted its net long in cocoa futures and options by 30,116 lots in the week to last Tuesday, also a record move.
The shift led a jump of 68,123 contracts in the total net long in the big four New York-traded soft commodities – also numbering arabica coffee, cotton and raw sugar.
In cotton – in which many hedge funds lost money the previous week – managed money proved a net buyer for the first time since August, ending the second-longest selling spree on record, driven by short-covering ahead of Wednesday’s US Department of Agriculture monthly Wasde report on world crop supply and demand.
The Wasde was actually “fundamentally price neutral” for cotton, said Dr John Robinson at Texas A&M University, although adding that “continued cuts to [USDA forecasts for] foreign consumption will be taken as a bad sign”.
‘Tightening global supplies’
Among Chicago-traded grains and oilseeds, hedge funds proved buyers in the soy complex, in particular of soyoil, in which they raised their net long by more than 5,000 contracts to 105,210 lots, the highest since March 2021.
Soyoil prices have been lifted by “ideas of tightening global vegetable oil supplies”, noted Terry Reilly at Futures International, flagging “Brazil’s plan to increase biodiesel blending rates, a slowdown in Argentina crush, and strong demand for US soybean oil for biofuel”.
However, in corn, hedge funds proved net sellers of 34,298 lots, the biggest selldown in four months, amid disappointment at US export data, and a revival in hopes for the Ukraine grain export deal, after Russia’s short-lived exit from the agreement.