Hedge funds turned net buyers on grains, encouraged by signs of easing in China’s anti-Covid policy, although the sentiment failed to spread to the livestock complex, where lean hogs suffered marked selling.
Managed money, a proxy for speculators, lifted by 21,151 contracts its net long position in futures and options in the top 13 US-traded agricultural commodities in the week to last Tuesday, GrainPriceNews analysis of Commodity Futures Trading Commission data shows.
The buying – which raised the net long to 710,575 contracts, the most in five months – was focused on the Chicago grains and oilseeds complex, which attracted net buying of 48,263 contracts, following on from three weeks of marked selling.
Corn and soybeans alone attracted net purchasing of some 20,000 lots apiece. And, while hedge funds sold soft red winter wheat futures and options for an eighth successive week, the pace, at a net 666 lots, slowed markedly.
‘More long than expected’
“Funds were more long than expected for corn, soybeans and wheat”, said Terry Reilly at Futures International, amid buying which was at the time attributed to factors including easing Chinese anti-Covid lockdowns, viewed as a positive for economic growth in the country, and to Argentine weather worries.
However, bigger-than-expected long positions can actually be a negative for prices, in indicating more scope for short bets than investors had appreciated.
Indeed, Mr Reilly advised investors not to “discount” the possibility of funds’ position in wheat “to influence possible selling in the other commodity markets if bearish developments arise”.
In fact, prices have already fallen back since last Tuesday, amid selling blamed on fresh world economy concerns and on some disappointment at US biofuel blending targets as proposed by the US Environmental Protection Agency on Thursday.
‘Steadily dropping prices’
Among livestock, hedge funds were already selling as of the week to last Tuesday, particularly in Chicago lean hog futures and options, in which they sold a net 12,793 contracts, the most in two months.
US pork “and cash hog prices have been steadily dropping”, said ADM Investor Services, noting a dip in the pork cutout – the wholesale value of a butchered carcass – falling to a 10-month low.
“There are increasing global hog numbers,” besides expectations that “there will be more hogs in the US going forward into 2023.
“For a year and a half hog prices have been high that encourages expansion.”
‘Funds had been buying relentlessly’
New York-traded soft commodities also attracted net selling in the week to last Tuesday, of 7,092 lots, led by a cut in long bets on raw sugar futures and options following three weeks of hefty purchases.
“The funds had been buying relentlessly, but have now stopped,” said Marex, adding that this made technical factors “very important” in determining whether speculators will hold long positions, or switch to shorting.
Last week saw prices twice test the 50% retracement of their November rally, a key point for followers of Fibonacci analysis, but “on both occasions the selling was unsustainable and the bulls regained control”, the broker said.