Hedge funds targeted corn, cocoa and cotton as they rediscovered their appetite for sell bets on agricultural commodities, expanding their short holdings to the largest in six months.
Managed money, a proxy for speculators, reduced its net long position in futures and options in the top 13 US-traded agricultural commodities by more than 60,000 contracts, analysis of data from the Commodity Futures Trading Commission shows.
The decrease in the net long – the extent to which long positions, which profit when prices rise, exceed short bets, which benefit when values fall – reduced it to 931,789 lots, a four-month low.
And it reflected an increasing willingness by investors to bet on price falls. The number of short positions rose to 393,993 lots, its highest in six months.
Corn vs soybeans
Corn suffered particular selling, as US sowings continued to make up for a slow start which had provoked concerns that farmers would be unable to complete seedings within the ideal window, forcing them to switch some land to later-planted crops such as soybeans.
Hedge funds lifted their gross long in Chicago corn futures and options to 63,709 contracts – the largest since December 2020.
By contrast, in soybeans managed money proved a net buyer for a second successive week, trimming short positions and taking out extra long holdings, as the prospects eased of a land switch from corn.
Soymeal too attracted net purchasing, for the first time in five weeks.
Cotton frays
Among New York-traded soft commodities, cotton attracted net selling of nearly 6,000 contracts, the biggest of 2022, as rains eased concerns over dryness testing newly-planted crops in Texas, the top cotton-growing state.
The proportion of Texas rated as being in drought fell by 2.3 points in the week to last Tuesday, to 79.1%. While still indicating widespread dryness, that figure was the lowest in three months.
The fibre, as an industrial commodity, is also vulnerable to jitters on the world economy.
In cocoa, hedge funds raised their tally of short bets to 73,420 contracts, the largest in more than two years, and exceeding long positions for the first time since early January.
Economy worries have dampened sentiment over cocoa, which depends for significant demand on impulse purchases at the likes of airports and railway stations.
‘A bit under the weather’
By contrast, in raw sugar, managed money proved a net buyer, of more than 12,000 contracts, amid worries over cane quality in the key Brazilian Centre South region.
Robin Shaw at Marex noted talk that “cane in parts of Centre South Brazil looks a bit under the weather – possibly due to unusually dry weather since the end of the rainy season.
“Rainfall has been below average in April and May.”