Hedge funds wrong-footed on cocoa, soy, sugar bets

Date: Tuesday, June 18, 2013
Author: Agrimoney.com

Hedge funds, which it was highlighted last week had made a "disastrous" bet on corn, appear to have been wrong-footed for now on cocoa, soybeans and sugar too, regulatory data showed.

Managed money, a proxy for speculators, continued to rebuild their net long position in futures and options in major US-traded agricultural commodity in the week to June 11, taking it to a four-month high of 320,000 contracts, analysis of data from the Commodity Futures Trading Commission showed.

In a few contracts, such as lean hogs, in which speculators lifted their net long position by more than 8,200 lots during the week, that proved a profitable call, with summer demand supporting pork demand at a time when lower grain prices are encouraging producers to think of herd rebuilding.

Chicago's June lean hog contract expired on Friday with its best ever finish, of 102.30 cents a pound, also the highest close for spot contract in nearly two years.

Soybean retreat

However, increasing net long exposure to Chicago soybeans for a fifth successive week, taking the total above 150,000 contracts for the first time in seven months, appeared on Monday a step too far.

Prices of the old crop July futures contract have eased more than 2% since, weakened by profit-taking and a downgrade by the US Department of Agriculture to hopes for 2012-13 exports of the oilseed.

The new crop November contract has lost 3% under pressure from ideas that the delayed sowing season may prompt farmers to switch some corn land to soybeans.

While Morgan Stanley on Monday held out hope for soybean prices, this followed downgrades last week from Goldman Sachs and Societe Generale, and downbeat comments from Deutsche Bank too.

Cocoa setback

On cocoa too, hedge funds, in extending their net long position to a five-year high of nearly 50,000 contracts, appear to have opened themselves up to losses, at least on the latest positions taken out, with New York's best-traded September contract down 5% since Tuesday.

Prices have been undermined by improved weather in West Africa, where MDA's Kyle Tapley said that rains "have begun to improve conditions in Ghana", the second-biggest producing country, if prompting "minor wetness concerns" in the west of top-ranked Ivory Coast.

Futhermore, soft Chinese economic data have fuelled concerns over demand in Asia, whose grindings prospects for 2012-13 have been downgraded by the International Cocoa Organization.

Sugar rebound

Meanwhile, a decision by speculators to ratchet up further their net short position in raw sugar - meaning short bets, which profit when prices fall, outnumber long positions, which benefit when values rise – has have caught out hedge funds late to the trend.

Sugar futures, which have been depressed by ideas of bumper world production, have rallied some 4% since last Tuesday, amid concerns that the more than halving in prices from 2011 highs to well below costs of production in many areas may have gone far enough in incentivising producers to choke off supplies.

The regulatory data followed a caution from Ann Berg, a former Chicago Board of Trade director and Louis Dreyfus grain trader, that hedge funds may be retreating from agricultural commodities following a succession of losses.

These included a "disastrous" long bet in March on corn.