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Hedge fund bets on falling corn prices hit record

Date: Tuesday, October 1, 2013
Author: Agrimoney.com

Hedge funds hiked their positioning on corn prices to the most bearish ever, amid increasing hopes for US harvest yields, but turned more positive on raw sugar, and on lean hogs in which bets on rising values hit a record high.

Managed money, a proxy for speculators, raised its net short in Chicago corn futures and options by 22,000 contracts above 126,000 contracts in the week to last Tuesday, according to data from the Commodity Futures Trading Commission, the US market regulator.

The increase in the net short – the extent to which short positions, which profit when values fall, outnumber long holdings, which benefit when prices rise –took it to the highest on record, and comes amid a US harvest which is proving less downbeat so far than many investors had feared.

"Analysts continue to up their estimated national corn yield as positive yield reports flow in from the countryside," CHS Hedging said.

Paul Georgy at broker Allendale said, after tour of Illinois and Missouri over the weekend, that "corn yields are a surprise with most yields 10-30 bushels per acre more than what they were expecting.

"Clinton County, Illinois corn yields were the best they have ever harvested."

Warming to wheat

The extended downbeat positioning in corn came as hedge funds covered many of their bets on falling wheat prices, with the net short in Chicago futures and options falling nearly 16,000 lots to 35,000 contracts.


Speculators' net longs in grains and oilseeds, Sept 24, (change on week)

Chicago soybeans: 135,252, (-12,499)

Chicago soymeal: 61,298, (-2,092)

Kansas wheat: 15,669, (+1,838)

Chicago soyoil: -24,581, (-1,808)

Chicago wheat: -35,000 (+15,882)

Chicago corn: -126,345, (-22,134)

Sources: Agrimoney.com, CFTC

Wheat prices have been buoyed ideas of strong Brazilian and Chinese import demand in the face of crop problems in Argentina, through frost, and Russia, where harvest rains have depressed quality.


Wet weather in Ukraine, which could see a steep decline in winter wheat sowings, has also underpinned values.

US wheat exports have begun 2013-14 at a strong pace, hitting 359m bushels in the June-to-August period, a record, according to Macquarie.

More positive on sugar

The positioning appears to have presented gains to the many speculators believed to have placed "long wheat, short corn" bets over the week.


Speculators' net longs in New York softs, Sept 24, (change on week)

Cocoa: 68,336, (+390)

Raw sugar: 62,368, (+33,985)

Cotton: 44,392, (+1,620)

Arabica coffee: -22,950, (+2,250)

Sources: Agrimoney.com, CFTC

Chicago's benchmark December wheat contract gained nearly 25 cents a bushel after Tuesday, compared with a 5.25-cents-a-bushel gain in December corn futures.


But hedge funds needed nimble feet to bank gains in New York-traded raw sugar, in which they hiked their net long position by nearly 34,000 contracts to 62,000 lots.

The rise took to an unprecedented 108,992 lots in three weeks their bullish positioning shift, amid rain delays to output in Brazil's key Centre South district, and ideas that demand for the sweetener may have been far stronger than thought.

'Much liquidation took place'

However, raw sugar futures - having on Thursday hit 18.24 cents a pound for the best-traded March contract, a six-month high for a nearest-but-one lot - tumbled 2.5% on Friday, amid ideas of a hefty delivery against the expiring October contract.


Speculators' net longs in Chicago livestock, Sept 24, (change on week)

Lean hogs: 97,952, (+2,876)

Live cattle: 39,155, (+10,766)

Feeder cattle: 7,609, (+2,949)

Sources: Agrimoney.com, CFTC
"We suspect that much [hedge fund] liquidation took place," Nick Penney, senior trader at Sucden Financial said on Monday, adding that "more liquidation has taken place this morning".


In lean hogs too, a ramp up by hedge funds in their net long position to a record high has yet to be rewarded by further price gains for long.

While low slaughter rates last month had provoked fears of hefty damage to the US hog herd from disease outbreaks, US data late on Friday showed pig numbers, on most dynamics, beating industry expectations.

The overall herd, at 68.36m head as of September 1, was a little higher than that a year before, rather than falling the 1.6% to 67.08m head that investors had expected.

Hedge funds raised their net long position in the 13 top US agricultural commodities by 34,000 lots during the latest week to a seven-month high of 323,155 contracts.