Corn, coffee lead hedge funds' bullish turn on ags

Hedge funds extended their bullish positioning on agricultural commodities to one of the highest levels in the last year, driven by a retreat in bearish sentiment on corn and coffee, and upbeat hopes for soybeans.

Managed money, a proxy for speculators, raised by more than 116,000 contracts its net long in futures and options in the main 13 US-traded agricultural commodities, according to data from the Commodity Futures Trading Commission regulator.

The rise took the aggregate net long above 500,000 contracts for only the second time in the last 14 months.

And it followed talk of funds taking a more positive view on agricultural commodities, in the face of weakness equities, besides a renewed risk premium in some crops warranted by weather concerns - dryness in Brazil and cold, and some dryness, in the US.

Surprise US crop estimates have also bolstered sentiment in grains and oilseeds.

Coffee revival

In arabica coffee - for which Brazilian production estimates have been sharply curtailed because of the lack of rainfall - hedge funds extended to 14,728 contracts their net long position - the extent which long bets, which profit when prices rise, exceed short holdings, which benefit when values fall.

Speculators' net longs in New York softs, Feb 11 (change on week)

Cocoa:          79,944, (-3,094)

Cotton:         52,212, (+6,970)

Arabica coffee: 14,728, (+6,747)

Raw sugar:     -38,576,   (-349)

Sources: Agrimoney.com, CFTC

That represented the most bullish positioning in arabica coffee futures and options, traded in New York, since September 2011.

And raising long exposure has proved a broadly profitable bet, with futures up 0.7% for the week to last Tuesday and rising a further 2.0% since - although more major gains have already been had, with futures up 22% so far in 2014.

As an indication of the damage expected from the dryness, agricultural trader Olam International that the "exceptionally dry" weather in Brazil would cut coffee production in the top producing country to 50m-51m bags, below initial hopes for 57m-60m bags.

Grain gains

Meanwhile, in Chicago corn futures and options, hedge funds turned net long in the week to Tuesday for the first time in seven months, encouraged in part by cold weather in the US, which has hampered crop supplies, but also by a surprisingly large downgrade to estimates for US supplies.

Speculators' net longs in grains and oilseeds, Feb 11, (change on week)

Chicago soybeans:   176,126, (+29,593)

Chicago soymeal:     70,577,  (+4,303)

Chicago corn:        34,340, (+39,654)

Kansas wheat:        13,034,  (+4,733)

Chicago wheat:      -43,225   (+9,738)

Chicago soyoil:     -48,433, (+10,708)

Sources: Agrimoney.com, CFTC

The US Department of Agriculture last Monday cut its estimate for US corn stocks at the close of 2013-14 by 150m bushels to 1.48bn bushel, a far bigger downgrade than investors had forecast, and strengthening price prospects.

Chicago corn for March on Friday put in the highest close for a spot contract in four months.

The Wasde lowered the estimate for wheat stocks by more than expected too, encouraging some covering by speculators of their substantial short positions, which no longer look as profitable bets as they did at the end of January.

Chicago wheat futures have risen 7.7% so far this month.

Firm soy prices

Hedge funds also hiked their net long position in soybeans to more than 176,000 lots, the highest in 16 months, amid fears for the impact of Brazil's dryness on late-planted soybeans.

Speculators' net longs in Chicago livestock, Feb 11, (change on week)

Live cattle:      132,866, (+2,550)

Lean hogs:         48,528, (+4,025)

Feeder cattle:     10,000  (+1,011)

Sources: Agrimoney.com, CFTC

Sentiment on soybeans, which on Friday touched their highest since September, has also been underpinned by a dearth of cancellations by Chinese buyers of US orders, which had been expected now that Brazil's harvest is ramping up.

A dearth of selling by Argentina growers of soybeans, which they see as a hedge against a falling peso, has also fuelled a squeeze in supplies of soymeal, of which the South American country is the top exporter.