Coffee, corn tempt hedge funds to extend bullish ags spree

Hedge funds lifted their bullish positioning in ags to the highest in four months, fuelled by a record-high net long in coffee, and a sharp cut in bearish bets on corn – which could create potential for fresh selling.

Managed money, a proxy for speculators, lifted its net long position in futures and options in the top 13 US-traded agricultural commodities by 28,617 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

The increase represented a sixth successive weekly increase in the net long – the extent to which long positions, which profit when prices rise, exceed short bets, which benefit when values fall – a streak not seen in two years.

And it took the net long above 565,000 contracts for the first time since early July, with the recovery in sentiment towards ags seen being fuelled by the increased chance of a US rate rise, which have curtailed enthusiasm for shares.

Investors have removed more than $200bn from equity funds since the start of the year, according to Morningstar data compiled this week for the Financial Times.

Hot coffee

The improved attitude towards ags has been evident in particular in the coffee market, where hedge funds in the latest week raised their net long in New York arabica futures and options above 59,000 contracts for the first time on data going back a decade.

Speculators’ net longs in New York softs, Nov 8 (change on week)

Raw sugar: 233,744, (+5,402)

Cotton: 61,894, (-5,711)

Arabica coffee: 59,252, (+2,631)

Cocoa: 16,341, (-7,529)

Sources:, CFTC

Indeed, bullish positions on coffee have been a good bet, with an eight-month rally – spurred by dryness which has sapped robusta bean supplies and raised some concerns over Brazil’s blossoming ahead of the 2017 harvest – sending New York prices up 58% as of last week, to a 22-month high.

New York arabica futures have since retreated, hurt by the surge in the dollar following Donald Trump’s election as US president, but have remained elevated in Brazil, the top producer and exporter of arabica beans, and indeed of coffee overall.

In Brazilian real terms, New York futures touched R$5.73 per pound on Tuesday, their highest on records going back to 1992, according to Bloomberg.


However, in the latest week, the biggest swing in bullish positioning was in Chicago corn futures and options, in which hedge funds slashed their net short holding by nearly 40,000 lots to a three-month low – fuelled by buying which looks ill-fated given a subsequent price decline.

Speculators’ net longs in Chicago grains, Nov 8 (change on week)Soybeans: 124,264, (+13,651)

Soyoil: 118,754, (-7,789)

Soymeal: 61,232, (-4,789)

Kansas wheat: 1,503 (-2,581)

Corn: -28,054, (+36,954)

Chicago wheat: -112,346, (-714)

Sources:, CFTC

The less bearish take on corn came amid expectations that the US Department of Agriculture would, in its monthly Wasde crop, trim further its estimate for the domestic yield this year.

In the fact, the USDA lifted the yield estimate, fostering a decline in corn futures prices which was also fuelled by dollar strength, which cuts the competitiveness of dollar-denominated exports.

Chicago corn futures have fallen more than 5% since the CFTC data were taken last Tuesday.

‘Still scope for further short bets’

“The weekly positions report showed that investors bought back a large portion of their short position ahead of last week’s Wasde report, and some even established new long positions,” said Tobin Gorey at Commonwealth Bank of Australia.

Speculators’ net longs in Chicago livestock, Nov 8, (change on week)
Live cattle: 39,921, (-3,892)

Lean hogs: 34,962, (+3,144)

Feeder cattle: -2,357, (-260)

Sources:, CFTC

While the USDA’s “surprise US yield upgrade has likely prompted a reversal of that trend in the week since”, meaning speculators reverting to a more negative view on corn prices, there may still be scope for further short bets.

“The funds have plenty of room to add shorts, if the technical structure remains weak,” said Brian Henry at US broker Benson Quinn Commodities.

“I would lean towards lower trade, but question whether the sellers would stay engaged below $3.30 a bushel in the December contract,” which was trading on Tuesday at $3.36 ¾ a bushel.

‘Not looking overbought’

By contrast, Mr Gorey more sanguine on speculator positioning on Chicago soybean futures and options, despite the managed money net long rising by 13,651 lots to a six-week high of 124,264 contracts.

“The position though is only about two-thirds the size of its May peak, so is probably not yet at levels that would activate fears of the market looking overbought,” he said.

Still, soybean futures have fallen more than 3% in the past week, leaving many fresh long positions under water.

Benson Quinn Commodities said that “demand continues to offer underlying support, while a firmer dollar, uncertainties of Chinese government intervention in speculation in its markets as well as uncertainty of US trade pacts under new presidential administration pressure beans and the ag complex”.

Cool on cocoa

Hedge funds also bought into New York raw sugar futures and option, raising their net long for the first time in seven weeks, and ending the longest selling streak in two years.

“The fears pre-US election of a fund exit seem to have completely receded,” said Tom Kujawa, co-head of the softs department at Sucden Financial.

However, speculators sold their New York cocoa net long down to a nine-month low of 16,341 contracts, amid growing ideas of a production surplus in 2016-17 which have depressed futures to a three-year low.

“This [investor shift] is due above all to news from the supply side – the crop outlook in the key growing countries, especially in West Africa, is so good that the surpluses expected for the current 2016-17 season are being upwardly adjusted,” Commerzbank said.

“Cargill, one of the world’s largest companies in the agricultural business, now envisages a global surplus of over 200,000 tons, as does the analytical firm KnowledgeCharts.

“Some observers even believe that a further surplus in 2017-18 is probable.”

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