January 6, 2011

 

Speculation leaves US crop markets at risk

 

 
Australia & New Zealand Bank (ANZ) warned that the scramble by speculators to buy into the US crop complex last month has created an overhang of positions which has amplified its vulnerability to a correction.

 

The comments came ahead of a dramatic rebound by food commodities, which had posted steep losses in early deals on Wednesday (Jan 5).

 

Last month's crop rally, which saw most of the major US-traded crops gain at least 10%, with Chicago corn and New York raw sugar enjoying surges of more than 20%, was fuelled by buying by speculators which had "perhaps slipped under the radar", ANZ said.

 

Of the 14 major farm futures on US exchanges, all but one, Chicago live cattle, attracted net buying by speculators, whose net long positions in farm commodities overall had returned to a record high.

 

"Ag markets are starting 2011 with the bases loaded," the bank said, highlighting a "major risk of a sell-off if outside markets turn".

 

The comments came as crop markets staged a strong recovery, after earlier looking on course to post a second successive day of broad and deep declines.

 

"The markets may have got a bit ahead of themselves last month," a London analyst said, while remaining sanguine about prospects.

 

However, it was "not as if the fundamentals have changed - or if anything, they have changed for the worse in production terms".

 

The bank noted predominantly "impressive" buying by speculators in wheat last month, with their position changes from net short of 49,000 lots at the start of the month to net long of 10,000 contracts at the end.

 

In corn, net longs rose by 55,000 lots to 348,000, just short of October's record of 367,000 contracts, while soys extended to six weeks a run of expansion in speculative interest "as worries over Argentine weather stoked bullishness".

 

For soyoil, speculators' net long position that is the total for long positions, which profit when prices gain, minus the shorts put in the money by price losses surged by 41% to 80,000 lots in a month.

 

ANZ analysts use a broader definition of speculators than some other observers, combining the "net managed money", "net other" and "net non-reportable positions" criteria published in weekly reports from US regulators on investors' positions.