January 17, 2012

 

US speculators ambushed by lower grain price

Unexpectedly strong grains data from the US government caused much loss among agricultural commodities speculators.

 

Managed money, a proxy for speculators, ramped up its net long in Chicago corn futures and options by 16% to 223,752 contracts in the week to January 10, data from the Commodity Futures Trading Commission, the US regulator, showed.

 

In soy, speculators' net long position - the balance of long holdings which profit when prices rise over short holdings which gain when values fall jumped by more than one-third to 44,617 lots.

 

The rises were evidence of a further revival in speculators' sentiment towards agricultural commodities, with their overall net long position in the complex rising for a third successive week, this time by more than 32,000 contracts to 427,420 lots, on Rabobank calculations.

 

And they came amid "continued dry weather in Argentina and southern Brazil", the bank said, conditions which have curbed expectations for harvests of both crops in South America, so provoking ideas of demand shifting to the US.

 

However, the investments appears to have placed speculators in a poor position when USDA reports on Thursday (Jan 12) unveiled surprisingly strong crop inventory estimates, sending Chicago corn prices down the exchange maximum, and soy sharply lower too.

 

Indeed, the positioning details "help to explain the magnitude of the price moves post the report", as managed money revisited their holdings, Australia & New Zealand Bank analyst Paul Deane said.

 

But speculators look like they did profit in Chicago wheat, in which they raised their net short position by more than 8,500 lots to 35,669 contracts, the largest increase since October, enabling them to benefit from a 6% decline in prices also stemming from the USDA reports.

 

Speculators also trimmed net long positions in Kansas and Minneapolis-traded wheat futures.

 

The data also revealed that speculators increased their net short position in New York cocoa futures by more than 2,800 contracts to a historically-high 12,559 lots despite a strong rise in prices, of more than 10%, over the week.

 

The data would appear to indicate either that they were wrong-footed by the price revival, on waning ideas of bumper production in West Africa, or that they sold into the rally - which on current prices looks a winning move.

 

The revival in interest in agricultural commodities follows a poor period for investor interest in most commodities, agricultural ones included, in the last four months of 2011, when heightened fears for the eurozone debt crisis, and some concerns over China and the US too, encouraged a "risk off" attitude.

 

Societe Generale noted that data on exchange traded products for December "suggest a broad downward correction in assets under management across all products", especially ones backed by precious metals.

 

Agriculture saw net outflows of US$280 million in exchange traded products, and US$450 million in medium term notes during the month.

 

However, SocGen forecast a potential boost to investments from European Central Bank efforts to lend to clearing banks, so easing investors' fears of institutions they were dealing with going under.

 

"Aggressive lending by the European Central Bank and continued accommodation in the US should slowly improve banking fundamentals and reduce lending risks through 2012," SocGen analyst Jeremy Friesen said.