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January 8, 2018
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"Ags" Enjoy Strong Hedge Fund Buying


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"Ags" Enjoy Strong Hedge Fund Buying

Ags enjoy strongest start to year for hedge fund buying since 2012

This year began with the biggest swing positive in speculators’ positioning on agricultural commodities since 2012 – but it is not clear yet that this was driven by the sector’s improved long-term appeal to funds.

Managed money, a proxy for speculators, cut its net short position in futures and options in the top 13 US-traded agricultural commodities, from corn to cattle, by 54,001 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows.

The shift, bar the strong start to 2012, represented the biggest swing net bullish in positioning to start a year on data going back to 2007.

And it came it continued talk of funds looking more favourable on commodities, and agricultural ones in particular, for reasons such as perceived undervaluation compared with equities, and expectations of rising inflation and dollar weakness.

‘Winterkill became a concern’

Among grains, Kansas City hard red winter wheat looks the biggest target of index fund buying, on relative terms, with buying equivalent to 3.6% of total open interest, on JP Morgan calculations.

And, indeed, the grain contract also saw a more positive trend of betting too by hedge funds, which cut their net short in Kansas City wheat futures and options by 5,461 lots in the latest week, from the record high set as of December 26.

The short-covering was also attributed to a worries over winter wheat crops in the US, where “a cold snap in the southern Plains drove managed money to cover shorts as crop winterkill became a concern”, Rabobank said.

Still, the trend was reflected more in Chicago-traded soft red winter wheat, the world’s benchmark wheat contract, in which hedge funds cut their net long by 17,557 contracts to 128,178 lots.

‘Brutal’ cold

In the livestock sector, a small increase in the net long in the latest week, of 1,048 contracts to 144,522 lots, reflected buying in lean hog futures and options, which more than offset selling in live cattle, and reflecting in part the impact of cold weather on meat supplies.

“Winter weather along all the eastern US was brutal,” said livestock analysts at Steiner Consulting.

“Regarding red meat animal harvest and processing, the pork industry has likely faced the biggest challenges given the location of some major packing plants in that [eastern] region.”

“Cattle slaughter in the impacted states is relatively limited, though transportation of beef to refill the marketing chain to consumers early in the new year has faced transportation issues.”

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