Hedge funds staged a mass retreat from their net record net short in agricultural commodities, encouraged by weather worries in Argentina and the US – although raising ideas they had reversed too far.

Argentine dryness has prompted a rash of downgrades to estimates for corn and soybean production. Meanwhile, in the US, futures in Kansas City hard red winter wheat gained particular strength from US Department of Agriculture data showing a sharp deterioration in the condition of winter wheat crops in particular in the southern Plains, a major growing area for the type.

Managed money, a proxy for speculators, slashed its net short position in futures and options in the top 13 US-traded agricultural commodities, from cocoa to cattle, by 215,874 contracts in the week to last Tuesday, analysis of data from the Commodity Futures Trading Commission regulator shows. That represented one of the largest swings positive in positioning – the fifth largest, in fact - on data going back to 2006, and took the net short below its week-before figure of 393,914 lots which was the most bearish reading on record.

Rabobank flagged a “surge of short covering, as the USDA reported particularly poor crop conditions in the southern Plains states, raising concerns over increasing winter crop abandonment”. And this shift drove agricultural prices, as measured by the S&P Agri Index, up 3.1% during the week. However, the extent of the short-covering wave raised concerns it had been overdone and, in slashing scope for further such positional shifts, was seen as fuelling a weak start to the week for grain futures.

Societe Generale, highlighting that the net short covering in soybeans of nearly 60,000 lots week on week was one of the largest on record, also flagged caution on price expectations

Source: https://www.agrimoney.com/commodities/hedge-funds-flight-from-ag-sell-bets-spurs-talk-of-price-weakness-ahead-52077

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