Article / 12 December 2011 at 12:43 GMT

Bullish bets on agriculture cut to lowest level in two years

Head of Commodity Strategy / Saxo Bank
Hedge funds and large investors increased their long exposure to commodities for the first time in four weeks on the back of a weaker dollar and cautious optimism ahead of last week's EU summit. Some 33k contracts of futures and options were added bringing the total exposure to 786k contracts which is still close to the lowest levels since July 2009.

Much of the reduction seen over the last months has been due to a dramatic reduction among agricultural commodities. On the back of expanding global supplies hedge funds have cut bullish bets to the lowest level in more than two years. Since the February 2011 peak of more than 1.3 million contracts the overall exposure now stands at only 327,000 with speculators now being outright short of Soybean meal and oil, wheat, rice and cocoa. The USDA report last Friday added further pressure on prices as the combined global inventories of corn, soybeans and wheat rose more than expected.

Long exposure to the meat sector, which is viewed as being more defensive during recessions, is higher than soft and grains sectors combined showing the scale of the reductions seen these past few months.

The energy sector saw a 12 percent increase in net long positions primarily due to a 8k increase in crude longs and a 17k reduction in natural gas shorts. The build in crude longs happened just ahead of the ECB meeting with traders being wrong footed by the disappointed outcome and a subsequent five dollar sell-off followed.

The metal sector saw a 5 percent increase in bullish bets with gold longs rising by 5 percent while copper shorts were scaled back to the lowest level in three weeks. Silver longs were added but overall the exposure remains struck close to a 2.5 year low.

Background information: The Commitments of Traders is a report issued by the Commodity Futures Trading Commission every Friday with data from the previous Tuesday. It comprises the holdings of participants in various U.S. futures markets split into "commercial" and "non commercial" holdings. The non commercial or speculative holding are typically institutional investors such as hedge funds and CTAs. Analysts and investors follow changes in these positions because such transactions can reflect an expectation of a change in prices.


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