- Hedge funds only very mildly bullish in week to March 13
- Strong buying of corn and soybeans offset by selling of metals and livestock
- Grain sector exposed to long liquidation after eight-week buying spree
Soybeans and corn were in demand but metals and livestock weren't. Pic: Shutterstock
By Ole Hansen
Hedge funds added just 1% to their overall bullish commodities exposure during the week to March 13. Another strong week of buying of corn and soybeans was offset by selling of metals and livestock while softs and the energy sector were mixed. The grain sector has been left exposed to long liquidation following an eight-week buying surge.
Crude oil remains range-bound with rising non-Opec production being met with rising demand and now also increased risk of disruptions. As a result the combined bullish bets on WTI and Brent crude dropped below 1 million lots for the first since December 19. The change was led by a 5% reduction in WTI crude to 426,000 lots, a ten-week low.
Gold and silver continued to be sold as longs were cut and shorts were added ahead of the March 21 near-certain Federal Open Market Committee rate hike. Gold sold off in the run up to four of the previous five rate hikes in this current cycle.
Post the FOMC meeting market attention is likely to return to political uncertainty with Washington shifting further towards protectionism which carries the risk of trade wars and with that lower growth expectations.
Long liquidation in HG copper continued on a combination of worries that a looming trade war will hurt growth and subsequent demand together with a slow pickup in Chinese spring demand. Despite having seen the price range-bound for the past six months the net-long was nevertheless cut to the lowest level since November 2016.
Buying of soybeans and corn continued with the net-longs in both reaching levels last seen in June 2016. Net-longs in both contracts above 200,000 lots have historically been difficult to maintain as can be seen below. As a result both contracts are now increasingly exposed to long-liquidation. The three main crops have seen record buying during the past eight weeks, from a record short of 473,000 lots on January 19 to a 406,000 long last week, the second highest level in almost four years.
In Arabica coffee hedge funds added 7% to an almost record short while buyers in Brazil held back on purchases in the belief that bearish fundamentals could yield an even lower price. It could be make or break this week with the price toying with key trend-line support at $1.18/lb.
Supply worries in the Ivory Coast supported another week of cocoa buying with funds increasing the net-long position by 26% to 39k lots, a 19-month high.
– Edited by Clare MacCarthy
Ole Hansen is head of commodity strategy at Saxo Bank