Article / 09 March 2015 at 10:50 GMT

Hedge Funds commodity exposure slumps to six-year low after 29% cut

Head of Commodity Strategy / Saxo Bank
Denmark
  • Commodity exposure slashed as sentiment soured
  • Most heavyweights saw heavy selling
  • Gross short on Nymex hits highest ever
By Ole Hansen

Hedge Funds cut their bullish exposure to 24 commodities by 29% during the week of March 3. Exposure were cut across all sectors bringing the net-long down to just 451,000 lots of futures and options. Sentiment of this nature was last seen in March 2009 during the global financial crisis.

Rising supplies, a surging dollar and falling emerging market currencies combined with the expectations of a rising rates in the US and a weak outlook for China has cut demand for many key commodities at a time of rising supply. 

Fourteen of the 24 futures tracked in this report were sold with most of the commodity heavyweights such as crude oil, gold, corn, wheat and sugar all seeing heavy selling. Outright bearish positions are now being held in NY Harbor ULSD, natural gas, CBOT wheat, sugar, Arabica coffee and orange juice.

Speculative position in Commodities


Crude oil: While gross long positions in WTI crude has remained elevated throughout the month-long selloff, the continued rise in US production and inventories have attracted an increased number of short sellers in recent weeks. Not least during the latest reporting week where the gross short on Nymex jumped by 20,361 lots to 138,007, the highest ever. 

Speculative position in WTI Crude
 
Gold: Bullish bets on the yellow metal was cut for a fifth consecutive week to 88,000 lots which is the lowest since early December when it began a two-month decoupling from the rising dollar. Renewed focus on the advancing dollar combined with the beginning of  quantitative easing in Europe and the outlook for rising US interest rates has once again seen investors going for cover. This trend undoubtedly continued after last Tuesday's cut-off time considering the negative price impact of last Friday's strong job report and the US dollar surging to a new 11.5 year high.

Speculative position in Gold
 
The rising dollar and with it the negative implication for US farmers competitiveness in the global market combined with the outlook for ample supply this year also asserted some additional downward pressure on key crops. The net-long corn position fell to a 13-month low while the wheat sellers took the net position deeper into negative territory.

Sugar and coffee have seen a dramatic rise in speculative selling in recent weeks on the back of ample rain in Brazil together with the continued fall of the Brazilian real. The 62,344 lot shift in sugar were one of the most dramatic weekly changes in recent memory and it brought the net-short position to 99,439 lots, the most bearish ever.

Speculative position in sugar
 
– Edited by Clare MacCarthy
Ole Hansen is head of commodity strategy at Saxo Bank

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