Funds Retreat From Ag Investments As Prices Fall

Money managers slashed their bullish bets in corn by 22 per cent to the smallest level in nearly a year at a time when analysts are saying that the year-long rally in grains has ended.

Noncommercial traders, a category that includes hedge funds, cut their net long holdings in corn to 214,412 contracts in the week ended June 21, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report issued June 24. The 62,133-contract reduction was the biggest since they cut their net long by 94,185 contracts in January 2010.

The last time speculators held a smaller long position in corn was in the week ended Aug. 3, 2010, when their net long stake was 185,493 contracts.

Speculators also cut their net long stake in CBOT soybeans and widened their net short in wheat as a bearish tone weighed on the commodities markets as a whole.

Improving crop weather in the United States following severe planting delays helped spur the fund liquidation in agricultural commodities. Harvest reports from hard red winter wheat fields in places such as Kansas and Oklahoma also weighed on prices.

Profit-taking also weighed on the markets after corn prices surged to a record just below $8 a bushel on June 10 as new cracks in the global economic recovery appeared in the form of a Greek debt crisis. The benchmark Chicago Board of Trade corn contract settled 11.5 per cent below that level at the close of trade on June 21.

Open interest in soybeans and corn fell during the week, showing that investors were looking for new places to put their money. Open interest in wheat rose by 24,529 contracts but the boost in shorts showed that the new money was betting prices would fall.

The quick exit by the speculators shows that they could reappear in the market just as quickly if prices find a bottom.

“I do not think funds are going to shy away from grains for some time,” said Jon Marcus, president of Lakefront Futures and Options. “It has proven to be a pretty liquid market for these guys.”

Heavy fund liquidation has continued in corn during the past three trading days that are not included in this week’s CFTC report, trade sources said.

In CBOT soybeans, speculators reduced their net long position to the smallest level since the week ended July 13, 2010. The noncommercials cut 17,852 long contracts and added 2,393 shorts, leaving them with a net long position of 35,415 contracts.

Speculators boosted their net short in CBOT wheat to the highest level since November 2010 by piling on 13,096 shorts and cutting 2,963 long contracts from their holdings. The noncommercials were net short 40,107 contracts, up 67 per cent from a week earlier.

Index funds, which typically hold positions for longer periods than the noncommercials, reduced their net longs in CBOT corn, soybeans and wheat.

In wheat, the index traders were net long 199,524 contracts. They were net long 358,427 contracts in corn and 165,754 contracts in soybeans.

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