• Agricultural sector rally losing momentum
• Grain markets awaiting key US agricultural report
• Coffee, sugar slip as rain hits Brazil
The strong rallies witnessed across the agriculture sector have begun to fade as the first quarter comes to a close. The DJ UBS agriculture index is on the brink of turning negative today following an almost 20 percent rally which began on February 2.
The negative momentum has so far primarily engulfed coffee and sugar after rain reached some of the very dry growing regions of Brazil. The grains sector, however, remain supported, not least CBOT Wheat which has been bought on concerns about the weather in key growing areas and potential disruptions to Black Sea supplies while corn and soybeans continue to find support from strong exports. The US Department of Energy will release its Prospective Plantings report on March 31 which could have a major impact on agricultural markets as it provides the first clues as to what US farmers will plant this spring.
The agriculture sector has been the main driver behind the record exposure that hedge funds currently hold across 24 US commodity futures and any signs of weakness carries the risk of positions being reduced. On that basis, it is important to know which commodities are mostly exposed to such a setback. The next chart gives an idea about the extent of the current exposure which is approaching the record levels seen during the period of extreme droughts and reduced production back in 2010.
This table taken from our weekly update shows the speculative positioning held by hedge funds and other large money managers on March 18. Live cattle is one currently one of the extreme cases at the moment with the net-long corresponding to more three days of total average turnover. Also looking at the number of longs versus short we find that for each short position currently held there are 31 long positions.
Ole Hansen, Saxo Bank’s head of Commodity Strategy, is a specialist in traded futures with particular focus on commodities.