The Hindu Business Line : Speculators beginning to exit agri futures market

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Speculators beginning to exit agri futures market

G. Chandrashekhar

Mumbai, July 9

With weather concerns waning in major producing countries, crop prospects looking increasingly better and finally, continued anxiety over the macro-economic environment, speculators in major agricultural futures markets are viewing the price prospects negatively; and therefore, are quick to liquidate their long position, as is their wont.

Whether corn, soyabean or wheat, speculative capital is moving out of the market, mainly in the US which sets a benchmark for others. In addition to market fundamentals, including output prospects, currency also seems to be playing a role.

A firmer dollar is seen not positive for commodities.

Major movement of agricultural commodities from out of the US is also slowing down due to seasonal factors. China’s purchases have slowed. All these have resulted in a change of sentiment.

Net fund length

According to latest data (for week ending June 30) released by the US futures market regulator CFTC, net fund length continued to fall in the Chicago Board of Trade (CBoT) corn market. Experts attribute this to a combination of long liquidation and short-covering.

Net fund length has fallen in soyabean and more vigorously in soyabean oil. This suggests that tactical investors view the production prospects for the incoming season 2009-10 as bright, notwithstanding current season tightness.

Weakness in the crude market (caused by firmer dollar and weak economic data) also softening of palm oil futures (due to muted demand and rising inventory) added to the negative sentiment in soyabean oil.

In CBoT wheat too, the net fund length remained in the negative territory, doubling from the previous week’s level. Net fund length also eased in ICE cocoa and ICE coffee.

Interestingly, cotton and sugar are exceptions. At the ICE, net fund length in both commodities increased, with sugar attracting special attention. This too is understandable.

Cotton tight

Cotton market fundamentals are likely to turn tight in 2009-10. Lower acreage in the US, possibility of higher consumption by China and lower export supplies from India are foreseen. As for sugar, it is already known that India would continue to be a large importer next year too.

It must, however, be remembered that July and August are critical months for agricultural crops in the northern hemisphere. Weather can make or mar crop prospects. The ongoing concerns over Indian monsoon weigh on the market.

The market can change direction rather quickly, if crop prospects deteriorate. The market also awaits the next USDA report due later this week.

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