Hedge funds called time on boosting bets on rising soft commodity prices, bringing to an end their longest bullish streak in nine years, even as they accelerated their pace of selling in grains too.

Managed money, a proxy for speculators, cut by more than 112,000 contracts its net long position in futures and options in the main 13 US-traded agricultural commodities in the week to last Tuesday, according to data from the Commodity Futures Trading Commission (CFTC) regulator.

The drop in the net long – the extent to which long positions, which benefit when prices rise, outnumber short bets, which profit when values fall – was led, again, by grains.

Indeed, hedge funds turned net short in the major grain contracts, including the soy complex, for the first time in three months, a marked turnaround from net long of 535,000 lots in mid-June.

However, for the first time in two months they cut their net longs also in soft commodities - after eight successive weeks which had built the most bullish position since 2008 - as well as in livestock futures and options.

'Good crop expectations'

Even so, the drop in the net long in New York-traded soft commodities was relatively small, at 2,555 contracts, and reflected in particular an unusually sharp sell-down – the largest in six months - in cocoa futures and options amid improving production forecasts.

Hedge funds also trimmed their net long in arabica coffee futures and options for the first time in eight weeks, ending the longest run of bullish bets on the contract in more than two years.

However, in cotton, they raised their net long to a fresh two-year high, encouraged by strong demand for the fibre from Chinese state auctions, besides by concerns over dryness in India and the southern US.

'Full set of horns'

The dynamics have encouraged a slowdown in selling by producers too, with their net short rising by just 683 lots week on week, to 159,507 contracts.

"The US producer appears to have grown a full set of horns," said Louis Rose at the Rose Report.

"While the current forward contracting basis is historically attractive, producers seem confident that better days are ahead.

"Given the number of ways the 2016 crop could get smaller it's hard to make a strong argument that they're wrong.

By contrast, Commberzbank on Monday raised doubts over New York futures, also close to a two-year high, maintaining altitude, saying that "more favourable weather forecasts may lead to a rapid correction", with pressure too on prices from the relative cheapness of rival fibres, such as polyester.

"The price divergence from artificial fibres, which makes cotton less competitive, is widening," Commerzbank said.

'Uncomfortable level'

In the grains complex, the return in hedge funds to a net short was fuelled by increases to record highs in bearish bets on wheat both in Chicago, where soft red winter wheat is traded, and in Kansas City, the home of trading in higher-protein hard red winter wheat.

The extent of the net short in wheat, again, raised questions over how long hedge fund selling can last before appetite for this investment strategy is spent, especially given prices are already around their lowest since 2006.

"This should be an uncomfortable level to be short at decade lows [for prices], regardless of the fundamental picture," broker Benson Quinn Commodities said.

Ag advisory group Water Street Solutions said that funds' "huge short position" in wheat could offer support to prices, and help them "grind higher over the next few months".

'Look for new money'

In corn, meanwhile, hedge funds were more enthusiastic in sales, raising their net short by more than 52,000 contracts, but to a level which, at 65,000 lots, remains well short of historic highs close to 23,000 lots.

"Crop ratings remained excellent and heat concerns in the Midwest subsided," Rabobank noted.

However, with strong demand for US soybean exports, Benson Quinn Commodities flagged some potential for hedge funds to rebuild their net long in the oilseed.

"I am starting to think the funds wants to be long [in soybeans] and was merely shedding some risk exposure due to July rally in the US dollar to four-month highs," the broker said.

"Look for new money to enter the bean complex to start the new month."