Eight times in the nine weeks leading up to August 15, 2016, hedge fund managers reduced their positions in agricultural futures, with cotton, wheat and corn particular sell-off targets.
For guidance, hedge funds may be looking to Managed Money, a benchmark for commodity speculators, which recently slashed its net long position in the "top 13 U.S.-traded agricultural commodities, from cotton to cattle, by 8,255 contracts in the week to last Tuesday," according to Agrimoney.com, siting data from the Commodity Futures Trading Commission.
Overall, hedge fund net long positions have declined by 597,000 contracts in recent weeks, down to 367,000 contracts, Agrimoney reports.
Why the agriculture contract selloffs? Some of it is due to seasonal concerns, with long positions in commodities impacted by low prices in key commodities (wheat prices are at a 10-year low, for example).
In the wheat market, huge inventories have driven prices downward to under $3.72 right now for September 2016 contracts, although prices rise steadily toward $5.00, for March 2018 contracts.
There's a ripple effect, as well, with agricultural prices, as the over-abundance of wheat trigger a rise in the use of the commodity as feed grain, which in turn reduces the demand for corn, and drives prices downward in that market.
Other issues are in play right now, as well.
A strengthening dollar in the event of a near-term Federal Reserve interest rate hike, which most analysts expect soon, would also help curb U.S. agricultural prices, experts say. That's because a more robust dollar would give an edge to overseas exporters, where regional currencies are relatively weaker.
"Four-dollar wheat is terrible for the American farmer, but good for the Russian or Argentine farmer," says Ben Buckner, an analyst at AgResource in Chicago, in comments to AgWeb.com in late August. According to AgResource, the European Union and Russia are the two top global wheat exporters, as the U.S. has fallen to fourth-place, worldwide.
"The U.S. has all this supply, but for the first time in two years, we are competing for exports," adds Buckner. "As of today we have the cheapest corn and wheat, but that will only happen if futures are below $4.00. If markets go up we lose demand."
Past the wheat and corn issue, Alex Philips, chief executive of TwinRock Partners, believes the pullout from agricultural commodities was an "easy one to spot." He cites a stronger dollar along with deteriorating prices in other farm goods.
"Anyone that does the grocery shopping could have predicted this," Philips says. "All you had to do was pay attention to the falling prices of milk and eggs at the grocery store, then add a little sophistication with the rising greenback, which ultimately effects the exporting of dairy and meats to countries like China."
There's also a school of thought that an upward spike in U.S. interest rates would boost agriculture prices.
"If we expect a rising interest rate environment in the future - and, I believe that many expect to see the Fed raise rates following the November presidential election - it would seem that now would be the time to be buying commodities instead of selling them," notes Robert Johnson, CEO at the American College of Financial Services, in Bryn Mawr, Pa.
Johnson cites data from Invest With the Fed, a book he co-wrote with Gerald Jensen from Creighton University and Luis Garcia-Feijoo of Florida Atlantic University. In it, the authors found that during rising interest rate environments, commodities were a superior performing asset class. "In fact, from 1970 through 2013, on an annualized basis, the Goldman Sachs Commodity Index advanced 17.7% when rates were rising, and actually fell 0.2% when rates were falling," he notes. "Agricultural commodities rose 16.5% when rates were rising and fell 8.81% when rates were falling."
"If history is any guide, now would seem to be the time to be buying commodities, not selling them," Johnson adds.
That may be case after the Federal Reserve hikes rates, but it's not the case right now, as lower prices and higher inventories, are pushing fund managers away from wheat, corn, and other commodities.
Maybe as Johnson notes, a Federal Reserve boost in interest rates can stabilize agriculture prices. American farmers, and bullish commodities investors, would sure love to find out.