Hedge funds sell arabica to profit from rally; buy more natgas

Fri Feb 28, 2014 9:42pm GMT

By Barani Krishnan
    NEW YORK, Feb 28 (Reuters) - Hedge funds cut their net long
position in arabica coffee this week to profit from the  biggest
monthly gain in 20 years and raised their bullish exposure to
natural gas just before prices for the heating fuel fell, data
showed on Friday.
    The net-long position held by hedge funds and speculators in
arabica fell by 16 percent, or 3,859 contracts, to 20,236
contracts at Tuesday's close to finish the week to February 25
at 20,236 contracts, data from the Commodity Futures Trading
Commission showed.
    The most-active second-month contract for New York-traded
arabica coffee closed at $1.5485 a lb on February 18 and
rose to a near 17-month high of $1.8125 on February 25 before
settling the day at $1.7625.
    Based on that price move, short-term speculators who had
held the contract for that week alone would have stood to gain
at least 14 percent.
    Those with continuous long positions stood to gain more.
    Arabica rallied 40 percent through February as fears of crop
damage from Brazil's drought catapulted the market to the top of
the commodity gainers table for 2014. Year-to-date, the market
is up nearly 60 percent.
    Weather worries and dwindling inventories have dominated
commodities markets this month, drawing investors' attention as
raw materials markets decoupled from equities.
    "The risk-on play in commodities is more alive than ever,"
said Adam Sarhan, chief executive of New York-based financial
advisory and boutique investment firm Sarhan Capital.
    "There's been a tremendous amount of risk appetite that's
returned to the space, a welcome sign after last year's
lackluster performance."
    In natural gas, hedge funds added 5,521 contracts in New
York-traded natural gas futures and options, increasing their
net long position to 447,529.
    Natural gas' most-active front-month position hit
five-year highs of $6.493 per million British thermal units on
February 24, extending a strong run since the start of the year.
    But a selloff ahead of the contract's expiry forced the
market to end the week to February 25 with a 24 percent drop, or
the largest weekly loss in 17 years.

 (Editing by Jonathan Oatis)