Commercial soya processors may have been hit hardest by the recent surge in soyameal prices, but non-commercials or large speculators may suffer the most if there is a sudden and protracted setback, judging by the latest assessment of trader positioning.
According to the Commitments of Traders report released by the Commodity Futures Trading Commission, commercial traders had been sitting on record short exposure to the soyameal market in recent weeks as they anticipated a swell in soyabean supplies from the ongoing record-large US harvest would generate a steep rise in fresh meal production.
Yet harvest delays coupled with limited rail space for meal shipments caught meal suppliers in a bind, and forced a scramble for spot supplies that drove meal prices more than 20 percent higher during the month of October. But commercial traders were not the only buyers. Non-commercials also joined the fray, and boosted their own long exposure to the market from around 103,000 contracts at the start of the month to a record 118,274 contracts as of the last reporting date in October.
This allowed fast-money traders to participate in the steep meal market rally, and put them in a good position to profit from any additional meal price surges in the weeks ahead. But this record-large long position also leaves speculators vulnerable to any sudden reversals in meal market momentum, which remains the scenario most favoured by the commercial contingent, judging by the continuing climb in commercial short-sided futures exposure.
Should the commercial community be proved wrong in their expectations for an imminent rise in meal production and an improvement in the flow of supplies, then another round of spot market panic will likely ensue that should reward long-biased speculators handsomely.