On the futures market, speculative funds play an important role. Their investments (buying: long) or sales (selling: short) act as the lubricant for the market machinery, often referred to as the “liquidity” of the futures market.
Typically, when there is a sign of selling (shorting), the market price tends to decrease, leading to a bearish market. Why “bear”? The bear, in its literal sense, uses its forepaws to swipe down when it attacks its prey, which is why we associate the term with a declining market. On the other hand, “long” is paired with “bull”, which refers to a bull that thrusts its rear legs upward in an aggressive move to win a fight.
For the past six months, according to Reuters on August 24, 2015, speculators in the Arabica coffee futures market on ICE New York have shifted to a net long position as of the close on August 18, 2015. The U.S. Commodity Futures Trading Commission (CFTC) reported this data.
Here, speculators refer to large hedge funds, also known as “non-commercial dealers”, who are not part of the roasting and supermarket sectors—these groups are considered “commercial”. Small speculators who trade a few dozen or a few hundred contracts daily are not included in the CFTC’s official figures.
The CFTC also reported that speculators had increased their bearish positions on sugar futures while decreasing their net long positions in cocoa and boosting their bullish bets on cotton futures and options.
By August 18, speculators’ net long position on Arabica coffee futures was measured at 6,195 contracts. However, by August 25, they shifted to a net short position. After a week, they sold off their long positions and added 13,732 new contracts to their short position, bringing the total to 19,927 contracts sold on the Arabica market.
No wonder, the Arabica futures price has fallen during this period.
Here’s a Reuters news excerpt:
Speculators Net Long Arabica Coffee for the First Time in 6 Months – CFTC
Speculators switched to a net long position in Arabica coffee contracts on ICE Futures U.S. for the first time in six months in the week ended August 18, U.S. Commodity Futures Trading Commission data showed on Friday. The non-commercial dealers boosted their bearish bets in raw sugar contracts, while they cut their net long position in cocoa and boosted their bullish bets in cotton futures and options, the data showed.