The longest winning streak in two decades propelled cotton to 2017's biggest increase among crop commodities, and hedge funds are ready for more gains in 2018.
Of the nine components tracked by the Bloomberg Agriculture Subindex, only cotton and wheat contracts posted gains last year. The fiber lead the way with an 11 percent advance as demand grew for U.S. exports. Prices capped 2017 with 10 straight weekly gains, the best streak since 1998.
Cotton was also one of the few crops that hedge funds got more positive on during the course of the year. Money managers held a net-long position, or the difference between bets on a price increase and wagers on a decline, of 102,402 futures and options as of Dec. 26, according to U.S. Commodity Futures Trading Commission data released Friday. That's up from 76,052 at the end of 2016.
Cotton's stellar performance came as crop woes in Pakistan and India, two of the world's biggest growers, raised prospects for American shipments. In the 2017-2018 season, commitments for U.S. cotton exports are running 29 percent higher than a year earlier, government data show.
The investors also added to their bullish outlook in soybean meal in 2017, the CFTC show. By contrast, the funds lowered their net-long holdings in soybean oil, while turning bearish on coffee, sugar and soybeans during the year.
Cotton's gains are especially notable in a year that was dismal for most other crops amid large global gluts. Combined wagers on benchmark corn, wheat and soybean contracts reached a net-short position of 421,450 contracts as of Dec. 26, the CFTC figures show. That's the most-bearish ever in data that starts in 2006.
While both varieties of winter wheat posted gains in 2017, they were pretty small, coming in at less than 5 percent. The other members of the Bloomberg Agriculture Subindex -- corn, soybeans, soybean meal, soybean oil, sugar and coffee -- finished the year with losses. The gauge reached a record low in December, data going back to 1991 show.