NEW YORK Hedge funds and other money managers betting on a continued rally in U.S. wheat from dry weather bought close to $2 billion (1.3 billion pounds) worth of contracts in the grain over a week before the market's tumble three days ago, trade data on Friday showed.
In copper, fund managers dumped nearly $670 million worth of long positions just before the metal suffered its sharpest price drop in over a week, the data from the Commodity Futures Trading Commission showed.
In both cases, the commodities were driven down by panic selling across a number of markets as investors and traders reacted to the increased possibility of Greece exiting the euro zone and more financial trouble for Spain.
The dollar spiked to a near two-year high against the euro, weighing on demand for dollar-denominated raw materials such as wheat and copper from those using the euro.
Less-than-encouraging U.S. and Chinese economic data also gave fewer reasons for commodities prices to rise.
"There is a really high correlation now between the rumbles out of Europe and weakness in the euro, and how that translates into any asset class that is not the U.S. dollar or U.S. Treasuries," said Sean McGillivray, head of asset allocation at Great Pacific Wealth Management in Oregon.
"As a result, we're seeing markets like copper and commodities in general just getting hammered, without much regard for other fundamentals."
The "Commitment of Traders" data issued by the CFTC showed most large speculators had turned bullish on wheat contracts at the Chicago Board of Trade between May 15 and 22 due to worries that dry weather could reduce the size of this year's winter wheat harvests. The bullish sentiment built up after CBOT wheat futures posted their biggest rally in 16 years last week.
According to the CFTC, large speculators slashed their net short contracts -- short positions are bets for lower prices - by 58 percent in CBOT wheat in the week to May 22, bringing net shorts to the smallest level in 8-1/2 months.
In the managed money category, hedge funds and other asset managers turned from a net short position worth nearly $1.5 billion in wheat at the close on May 15 to a net long worth more than $240 million at the close of May 22.
What the fund managers most likely did not anticipate was the market's reversal in three consecutive sessions beginning May 22, when the price of CBOT's benchmark wheat fell nearly 6 percent. In Friday's session, the price rebounded by nearly 2 percent, but still ended the week down about 1 percent.
In the case of copper, the CFTC showed managed funds selling almost $667 million worth of copper to reach a net short of almost $245 million in the metal at the close of May 22.
It was the first switch to a net short position in copper by money managers since January, and it came just before a 3 percent drop between May 22 and 23 in the price of COMEX's benchmark copper contract. The contact rebounded about half a percent on Friday, finishing the week down 0.6 percent.
(Editing by Bob Burgdorfer)