Wheat Bulls Retreat as U.S. Estimates Roil Markets: Commodities

Wheat traders are the least bullish in four weeks after the U.S. Department of Agriculture raised its world stockpile forecast for a second month, easing concern that droughts and heat waves will lead to shortages.

Thirteen analysts surveyed by Bloomberg said they expect prices to gain next week, 10 were bearish and one was neutral. That’s the lowest proportion of bulls since Nov. 16. Hedge funds cut their bets on higher prices by 57 percent since Aug. 7, two weeks after futures rallied to an almost four-year high after the worst U.S. drought in a half century, government data show.

The department on Dec. 11 raised its estimate for world inventories for May 31 by 1.6 percent, while analysts surveyed by Bloomberg anticipated a decline. Futures fell the most in two months. Wheat is leading gains in commodities this year after drought from Australia to Europe to the U.S. parched crops, at a time of near-record demand.

“The USDA surprised a few analysts,” said Kieran Walsh, a broker of agricultural derivatives at Aurel BGC in Paris. “From a fundamentals perspective the situation is still fairly bleak. The market is quite vulnerable to shocks given stockpile levels, and the USDA estimates have not changed that picture.”

Wheat advanced 24 percent to $8.075 a bushel on the Chicago Board of Trade this year and has averaged $7.56, the highest level since 2008, when food riots erupted worldwide. The Standard & Poor’s GSCI gauge of 24 commodities fell 1.8 percent since the start of January and the MSCI All-Country World Index (MXWD) of equities rose 12 percent. Treasuries returned 2.2 percent, a Bank of America Corp. index shows.

Largest Exporter

Global stockpiles will be 176.95 million metric tons before the Northern Hemisphere’s next harvest, still 9.6 percent lower than a year earlier, the USDA said. Analysts surveyed by Bloomberg had expected a cut to 173.61 million tons.

Australia, last season’s second-largest exporter, may harvest 22 million tons, more than the previous estimate of 21 million tons, the USDA said. That brought its projection in line with the most recent Australian government forecast. The USDA also raised its outlook for Canada, expected to be the second- largest shipper this year, by 1.9 percent to 27.2 million tons.

Hedge funds and other speculators held a net-long position of 34,429 futures and options in the week ended Dec. 4, down from 80,827 in August, U.S. Commodity Futures Trading Commission data show. The most widely held option gives owners the right to sell grain at $8 by February, CBOT data show.

Supply Risks

Weather is still posing a risk, with Russia, last year’s third-biggest exporter, bracing for its coldest winter in 20 years. Record heat in southern areas means some crops have yet to enter dormancy and don’t have protective snow covering. Officials from cereals exchanges in Argentina, South America’s largest shipper, said they’re cutting output forecasts there.

Nearly all the U.S. Great Plains, the country’s largest growing region, had drought conditions on Dec. 4, according to the U.S. Drought Monitor. Areas of Kansas and Oklahoma, the biggest producing states, had less than 10 percent of the normal amount of rain in the past 60 days, according to the National Weather Service.

There are also signs of strengthening demand. Egypt, the biggest wheat importer, agreed to buy 280,000 tons from the U.S. on Dec. 1. That was the first time since April that U.S. wheat won an Egyptian tender, data compiled by Bloomberg show. Global wheat consumption may total 680.3 million tons in the 2012-13 season, second only to last year’s record demand at 689.3 million tons, USDA data show.

Food Costs

An index of the cost of 55 food items tracked by the United Nations’ Food & Agriculture Organization slipped for a second month in November, falling 1.5 percent as prices for oilseeds, cooking oils and sugar retreated. The global food-import bill will drop 9.7 percent to $1.14 trillion this year, the Rome- based FAO forecast last month.

In other commodities, 16 of 27 people surveyed anticipate higher corn prices next week and eight said the grain will drop, while 16 of 28 said soybeans will gain and eight expect a decline. Corn rose 11 percent to $7.195 a bushel this year as soybeans rallied 23 percent to $14.7975 a bushel in Chicago. Both commodities set records since August.

Four of eight people surveyed expect raw sugar to fall next week and two predicted a gain. The commodity slid 20 percent to 18.54 cents a pound on ICE Futures U.S. in New York this year.

Copper Survey

Eleven people surveyed said copper will rise next week, 10 predicted a drop and two were neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, rose 6.4 percent to $8,088 a ton this year.

Sixteen of 28 traders and analysts surveyed said gold would advance next week and nine were bearish. Bullion rose 8.5 percent to $1,696.75 an ounce in London this year. Holdings in gold-backed exchange-traded products reached a record 2,629.968 tons on Dec. 13, data compiled by Bloomberg show.

Gold is poised for a 12th consecutive annual gain as central banks from Europe to China pledge more steps to boost growth. The Federal Reserve said Dec. 12 it will expand stimulus by buying $45 billion a month of Treasury securities from January. Chairman Ben S. Bernanke said the latest measures won’t offset the effects of the so-called fiscal cliff of spending cuts and tax increases scheduled to start in January.

The S&P GSCI gauge of raw materials dropped 9.4 percent since reaching a five-month high on Sept. 14, and is heading for its worst performance since 2008. The Washington-based International Monetary Fund cut its 2013 growth forecast twice since July, to 3.6 percent.

“The more quantitative easing you have, the more it makes sense to have something like gold providing some form of currency alternative,” said Carole Ferguson, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. “For industrial commodities I don’t think it’s as clear cut. It depends on whether the QE stimulates growth and the jury is still slightly out on that.”

Gold survey results: Bullish: 16 Bearish: 9 Hold: 3
Copper survey results: Bullish: 11 Bearish: 10 Hold: 2
Corn survey results: Bullish: 16 Bearish: 8 Hold: 3
Soybean survey results: Bullish: 16 Bearish: 8 Hold: 4
Wheat survey results: Bullish: 13 Bearish: 10 Hold: 1
Raw sugar survey results: Bullish: 2 Bearish: 4 Hold: 2
White sugar survey results: Bullish: 2 Bearish: 4 Hold: 2
White sugar premium results: Widen: 1 Narrow: 1 Neutral: 6

To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Whitney McFerron in London at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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