Hedge funds increased their bullish bets on wheat to the highest in more than three years amid shrinking global supplies and mounting concern that food inflation will accelerate.
In the week ended Feb. 8 on the Chicago Board of Trade, the funds and money managers increased net-long positions, or wagers on rising prices, by 19 percent to 51,787 contracts, the highest since August 2007, government data showed on Feb. 11. On Feb. 9, wheat prices reached a 29-month peak of $8.9325 a bushel.
Last week, the U.S. Department of Agriculture lowered its forecast for global inventories. Futures have jumped 77 percent in the past year after drought slashed crops in Russia and floods in Canada and Australia reduced output. Surging food costs have triggered riots in North Africa and the Middle East. Egypt’s Hosni Mubarak ceded power on Feb. 11.
“The sensitivity of the world’s populace to food inflation, the cost of a loaf of bread, is a concern and may actually be one of the catalysts for the groundswell of support for changing existing regimes around the world,” John Thorpe, a senior broker at Cannon Trading Co. in Beverly Hills, California, said in a telephone interview on Feb. 11. “Just from a macroeconomic view, that’s probably why hedge funds may be jumping on here.”
An index of global food rose to a record in January as dairy, sugar and cereal costs increased, and high prices may persist for the next several months, the United Nations said this month. Countries have stepped up grain purchases to boost inventories.
China, the largest wheat consumer, may have a prolonged drought in its main growing region, Han Changfu, the minister of agriculture, said last week. The U.S. is the leading exporter.
The grain rally has been fueled by the “the continued focus on food security around the world, the drought in China, and unrest in Africa,” said Diana Klemme, the director of the grain division for Grain Service Corp. in Atlanta. “Wheat is the staff of life.”
On Feb. 11, wheat futures for March delivery rose 4.25 cents, or 0.5 percent, to $8.67 a bushel on the CBOT. The contract for May, the most-active based on open interest, gained 0.5 percent to $8.9875.
Wheat climbed to a record of $13.495 on Feb. 27, 2008. Last week, corn and soybeans rose to the highest since July 2008.