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Oil, Grains Will Top Commodity Gains in 2011, Barclays Says

Crude oil and grains will be the top commodity performers this year as investors bet on supply disruptions, a Barclays Capital survey showed.

Twenty-eight percent of more than 100 investors polled this month said oil will gain the most this year, followed by corn and wheat, Barclays Capital said. Gold, which rose 30 percent last year, may be “losing its shine” and was ranked the worst performer for 2011 after natural gas, the bank said.

“There is a strong case now for taking money out of gold,” Kevin Norrish, a managing director at Barclays, said in London yesterday. “The real risks are more bad weather and higher food prices. The real risks are further geopolitical issues and higher oil prices. That’s why crude oil and grains are on top of the list.”

The Standard & Poor’s GSCI Spot Index of 24 raw materials jumped 20 percent last year, led by cotton, silver and arabica coffee. The gauge is up 14 percent this year, with cotton, oil and silver climbing the most. Food prices rose to a record last month, according to the United Nations.

Eighty-three percent of respondents plan to increase or maintain their commodity investments over the next three years, similar to last year, Barclays said. More than half said they increased commodity holdings last year, while 31 percent held them constant, it said.

$70 Billion

Eighty-two percent of respondents expect direct investments in commodities to be $60 billion to $70 billion or even more in 2011, compared with $60 billion last year.

The oil market is “extraordinarily sensitive” to supply disruptions amid growing demand and falling spare capacity in producing countries, Norrish said. Crude prices have jumped 14 percent this year as turmoil that drove longtime rulers from power in Tunisia and Egypt spread to Libya, Yemen, Bahrain and Syria.

“If you look at spare capacity, by 2013-14 we are going to be getting uncomfortably low, probably below the levels of 2008,” Norrish said.

The oil market may get even tighter if Nigerian output is affected after presidential elections next month, Norrish said.

“Food inflation is a big issue,” Norrish said. Corn stockpiles are low, while wheat inventories look “more comfortable,” he said.

Wheat, Corn

Investors are betting on grains because of a combination of low stockpiles, chances that producers may experience a repeat of adverse weather that ruined crops last year, and rising demand from China, Norrish said. Wheat jumped 47 percent last year in Chicago after drought cut output in Russia and floods eroded crops in Canada and Australia.

“People are starting to think this unusual weather is part of a pattern, rather than pure chance,” Norrish said.

Corn will likely be the top performer among grains because it will see the strongest demand from emerging markets such as China, which is “transitioning to be a more important corn importer,” according to Norrish. Higher oil prices are helping to boost demand for corn to make ethanol, he said.

“China is importing more corn than they have done in 15 years,” Norrish said. “While it’s not a big player yet in the traded corn market globally, it usually doesn’t take China long, once it’s started, to become rather important.”

Natural gas, the S&P GSCI index’s worst performer in 2010, ranked first when investors were asked to choose this year’s worst-performing commodity, Barclays said. Gas also placed third among selections for the best performer of 2011.

The division points toward potential further disparity between regional natural-gas markets, with a strong performance in Europe and little change in the U.S., according to Barclays.

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