Speculators increased bets on higher agricultural prices to a five-month high on mounting concern that a South American drought will curb supplies of soybeans, corn and sugar at a time of record global demand.
A measure of speculative positions across 11 farm goods jumped 26 percent to 607,721 futures and options in the week ended Feb. 28, U.S. Commodity Futures Trading Commission data show. Corn bets increased the most in eight weeks, and sugar holdings climbed to the highest since August. Wagers on higher soybean prices rose to a five-month high.
Hedge funds and other speculators are the most bullish on commodities since September as sanctions on Iran over its nuclear program disrupt oil supplies and weather damages crops in South America. Producers were already struggling to keep up with demand from a global population that surpassed 7 billion people last year, with consumption now boosted by signs that economic growth is accelerating.
“Weather and the perception of damages to supply” have pushed prices higher, said Osvaldo Canavosio, the New York-based head of emerging markets and commodities research at Man Investments USA LLC, which manages about $11.2 billion of assets. “There’s been a continuing pattern of the rest of the world outside the U.S. being an important driver of supply-and-demand dynamics.”
The Standard & Poor’s GSCI Agriculture Spot Index of eight commodities rose 2 percent last week, reaching a three-month high. Through March 2, the gauge advanced 7.3 percent since mid-January as the broader S&P index of 24 raw materials gained 7.2 percent. The MSCI All-Country World Index of equities jumped 6.7 percent, and the U.S. Dollar Index, a measure against six trading partners, retreated 1.5 percent. Treasuries lost 0.3 percent, a Bank of America Corp. index shows.
Gains in farm commodities last week were led by wheat, which surged 5.2 percent, the most since January. Soybeans climbed for 10 consecutive sessions, the longest rally since July, and corn reached a seven-week high on Feb. 29. Soybeans for May delivery fell 0.6 percent to settle at $13.25 a bushel on the Chicago Board of Trade today.
U.S. soybean inventories before the 2013 harvest may fall 25 percent as exports climb to a record, the U.S. Department of Agriculture said Feb. 24. Global reserves of the oilseed are shrinking the most in 16 years as demand for food, fuel and feed expands, according to Jefferies Bache LLC. Drought in South America caused “irreversible crop damage,” and the global harvest may decline by the most ever, Hamburg-based research company Oil World said in a report last week.
The surge in prices will probably spur producers to plant more. U.S. farmers will sow the most acres in a generation this year, including the biggest corn crop since World War II, according to a Bloomberg survey of 36 farmers, bankers and analysts last month. Corn production may jump 15 percent to a record 14.27 billion bushels, the USDA said Feb. 24.
“A lot of good news is already factored into a pretty scary world,” said Shonda Warner, the managing partner of Chess Ag Full Harvest Partners in Clarksdale, Mississippi, which oversees about $100 million of assets. “Barring some awful weather event, there’s going to be a heck of a lot of grain at the end of the year.”
Speculators boosted bullish soybean positions by 21 percent to 117,678 contracts last week, the highest since September. The drought in South America also is prompting investors to bet on a sugar rally, as wagers last week jumped 45 percent. Shrinking U.S. livestock herds spurred funds to lift wagers on a cattle rally for a seventh consecutive week, the longest expansion since October.
U.S. beef exports rose 21 percent in 2011, and the U.S. cattle herd was the smallest since 1952 as of Jan. 1, USDA data show. Sugar output in Brazil’s Center South, the world’s largest producing region, dropped 6.6 percent as of Feb. 15, after growers harvested the smallest cane crop in four years, according to Unica, an industry association.
Funds increased their net-long positions across 18 U.S. commodities by 15 percent to 1.18 million contracts in the week ended Feb. 28, the highest since Sept. 13. Bullish crude-oil wagers climbed 5 percent to a 10-month high, and copper holdings reached the highest since August.
Investors added $833 million to commodity funds in the week ended Feb. 29, according to Cambridge, Massachusetts-based EPFR Global, which tracks investment flows. It was the second consecutive gain. Gold and precious metals accounted for $506 million of the total, said Cameron Brandt, the company’s director of research.
The outlook for global growth is “very bullish for commodities,” said John Stephenson, who helps manage $2.7 billion of assets at First Asset Investment Management Inc. in Toronto. “The U.S. economy is moving along, Europe hasn’t resolved its problems, but it’s moving forward in addressing them, and unless China falls out of bed, it’s a good story.”
Reports last week showed China’s manufacturing expanded at a faster-than-expected pace in February and a factory gauge for India was close to an eight-month high. The number of Americans filing first-time claims for unemployment benefits held near the lowest in almost four years and U.S. auto sales accelerated to the fastest pace since 2008.
Raw-material investments may rise by as much as $40 billion this year as investors favor oil, gold and copper, Barclays Capital said in a report last week. Commodity assets under management climbed $15 billion to $399 billion last year.
Economic growth and monetary policies are “fueling a reinvestment back into assets leveraged to global growth,” said Jon Fisher, a fund manager at Fifth Third Asset Management in Minneapolis, which oversees about $16 billion of assets. “I expect this trend to remain in place well into the spring.”