Speculators slashed wagers on higher agricultural prices by the most in eight weeks, missing out on this year’s biggest rally as parched fields from South America to Europe curbed expectations for record harvests.
Money managers trimmed positions across 11 U.S. farm goods by 2.5 percent to 661,067 futures and options in the week ended March 13, Commodity Futures Trading Commission data show, the biggest reduction since Jan. 17. Bets on sugar fell the most since November before prices posted their biggest weekly gain in five months. Funds also became more bearish on wheat, which jumped to its highest in almost two weeks.
The Standard & Poor’s GSCI Agriculture Spot Index rose 3.5 percent last week, the most since December, as drought damaged soy, corn and sugar crops across Brazil and Argentina and slowed wheat shipments from eastern Europe and Russia. World food costs had dropped about 11 percent from a record in the past year on prospects for the most grain supply ever, before rallying in January and February, United Nations data show.
“There are some issues with crop production,” said Jeffrey Sherman, who helps manage about $30 billion of assets for DoubleLine Capital in Los Angeles. “The weather is very, very dry in the southern hemisphere. The opportunity now is in agriculture.”
Sugar, Hogs Climb
The eight-member agriculture gauge climbed to a four-month high on March 16 as the S&P GSCI Spot Index of 24 commodities rose 0.4 percent last week, led by sugar, hogs and wheat. The MSCI All-Country World Index of equities advanced 2 percent. The dollar slid 0.3 percent against a basket of six major trading partners, and Treasuries lost 1.2 percent, a Bank of America Corp. index shows. The S&P measure of farm futures declined 0.9 percent to close at 445.83 in New York today.
Corn and soybeans reached six-month highs as the drought in South America reduced supplies. It’s been the driest and warmest growing season since 2009, when corn output fell 30 percent in Argentina and 13 percent in Brazil, according to data from the U.S. Department of Agriculture.
South America’s crops are wilting at a time when China’s appetite for meat from grain-fed livestock is lifting global consumption, boosting the outlook for exports from the U.S., the world’s biggest shipper. Increasing overseas demand helped U.S. net farm income reach a record $98.1 billion in 2011, the government said last month.
Jilin Corn Center Wholesale Market Co. said March 15 that China’s purchases of domestic grain plunged to 1.2 million metric tons this year from 11 million tons a year earlier, signaling more imports may be needed. In the week ended March 8, U.S. shippers reported sales for delivery before Sept. 1 jumped 88 percent from a week earlier, the USDA said.
While investors cut corn wagers 0.3 percent last week, bets are still up 65 percent this year, heading for the first quarterly advance since the third quarter of 2010. The net-long position in soybeans surged more than sevenfold in 2012.
The rally is being caused by “the pervasive lack of buffer stocks,” Rabobank International’s commodity analysts, led by London-based Luke Chandler, said in a March 14 report. Record harvest are needed to meet demand and that’s being “thwarted by weather,” the team wrote.
Funds Miss Rally
The South American drought is also hurting sugar plantations. Brazilian mills may produce 5.9 percent less than previously forecast, Copersucar, the country’s largest trader of the commodity, said on March 12. Prices surged 7.4 percent last week in New York, the most since mid-October. The funds probably missed the rally, cutting net-long positions by 20 percent, the most since November.
A broader measure of commodities showed that money managers trimmed holdings just before the S&P GSCI index rallied on March 16 by the most in two weeks. The price gauge is up 10 percent since the start of January, rising for a fourth year.
Net-long positions across 18 U.S. raw materials fell for a second consecutive week, the longest slide this year, to 1.13 million contracts, CFTC data show. Bets on rising gold prices dropped to the lowest since the end of January. Wagers on declines in cotton, coffee, wheat and natural gas increased.
Slowing growth in China and Europe may mean this year’s commodity rally won’t last, said John Stephenson, who helps manage $2.7 billion of assets at First Asset Investment Management Inc. in Toronto.
“Without doubt, it’s a slightly negative time for commodities, and we will see bearish bets increasing,” Stephenson said. “The U.S. is doing well, but it cannot carry the world on its shoulders.”
China’s economy will grow by 8.5 percent this year, the slowest pace in more than a decade, according to the median of 21 economist estimates compiled by Bloomberg. About 40 percent of the world’s copper, 43 percent of aluminum and 46 percent of nickel is consumed by China, Barclays Capital estimates.
Investors put $166 million into commodities in the week ending March 14, according to Cambridge, Massachusetts-based EPFR Global, which tracks investment flows. Gold and precious-metals funds attracted $258 million, compensating for a $92 million drop in industrial metals and agriculture.
Bets on a copper rally gained 4.7 percent to 14,259 contracts, the second increase in three weeks, CFTC data show. Prices in New York jumped 14 percent this year as factory output rebounded in the U.S., the biggest consumer after China.
Manufacturing in the New York region expanded in March at the fastest pace since June 2010, and a Philadelphia-area factory index grew at the quickest rate in 11 months, regional Federal Reserve bank data showed on March 15. A Labor Department report the same day showed claims for jobless benefits matching the lowest in four years.
“Things are improving,” said Evan Smith, who helps manage $650 million of assets at U.S. Global Investors Inc. in San Antonio. “Lots of indicators for industrial production are recovering and headed upwards. Europe is still weak, but emerging markets and the U.S. are showing signs of improvement.”