Funds Boost Agriculture Bets for Third Week as Crop May Drop

Funds increased bullish bets on agriculture prices for a third straight week, the longest string of gains this year, as adverse global weather harmed crops from China to Texas.

Speculators raised their net-long positions in 11 U.S. farm goods by 0.4 percent to 759,974 futures and options contracts in the week ended June 7, government data compiled by Bloomberg show. That’s the highest since May 3. Gains were led by a 59 percent jump in bets on rising prices for soybean meal. Sugar holdings climbed 6.9 percent.

The Standard & Poor’s GSCI Agriculture Index has surged 79 percent in the past year as dry weather in Europe and China and floods in the U.S. eroded prospects for corn, wheat and soybean crops. Climate change will cause more droughts and have “major impacts” on food production for decades, the United Nations’ Food and Agriculture Organization said on June 9.

“We have enough weather-related issues that will push prices higher, and that’s why money is going into the agriculture sector” said Peter Sorrentino, a senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which manages $14.8 billion.

Tyson, Bunge

Higher grain prices may erode profits for Tyson Foods Inc., the biggest U.S. meat processor, as livestock-feed costs rise. U.S. farm exports will jump to a record $137 billion in the year ending Sept. 30 as companies including Bunge Ltd. and Archer Daniels Midland Co. expand shipping capacity.

Funds reduced bullish bets on corn prices by 2.8 percent to 319,088 contracts through the week ending June 7. Holdings may rebound as the U.S. Department of Agriculture cut its outlook for domestic and global inventories on June 9. Prices have almost doubled in the past year. Net-positions for wheat also dropped before the USDA crop report.

Corn for July delivery surged 8.2 percent since the close on June 6 and gained as much as 1.8 percent to $7.9975 a bushel on June 10, beating the record $7.9925 a bushel for the most-active contract in June 27, 2008. The July contract traded at $7.9175 a bushel at 3:34 p.m. Singapore time.

Falling supplies of corn may boost demand for wheat as a substitute in livestock feed. Sorrentino said he expects both crops to gain this year, while soybeans may decline.

“We are going to see less acreage planted in corn, and possibly wheat too,” Sorrentino said. “There is cash available, and it is going to find its way into the commodity space, to agriculture in particular.”