Bets on Higher Food Costs Reach 11-Week Low: Commodities

Hedge funds reduced bets that crop prices will reverse their longest retreat since January as U.S. sowing accelerated and concerns about dry weather eased.

Money managers reduced their net-long position on crops from coffee to soybeans by the most since January in the week ended May 20. The Standard & Poor’s Agricultural Spot Index fell for a fourth week. Rains forecast across the U.S. Great Plains and Europe will aid wheat and showers in Texas will help cotton.

Prices are dropping after rallying the most ever for the period in the first four months of the year as Brazil’s drought threatened coffee, sugar and citrus supplies. Now, U.S. and Canadian farmers are speeding up sowing, while rising coffee stockpiles in America cushion the impact of production losses.

“Prices had galloped on weather concerns, but now people realize they overshot,” Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors LLC, which manages $1.3 trillion, said May 23. “I don’t see prices rallying anymore.”

The S&P GSCI Agricultural Index of eight crops fell 1.1 percent last week, extending the drop from this year’s peak on May 1 to 6.3 percent. The wider GSCI gauge of 24 commodities rose 0.9 percent last week, while the MSCI All-Country World Index of equities gained 0.9 percent. The Bloomberg Treasury Bond Index declined less than 0.1 percent.

Wheat Stockpiles

Combined net-bullish positions across 11 agricultural products dropped 9.4 percent to 903,175 contracts as of May 20, a third decline, U.S. Commodity Futures Trading Commission data show. Wheat futures on the Chicago Board of Trade closed at $6.525 a bushel on May 23, declining 12 percent from a 14-month high of $7.44 on May 6.

Global wheat stockpiles are projected to rise to a three-year high, according to the U.S. Department of Agriculture. Canadian reserves before this year’s harvest will almost double to the highest in 20 years. The net-long position in wheat slumped 46 percent to 24,436 contracts, the lowest since investors held a net-bearish wager in March. Trading of milling wheat futures in Paris dropped as much as 1 percent today to the lowest since March 4.

More rain in the U.S. Great Plains and Midwest between June and August will limit stress on corn and soybeans, Bethesda, Maryland-based Commodity Weather Group said last week.

Bets on higher cotton prices slumped 17 percent, the most in six months. While improving conditions will aid late seeding in Texas this month and in early June, dry weather may return later in the summer, Commodity Weather Group projects. The state is the biggest grower in the U.S., the world’s top exporter. On May 23, cotton fell 1.7 percent to settle at 86.31 cents a pound on ICE Futures U.S. in New York.

China Demand

The S&P crop index is still 13 percent higher for the year. Tensions between Ukraine and Russia boosted speculation that grain shipments would be disrupted from the Black Sea region. China’s imports of soybeans surged 63 percent in April from a year earlier, customs data show.

“Sentiment seems to be more favorable toward commodities,” Frances Hudson, a strategist at Standard Life Investments Ltd., which oversees $294 billion, said May 22. “Some of the agricultural commodities have the fundamentals helping. We have seen weather-related buying. China’s demand can play a big role in helping prices stay strong.”

In the five days through May 22, investors pulled almost $2.93 million from exchange-traded products that track agriculture. Outflows across commodity ETPs were $334 million, including a $245 million decline from those backed by precious metals.

Gold, Copper

Combined net-wagers across 18 U.S. traded commodities fell 5.7 percent to 1.5 million contracts as of May 20, the lowest in 12 weeks, the CFTC data show.

Investors cut their bullish positions on gold for a second straight week to 90,358 contracts. The metal’s 30-day volatility has dropped to the lowest in more than a year, and holdings in global exchange-traded products backed by bullion are the smallest since 2009.

Wagers on rising oil prices gained 4.1 percent to 323,993 contracts, a three-week high.

Bullish bets on copper surged 43 percent to 18,787 contracts. Futures in New York dropped 6.7 percent this year. Global supplies will exceed demand this year by 166,000 metric tons, Barclays Plc forecasts.

“There is the problem of overcapacity for some commodities,” Michael Strauss, who helps oversee about $25 billion as chief investment strategist and chief economist at Commonfund Group in Wilton, Connecticut, said May 22. The gains for agriculture have been “a weather affect,” he said. “Once those concerns ease, prices will come down. In general, we think that clients should be looking at other assets.”

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