Bloomberg News

Funds Boost Bullish Farm Bets on ‘Explosive’ Supply Constraints

September 04, 2011

Sept. 5 (Bloomberg) -- Funds increased bullish bets on agricultural commodities by the most in more than a year on signs of tightening supplies amid adverse weather conditions.

In the week ended Aug. 30, speculators raised their net- long positions in 11 commodities by 18 percent to 915,341 futures and options contracts, government data compiled by Bloomberg show. That was the biggest gain since Aug. 3, 2010. Holdings in wheat more than tripled, bullish corn bets reached an 11-week high, and soybean positions jumped to the highest since November 2010.

Corn prices have jumped 70 percent in the past year and soybeans have gained 43 percent. The hottest July since 1955 means that U.S. production of both crops may miss government estimates, according to researcher and broker INTL FCStone Inc. The costliest drought in Texas history has hampered U.S. supplies of cotton, while dry weather in the U.S. Great Plains may curb planting of winter wheat.

“You still have some pretty explosive supply and demand situations” for U.S. crops, said James Dailey, who manages $215 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania. “There was a liquidation that went on because of the financial panic, and now some people are waking up and saying things are still pretty extreme in terms of the risks if there are supply disruptions.”

‘Exceptional’ Drought

Parts of southern Kansas and western Oklahoma have had less than half of the normal rainfall this year, according to the National Weather Service, and more than 81 percent of Texas is in “exceptional” drought, U.S. Drought Monitor data show. About 54 percent of the U.S. corn crop was in good or excellent condition as of Aug. 28, the lowest for any week since September 2005, government data show.

“Mother Nature’s been in a real bad mood this year, and we don’t see an attitude adjustment anytime soon,” Ron Lawson, a managing director at Logic Advisors, a commodity consultant in Sonoma, California, said in a telephone interview on Sept. 2. “Harvest time is going to be challenged by weather.”

On Sept. 2, wheat futures for December delivery rose 14.5 cents, or 1.9 percent, to settle at $7.755 a bushel on the Chicago Board of Trade. Corn futures for December delivery climbed 21.5 cents, or 2.9 percent, to close at $7.60 a bushel in Chicago. Soybean futures for November delivery climbed 11.25 cents, or 0.8 percent, to $14.4575 a bushel on the CBOT.

18 Commodities

A broader measure showed that funds also increased their net-long positions in 18 commodities by 15 percent to 1.27 million futures and options contracts, data from U.S. Commodity Futures Trading Commission show. That’s the biggest gain since July 19. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 0.6 percent last week, the second straight gain.

Investors pulled $581 million from commodity funds in the week ended Aug. 31, the third straight week of outflows, following four weeks of inflows, according to EPFR Global, a Cambridge, Massachusetts-based research company.

The withdrawals were “people trying to avoid getting caught in the pullback of gold prices,” Cameron Brandt, EPFR’s director of research, said in a telephone interview on Sept. 2. “Most of the outflows came from funds geared from gold and precious metals.”

Speculators cut positions in gold by 2.9 percent to 195,372 contracts, the fourth straight drop, government data show. Holdings are at the lowest in eight weeks. Prices have fallen 2.1 percent since touching a record $1,917.90 an ounce on Aug. 23 in New York.

All U.S. markets and government offices are closed today, in observance of Labor Day.

--With assistance from Whitney McFerron and Jeff Wilson in Chicago. Editors: Millie Munshi, Steve Stroth

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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