Bloomberg News

Hedge Funds Boost Bullish Wagers to Five-Month High: Commodities

February 21, 2012

(For more commodity columns, click CMMKT.)

Feb. 20 (Bloomberg) -- Hedge funds increased commodity bets to the highest in almost five months on signs that a rescue plan for Greece and faster U.S. growth will buoy demand as supplies shrink for everything from soybeans to copper.

Money managers boosted net-long position across 18 U.S. futures and options by 2.9 percent to 956,313 contracts in the week ended Feb. 14, the most since Sept. 20, government data show. Soybean wagers jumped 29 percent to a five-month high. Silver holdings rose for a seventh straight week, the longest advance in almost three years.

The Standard & Poor’s GSCI Spot Index of 24 commodities reached a six-month high on Feb. 17 as euro-area leaders expressed confidence that an agreement on a Greek bailout can be reached. Reports last week on U.S. housing and manufacturing beat analysts’ forecasts, and claims for jobless benefits dropped to a four-year low. Investments in raw-material futures have jumped 13 percent this year, exchange data show.

“We are seeing confidence return to the market,” said James Paulsen, 53, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $330 billion of assets. “The U.S. is doing well. Europe is trying to resolve its issues. Going forward, we will see commodities move up significantly.”

Cocoa, Natural Gas

The S&P GSCI gauge rose 2.2 percent last week. The MSCI index of equities ended the week 1.5 percent higher, and the yield on 10-year Treasuries rose 1.6 basis points, or 0.016 percentage point, according to Bloomberg Bond Trader prices.

Sixteen of the raw materials tracked by S&P advanced last week, led by cocoa’s 8.5 percent gain. Natural gas climbed 8.4 percent, and cattle prices rose 3.2 percent, touching a record.

Claims for jobless benefits unexpectedly dropped in the week ended Feb. 11 to 348,000, the lowest level in four years, the Labor Department said on Feb. 16. Manufacturing in the Philadelphia region expanded at the fastest pace in four months in February, topping economists’ expectations. Builders broke ground on more homes than forecast in January, the Commerce Department said last week.

Supplies of copper will trail demand by 376,000 metric tons this year, Barclays Capital said in a report on Feb. 16. Consumption will outpace production for tin and palladium, the bank said. Copper for three-month delivery in London gained 0.7 percent to $8,235.50 a ton today.

Shortages are also forecast for soybeans, coffee and cocoa, Rabobank International said in its latest monthly outlook report from January.

$357 Million

Investors pulled $357 million out of commodity funds in the week ended Feb. 15, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metals inflows totaled $102 million, said Cameron Brandt, the director of the research firm.

“The U.S. economy has shown improvement, but the Europe overhang remains,” said Dan Denbow, a co-fund manager of the $2.1 billion USAA Precious Metals and Minerals Fund in San Antonio. “Until the problems in Europe are resolved, people will continue to be in risk-on, risk-off mode.”

Funds sold holdings of corn, cocoa, cotton, heating oil, coffee, hogs, wheat and gold last week, the CFTC data show. While open interest across the 24 commodities tracked by the S&P GSCI is up this year, investments fell 0.2 percent last week through Feb. 16, heading for the first loss since mid-December, according to the most recent exchange data.

“People are thinking that there are signs that the economy is improving, but that is because of central bank interventions,” said Stanley Crouch, who helps oversee $2 billion as chief investment officer at New York-based Aegis Capital Corp. “The underlying fundamentals are very weak. The credit-bubble impact will be worldwide.”

Crude Bets Jump

Wagers on higher crude-oil prices jumped 14 percent to 233,889 contracts, the government said. That’s the highest since May. Futures in New York climbed to nine-month high on Feb. 17 as improving growth prospects bolstered the outlook for fuel demand. The commodity has also gained on concern that shipments will be disrupted by tension between Iran and the West over the country’s nuclear program.

Soybean holdings jumped by 18,186 contracts to 81,042, the highest since Sept. 20. U.S. exporters made the biggest one-day sale ever to China, the world’s top consumer, the government said on Feb. 17. Prices rose to the highest in almost five months.

China Deal

Last week, U.S. and Chinese officials signed a five-year accord to cooperate on agricultural production and trade and food security as Vice President Xi Jinping visited Iowa. Soybean prices have jumped 6.2 percent in February as dry weather threatened crops in Brazil and Argentina, boosting demand prospects for U.S. supplies.

A measure of 11 U.S. farm goods showed speculators lowered bullish bets in agricultural commodities by 0.4 percent to 453,637 contracts, CFTC data show. Declines were led by cotton. The gauge is still up 66 percent this year.

Bets on higher cattle prices climbed 2.2 percent to 88,091 contracts, the highest since mid-November. Futures advanced to a record on Feb. 17 as rising demand for U.S. beef tightens supply and increases costs for restaurants including Chipotle Mexican Grill Inc.

The U.S. cattle herd as of Jan. 1 was the smallest for that date since 1952, and beef exports surged 21 percent in 2011, government data show. Global food prices rose in January by the most in 11 months, according to the United Nations.

“The market wants to go up, and we have had a good start even if it’s with low conviction,” said John Stephenson, who helps manage $2.7 billion of assets at First Asset Investment Management Inc. in Toronto. “The macro headwinds may soon turn to tailwinds for the commodity market.”

--Editors: Millie Munshi, Steve Stroth

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

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


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