Bloomberg News

Speculators Hold Wagers at 11-Month High Amid Rally: Commodities

August 20, 2012

Speculators held wagers on rising commodities near the highest in 11 months as speculation that China will act to bolster its economy and signs of improving U.S. growth boosted prices for a third consecutive week.

Money managers’ net-long position across 18 U.S. raw materials was little changed at 1.2 million futures and options in the week ended Aug. 14, U.S. Commodity Futures Trading Commission data show. Investors increased bets on costlier corn, soybeans and cattle amid the worst U.S. drought in 56 years, reduced wagers on a rally in crude oil and became more bearish on the outlook for copper.

Chinese Premier Wen Jiabao said there’s “growing room for monetary policy operation” amid easing inflation, state television reported Aug. 15. Confidence among U.S. consumers unexpectedly improved in August and an index of leading indicators climbed more than forecast in July, separate reports showed Aug. 17. China is the world’s biggest consumer of everything from copper to pork to soybeans, and the U.S. is the largest user of crude and corn.

“China saying they’re going to have more economic stimulus is going to have as much of an effect on commodities as actually doing it,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee more than $1 billion of assets. “It’s going to psychologically increase where people think commodities should be priced.”

Feeder Rally

The Standard & Poor’s GSCI Spot Index of 24 commodities gained 1.7 percent last week, the most since July 20. The MSCI All-Country World Index of equities advanced 0.7 percent, and the dollar added 0.1 percent against a measure of six major trading partners. Treasuries lost 0.8 percent, a Bank of America Corp. index showed. The GSCI gauge rose 0.2 percent today.

Thirteen of the 24 commodities tracked by S&P rose last week, led by crude and heating oil. Feeder-cattle futures jumped 1.9 percent, the most since mid-May.

The People’s Bank of China may cut benchmark interest rates before altering the required reserve ratios for lenders, because the latter tends to act for a longer period, the Securities Times reported Aug. 17. The country decreased the reserve- requirement ratio for banks three times since November and lowered interest rates in June and July while accelerating approvals for investment projects.

U.S. building permits, a proxy for future construction, increased to an 812,000 annual pace in July, the most since August 2008, the Commerce Department said Aug 16. Production at factories, mines and utilities increased 0.6 percent in July following a 0.1 percent gain the prior month, Federal Reserve data showed Aug. 15.

‘Bad Block’

While U.S. economic data has improved, the world is still “a risky place” as Europe’s fiscal and banking crisis worsens, said Vincent Reinhart, the chief U.S. economist at Morgan Stanley. “We’re the best house on a bad block,” he said in a Bloomberg Television interview Aug. 15. The bank cut its outlook for this year’s global growth to 3.2 percent from 3.5 percent on Aug. 16, and to 3.5 percent from 3.8 percent for 2013.

The 17-nation euro-area’s economy contracted 0.2 percent in the second quarter as a worsening debt crisis and budget cuts drove at least six countries into recession, the European Union’s statistics office in Luxembourg said Aug. 14.

European Demand

“World economies are a driver of demand and European demand in general is down,” said Steve Kahler, the chief operating officer at Teucrium Trading LLC, who helps oversee $140 million of assets. “Anytime you have a macro-economic situation like you have in Europe, it’s going to impact their overall demand.”

Investors pulled $53.1 million from commodity funds in the week ended Aug. 15, the first outflow in three weeks, according to data from Cambridge, Massachusetts-based EPFR Global, which tracks money flows.

“There’s definitely been an August slowdown,” said Brad Durham, a managing director for EPFR. “That’s why these numbers are not particularly decisive in either direction.”

Investors cut their bullish oil bets by 7.2 percent to 152,222 contracts, the biggest drop since May 8, the CFTC data show. Prices jumped 3.4 percent last week, the third consecutive gain, as improving U.S. economic data boosted the outlook for demand amid rising political tension in the Middle East.

Oil Production

The region was responsible for 33 percent of global oil production last year and held 79 percent of proved reserves, according to data from London-based BP Plc. (BP/)

Bullish platinum wagers dropped 17 percent, the most since May 22, to 7,096 contracts, the CFTC data show. Prices rallied 5.2 percent last week, the most since January, on concern that clashes between police and striking miners will spread in South Africa, the biggest producer of the metal. Police killed 34 striking workers at Lonmin Plc (LMI)’s Marikana mine on Aug. 16.

A measure of 11 U.S. farm goods showed speculators increased bullish bets in agricultural commodities by 0.6 percent to 851,875 contracts, the ninth gain in 10 weeks.

Money managers raised corn holdings for a 10th consecutive week, by 6 percent to 303,178 contracts. That’s the longest stretch of gains since at least June 2006, when the data starts.

Corn surged 60 percent since June 15, reaching a record $8.49 a bushel in Chicago on Aug. 10, as the drought parched millions of acres of U.S. cropland and pasture.

“Even modest demand growth in the current tepid environment will be sufficient to tighten markets,” Jeffrey Currie, the head of commodities research at Goldman Sachs Group Inc. in New York, said in an interview Aug. 14. “We see commodity prices rising.”

To contact the reporter on this story: Tony C. Dreibus in Chicago at tdreibus@bloomberg.net

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


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