Bloomberg News

Speculators Raise Wagers First Time in Seven Weeks: Commodities

November 27, 2012

Speculators Raise Wagers First Time in Seven Weeks

Corn holdings rose 23 percent to 250,228 contracts, the highest since Oct. 23. Photographer: Oliver Bunic/Bloomberg

Speculators raised bullish commodity wagers for the first time since early October as signs of improving economic growth in the U.S. and China pushed prices higher for three straight weeks.

Hedge funds and other money managers increased combined net-long positions across 18 U.S. futures and options by 9.6 percent to 846,321 contracts in the week ended Nov. 20, Commodity Futures Trading Commission data show. That was the biggest gain since mid-August. Corn holdings rose the most since July, and those on silver reached a five-week high.

The Standard & Poor’s GSCI Spot Index of 24 raw materials has rebounded 3.8 percent since reaching a three-month low on Nov. 5. Manufacturing in China, the world’s biggest consumer of everything from copper to coal to cotton, is on pace to expand in November for the first time in more than a year, figures showed Nov. 22. In the U.S., more Americans this month said the world’s largest economy will improve than at any time in the past decade, and new-home construction climbed to a four-year high in October, separate reports showed last week.

“There are a lot of reasons to believe that we are starting to turn the corner,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $325 billion. “Growth in the U.S. and China gives me confidence to remain invested in commodities.”

November Gains

The GSCI index is up 1.3 percent in November, as 16 of the 24 raw materials tracked by S&P gained. The dollar advanced 0.6 percent against a basket of six currencies, while the MSCI All- Country World Index of equities is up 0.1 percent. Treasuries returned 0.4 percent, a Bank of America Corp. index shows.

The preliminary reading for a Chinese purchasing managers’ index was 50.4, HSBC Holdings Plc and Markit Economics data showed. That compares with a final level of 49.5 for October. A reading above 50 indicates expansion. Manufacturers in the country are “seeing the light at the end of tunnel,” boosting demand for copper which will be in a supply deficit this year, Societe Generale said in a report e-mailed on Nov. 20.

U.S. housing starts rose 3.6 percent to a 894,000 annual rate, the fastest since July 2008 and exceeding all estimates in a Bloomberg survey, Commerce Department figures showed on Nov. 20. The economy may “strengthen significantly” if U.S. lawmakers are able to avoid the so-called fiscal cliff of automatic tax increases and spending cuts, Federal Reserve Chairman Ben S. Bernanke said Nov. 20.

Europe Crisis

Europe’s fiscal woes will be a drag on global growth even as conditions improve in the U.S. and China, said John Kinsey, who helps manage about C$1 billion ($1 billion) at Caldwell Investment Management Ltd. in Toronto.

European finance ministers eased the terms on emergency aid for Greece at a summit in Brussels that ended early today with an agreement that was endorsed by the International Monetary Fund and the European Central Bank.

In the latest bid to keep the 17-nation euro intact, ministers cut rates on bailout loans, suspended interest payments for a decade, gave Greece more time to repay and engineered a Greek bond buyback. The country was also cleared for a loan installment next month.

About 18 percent of global copper demand comes from Europe, and the region consumes 22 percent of the world’s oil, according to estimates from Barclays and BP Plc. (BP/) The euro zone fell back into recession in the third quarter, shrinking 0.6 percent.

“Europe continues to muddle along, so we’re still not bullish and standing on the sidelines,” Caldwell’s Kinsey said. “The road seems to be strewn with minefields, and we try not to step on them.”

Money Flows

Money managers added a net $1.75 billion to commodity funds in the week ended Nov. 21, with gold and precious metals accounting for $442 million, said Cameron Brandt, the director of research at Cambridge, Massachusetts-based EPFR Global, which tracks money flows.

Silver wagers jumped 20 percent to 33,317 contracts, the biggest gain since Aug. 28, the CFTC data show. Global holdings in exchange-traded products have climbed 7.9 percent this year, reaching a record 18,853.6 metric tons on Nov. 15.

Bullish crude-oil bets climbed 9.8 percent to 109,848 contracts, the biggest gain since Aug. 21. Sugar holdings surged 48 percent to 18,955 contracts, the first increase in six weeks.

A measure of 11 U.S. farm goods showed speculators lifted bullish bets in agricultural commodities by 7.4 percent to 446,348 contracts. Corn holdings rose 23 percent to 250,228 contracts, the highest since Oct. 23.

Hog Bets

Investors boosted their bullish hog bets by 15 percent to 41,265 contracts, the highest since Dec. 20. Cattle wagers gained 7.4 percent to 22,335 contracts, the first advance in four weeks.

Cattle prices touched a record on Nov. 23 on signs of shrinking beef supplies. In the 10 months through Oct. 31, U.S. commercial output of the meat fell 1.1 percent from the same period in 2011, the government said the same day. As of July 1, the U.S. herd shrank to the smallest since at least 1973.

“The U.S. looks fairly constructive, and we may see some re-acceleration next year,” said Evan Smith, who helps manage $500 million of assets at U.S. Global Investors Inc. in San Antonio. “China is starting to show some signs of growth, so we will see some demand coming in from there.”

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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