Speculators Miss Rally as U.S. Sells Most Corn Since 1994

By Joe Richter - Apr 30, 2012
BLOOMBERG
Speculators reduced bullish bets on corn by more than any other commodity, just before the U.S. reported its single biggest export sale in 18 years and prices had their largest two-day rally in almost a month.

Money managers cut corn wagers by 30 percent to 103,079 futures and options in the week ended April 24, the biggest decline since June 2010, according to data from the Commodity Futures Trading Commission. The drop of 43,511 contracts was larger than for any of the 18 raw materials tracked by Bloomberg. Holdings across all the commodities fell for a fifth week, the longest slide since June 2010, the data show.

U.S. exporters sold 1.44 million metric tons of corn in a single day, taking the four-day total to 2.84 million tons, the U.S. Department of Agriculture said April 27. China is accelerating purchases to feed a hog herd that is projected by the USDA to reach an all-time high of 690 million this year. The demand combined with less bullish speculators will increase volatility in futures markets and lead to “major price spikes,” Rabobank International said in a report April 27.

“The world has to eat,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee about $1 billion of assets. “Everything from grains to soybeans is being shipped to China, as we’re seeing an emerging middle class. Demand is very much there.”

Stocks Rally

A measure of wagers on 11 U.S. farm goods fell to a two- month low as the Standard & Poor’s GSCI Agriculture Spot Index of eight commodities rose 2.5 percent, the most since mid-March. Corn advanced 4.1 percent in the final two days of the week as the export sales were announced. The S&P GSCI Agriculture gauge advanced 0.3 percent at 6:22 a.m. in London today.

The S&P GSCI Spot Index of 24 raw materials climbed 1.2 percent last week, led by natural gas, corn, wheat and soybeans. The MSCI All-Country World Index of equities gained 1.1 percent. The dollar declined 0.6 percent against a basket of six major trading partners and Treasuries returned 0.2 percent, a Bank of America Corp. index shows.

Cattle were the biggest loser, dropping 2.3 percent after the U.S. reported its first case of mad cow disease in six years on April 24. Speculators cut net-long positions for a fourth week, to the lowest since December 2009. Prices rallied in the last three days of the week after Canada, Mexico, Japan and South Korea, the four biggest buyers of U.S. beef, said they won’t halt purchases.

Rising Chinese demand for agricultural supplies and drought damage to crops in South America are bolstering prospects for U.S. exports that are a foundation for President Barack Obama’s goal of doubling sales overseas by 2015. Increased shipments will help net farm income reach $91.7 billion this year, second only to last year’s $98.1 billion, the USDA said Feb. 13.

Monetary Fund

Global food inventories remain “significantly” below the average over the past four decades, the International Monetary Fund said in a report April 17. The La Nina weather pattern, which brings drier weather to South America and heavier rainfall in Asia, is the most prominent risk to food supply, and its return this year has been “unexpectedly powerful,” the Washington-based IMF said.

An index of 55 food items tracked by the United Nations climbed for a third consecutive month in March and is within 9.3 percent of the record reached in February 2011.

Farmers are responding by planting more crops and U.S. growers will sow the most corn acres since 1937, the government said March 30. Global production will jump 4 percent to a record 900 million tons in the 12 months starting July 1, the International Grains Council forecasts.

South America

Funds boosted their soybean bets by 1.1 percent to 243,389 contracts, the highest since at least June 2006. Prices will average $14.75 a bushel in the second quarter as South American output posts its biggest decline on record, Rabobank’s analysts wrote in their report. That would be the highest quarterly average ever, and the oilseed closed at $14.935 on April 27.

Investors pulled $291 million out of commodities in the week ending April 25, said Cameron Brandt, the director of research at Cambridge, Massachusetts-based EPFR Global, which tracks investment flows. Gold and precious-metals funds outflows totaled $64 million, Brandt said.

Bets on rising gold prices fell 4.2 percent to 107,600 contracts, the lowest since January 2009. Bullion gained 1.3 percent in New York last week. Open interest, or contracts outstanding, in U.S. gold futures fell to 395,389 on April 24, the lowest level since September 2009, Comex data show.

Federal Reserve Chairman Ben S. Bernanke said last week that central bankers “remain prepared to do more” if U.S. economic conditions worsen. Monetary stimulus is positive for commodities as investors seek alternative assets, said Michael Cuggino, who manages about $17 billion of assets at Permanent Portfolio (PRPFX) Funds in San Francisco.

Quantitative Easing

The S&P GSCI rose more than 80 percent from December 2008 to June 2011 as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing and held borrowing costs at a record low.

The world economy will expand 3.5 percent this year, compared with a January projection of 3.3 percent, the IMF said April 17, raising its outlook for the first time in more than a year. Goldman Sachs Group Inc.’s commodity analysts, led by Jeffrey Currie in London, said in a report April 24 they expect commodities to return 13 percent over the next 12 months.

“The fundamentals in commodities, especially on the agriculture side, are quite positive,” said Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati who helps oversee $14.7 billion of assets. “The fundamentals just cry out that food is going to be a solid investment.”