Hedge Funds Bet Most on Higher Commodities Prices Since 2008, Led by Food

Date: Tuesday, August 24, 2010
Author: Chanyaporn Chanjaroen, Bloomberg

Speculators including hedge funds are more bullish on commodity prices than at any time since April 2008 after adding to wagers that wheat and corn will keep climbing, Commodity Futures Trading Commission data show.

An index of speculative holdings in futures for 20 commodities rose 2.6 percent to almost 1.18 million contracts in the week ended Aug. 17, according to data released by the CFTC on Aug. 20. The index, compiled by Bloomberg, is derived by subtracting the short positions, or bets on lower prices, in each commodity from the long position. Net longs climbed in wheat and corn and dropped for gasoline, copper and cocoa.

“It’s not a broad-based improvement in commodities, as we’d seen before,” said Amrita Sen, an analyst at Barclays Capital in London. The net longs in wheat and corn probably rose as investors who had earlier bet on lower prices bought back futures to cover short positions after Russia banned grain exports because of a drought, she said.

Commodity assets under management gained about $8 billion in July to more than $300 billion, driven mostly by new investments, according to Barclays Capital. Wheat has jumped 51 percent since the end of June and corn is up 16 percent on speculation the Russian wheat drought will spur more demand for crops from the U.S.

Corn Leads

Corn led gains in commodities in the week to Aug. 17 as speculators added to their bets on higher prices, followed by raw sugar and arabica coffee futures. Wheat prices declined over the period as investors focused on ample stockpiles and rising production in the U.S.

Raw sugar prices have climbed for two months as shipping delays held back supplies from Brazil, the world’s largest producer of the sweetener. Arabica coffee prices have climbed 35 percent this year on declining inventories partly because of crop damage in Colombia, the world’s largest grower of the beans after Brazil.

Speculators made the right call on gasoline and slashed bets on higher prices by half. Gasoline prices fell 6.3 percent over the week as petroleum stockpiles surpassed the highest level since 1990 and the U.S. vacation season drew to an end.

Gasoline has dropped 21 percent from its 2010 high of $2.4351 a gallon on the New York Mercantile Exchange on May 3.

Copper prices advanced 0.7 percent over the week even as speculators reduced their net-long on New York futures by 13 percent.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net.