(For alerts on Commodities columns: SALT CMMKT)
Jan. 13 (Bloomberg) -- Hedge funds cut their bullish commodity wagers by the most in seven weeks before prices dropped to an eight-month low on signs of surplus supply and slowing economic growth in China.
The net-long position across 18 U.S.-traded commodities fell by 11 percent to 678,885 futures and options in the week ended Jan. 7, U.S. Commodity Futures Trading Commission data show. Investors are the most bearish on wheat ever and anticipate lower prices for corn, coffee, sugar and soybean oil. Bullish gold wagers rose to the highest since mid-November.
Raw-material prices fell 3.6 percent since Dec. 31, the worst start to a year since 2007. In China, the biggest user of everything from pork to zinc to cotton, producer prices declined in December for the 22nd straight month, the longest decline since the Asian financial crisis in the 1990s. World stockpiles of wheat and soybeans will be bigger than analysts estimated, the U.S. Department of Agriculture said. Copper and nickel will be in surplus this year, Barclays Plc forecast.
“Supplies of many commodities are rising, while demand, especially in China, remains weak,” said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors LLC, which manages $1.3 trillion of assets. “We remain underweight on commodities.”
The Standard & Poor’s GSCI Spot Index of 24 raw materials slid 0.7 percent last week, and reached 603.56 on Jan. 9, the lowest since April 23. The MSCI All-Country World index of equities gained 0.4 percent, while the Bloomberg Treasury Bond Index rose 0.6 percent. The Bloomberg Dollar Index, a gauge against 10 major trading partners, fell 0.2 percent.
A gauge of China’s services industries decreased to 50.9 in December from 52.5 the previous month, HSBC Holdings Plc and Markit Economics Ltd. said Jan. 6. It was the second straight decline. The nation’s economy will expand 7.5 percent this year, the slowest since 1990, according to the median of 55 economist estimates compiled by Bloomberg. The country is the top metals and energy consumer.
Open interest across the members of the GSCI slumped 6 percent from last year’s high in June. Contracts outstanding fell 3.2 percent in the two months through December, the most in a year. Investors pulled a record $50 billion from passive index-swaps and exchange-traded products that are commodity linked, Citigroup Inc. said Jan. 7. That compares with an inflow of $27.5 billion in 2012.
While demand from China has slowed, improving economic conditions in the U.S. and Europe will support prices of some commodities including copper, according to Peter Jankovskis, who helps oversee $3.6 billion as co-chief investment officer of Lisle, Illinois-based OakBrook Investments LLC.
German industrial production rose in November for the first time in three months, according to figures from the Economy Ministry in Berlin on Jan. 9. U.S. construction spending climbed 1 percent in November, topping analyst estimates, the Census Bureau said this month. Builders put about 400 pounds (181 kilograms) of copper into the average home.
“We will see demand of industrial metal rise because of growth in the Western world,” Jankovskis said. “While prices are not going to be rushing higher, we could see some of the commodities bottoming out.”
The S&P GSCI more than tripled since the end of 1999, including 11 gains over the past 14 years, setting records in everything from oil to gold to copper. Producers struggled to keep up as China’s economy expanded more than fivefold. The rally accelerated from December 2008 through June 2011, with the gauge surging 92 percent as the Federal Reserve increased its balance sheet through debt purchases. Gold has tumbled 35 percent from a record $1,923.70 an ounce reached in September 2011.
Increases in supply and slower demand mean that commodities will take a “back seat” to other investments this year because the gains from 2009 to 2011 were “built on unsustainable factors,” Citigroup said in a Jan. 6 report. Raw materials trailed global equities for a second year in 2013.
Fed officials said Dec. 18 they would trim monthly purchases of bonds to $75 billion from $85 billion starting this month as the economy improves.
Bullish bets on crude oil dropped 8.6 percent to 247,177 contracts, the sharpest decline since June, the CFTC said. West Texas Intermediate fell 1.3 percent last week and touched $91.24 a barrel on Jan. 9, the lowest since May. U.S. gasoline inventories rose to the highest since March in the week ended Jan. 3, Energy Information Administration data show.
The net-long position in gold jumped 18 percent to 40,229 contracts, the government data show. Short holdings slid 5.3 percent to 68,707, the lowest since mid-November. Prices gained for three straight weeks, the longest rally since August. Some investors have increased purchases of coins, bars and jewelry after prices tumbled 28 percent in 2013, the most since 1981.
Speculators lowered their net-long position in copper by 1.7 percent to 35,030 contracts. Supplies will top demand by 127,000 metric tons this year, Barclays estimates.
A measure of speculative positions across 11 agricultural products fell 20 percent to 163,319 contracts, the lowest since August, the CFTC data show. Holdings fell for an eighth week, the longest decrease since 2007.
Investors are holding a net-short wager in sugar of 37,758 contracts, the most since September and up from 25,626 a week earlier. Ten of 16 traders surveyed by Bloomberg said they expect raw sugar to decline this week on speculation that exports will increase from India, the world’s second-largest producer.
The bearish wheat holding reached 73,088, the most since the data begins in 2006. Global stockpiles at the end of May will be 185.4 million tons, compared with 182.78 million estimated in December, the USDA said Jan. 10. Analysts expected 182.68 million, according to a Bloomberg survey.
“There is a whole lot of inventory out there for many commodities,” said John Stephenson, who helps oversee about $2.61 billion at First Asset Investment Management Inc. in Toronto. “This will be a year of low prices, and I will stay away from agriculture and precious metals.”
--Editors: Joe Richter, Millie Munshi