Wheat Bears Multiply as Prices Slump Most Since ’11: Commodities

Jun 30, 2014 5:02 pm ET

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June 30 (Bloomberg) -- Hedge funds got more bearish on wheat as predictions for ample global supplies spurred the largest rout in prices since 2011.

Money managers are holding the biggest bet against wheat prices since mid-February. Global stockpiles will reach a three- year high before the 2015 harvest, as growers increase production from India to Europe, making up for a smaller American crop, the U.S. government forecasts.

Futures tumbled 17 percent this quarter, the most in three years, and entered a bear market this month as farmers across North America accelerated harvesting of winter varieties. Supplies of corn and soybeans are also climbing, and warm weather has boosted growing conditions in the U.S., the world’s biggest grain exporter.

“We’re seeing ample global supplies,” Christopher Narayanan, the head of agricultural research at Societe Generale SA in New York, said June 27. “The downside risk is greater than upside risk at this point. Barring any kind of summer woes, things look pretty good.”

Wheat prices in Chicago fell 7.9 percent to $5.775 a bushel this month. The Standard & Poor’s GSCI Agricultural Index of eight crops slumped 10 percent, while the broader GSCI gauge of 24 commodities rose 1.4 percent. The MSCI All-Country World Index of equities gained 1.7 percent, and the Bloomberg Treasury Bond Index slid 0.2 percent.

Wheat Wagers

The wheat net-short position, or bets on declines, expanded to 40,436 futures and options in the week ended June 24, U.S. Commodity Futures Trading Commission data show. That compares with 28,942 a week earlier.

World inventories by the end of May will reach 188.61 million metric tons, the U.S. Department of Agriculture said June 11. That compares with last month’s estimate of 187.4 million and 188.08 million forecast by analysts in a Bloomberg survey. Prices will drop to $5.71 by the first quarter of 2015, SocGen forecasts.

Global grain stockpiles, excluding rice, are forecast to climb to a 15-year high by the end of the 2014-2015 season, the London-based International Grains Council said on June 26. Rising supplies are helping to keep global food costs in check, with the United Nations saying world food prices fell in May for the second straight month.

Vomitoxin Outbreak

Excess rain in parts of the U.S. has reduced crop quality, according to Advance Trading Inc. It also has increased the spread of the soil-borne fungus wheat vomitoxin to the worst in about five years for grain near Belleville, Illinois-based St. Clair Service Co., the agricultural service company said.

While moisture threatens some plantings, drought is parching fields in the South and the Great Plains. The Texas Grain Sorghum Association estimates that farmers in the state will plant more sorghum than the USDA forecast in March as some abandon ruined wheat crops.

“Until you get it all out of the ground, and get it all to market or storage, weather’s always a wildcard,” Jake Dollarhide, who helps oversee $75 million as chief executive officer of Longbow Asset Management Co. in Tulsa, Oklahoma, said in a June 27 interview. “There’s been a lot of replacement for wheat, even in some cases with corn. There’s definitely some concerns.”

Combined Holdings

Combined net-wagers across 18 U.S.-traded commodities rose 11 percent to 1.32 million contracts as of June 24, the biggest gain since February, the CFTC data show.

In the five days through June 26, investors added about $3.3 million to exchange-traded funds that track agriculture. Inflows across commodity ETFs were $201 million, including a $25.6 million gain for those backed by precious metals.

Investors are once again bullish on copper, holding a net- long position of 14,325 contracts on June 24. That compares with net-short wagers of 313 a week earlier. Futures in New York rose for 10 consecutive sessions through June 26, the longest streak since 2005.

Combined copper inventories tracked by exchanges in London, Shanghai and New York fell 50 percent this year. U.S. new-home sales in May posted the biggest one-month gain since 1992, government data showed June 24. The Copper Development Association estimates that construction accounts for about 40 percent of demand.

The net-bullish position in gold surged 72 percent to 114,356 contracts, the highest since March. Futures have posted four straight weekly gains, the longest rally since January. The Federal Reserve said June 18 that the central bank plans to keep borrowing costs low for a considerable time.

“We like industrial metals in general because we do think we’re on the precipice of a global cyclical recovery,” Mike Mullaney, chief investment officer for Fiduciary Trust Co. in Boston, which oversees $11.3 billion, said June 26. “Our inclination is to potentially increase our weight in gold to hedge us through some near-term inflationary risk.”

--With assistance from Jeff Wilson in Chicago.