With excesses building in everything from cotton to wheat, hedge funds can’t seem to get away from crop markets fast enough.
Bumper global harvests and slowing demand will push combined inventories of corn, soybeans and wheat to a record, according to US government data. Those bountiful supplies prompted money managers to lower their bets on higher prices for a fifth straight week, US government data show.
Trading has become more volatile as prices have dropped. The Bloomberg Agriculture Index of eight farm products has declined 17 per cent this year, with the measure’s 60-day volatility reaching the highest since 2012 on Monday.
“We’ve seen the volatility in the agricultural space as of late,” said Paul Springmeyer, a Minneapolis-based senior portfolio manager at Private Client Reserve at US Bank, which oversees $127 billion. “Most people are trying to reign in the risk in their portfolio, and one way of doing it is just avoiding the space.”
Combined positions across 11 agricultural products fell 21 per cent to 183,929 futures and options in the week ended 18 August, U.S. Commodity Futures Trading Commission data show. The holdings have dropped 67 per cent in five weeks.
Supplies expanded after the Bloomberg Agriculture Index surged to a record in 2008 amid booming demand from China. Higher prices prompted farmers to increase output, sometimes with the benefit of government subsidies. Food costs tracked by the United Nations fell for a ninth month in July, the longest slump in more than a decade.
The US Department of Agriculture this month unexpectedly raised its estimates for the domestic corn and soybean crops. In France, grain supplies are so abundant that silo operators are saying they can’t store anymore. In South America, declining currencies are encouraging exporters to ramp up shipments of sugar and coffee that fetch dollars in return.
Weather can wreak havoc on supply. El Nino, which could bring excessive rainfall to South America, and dryness to parts of Asia and the Pacific, is growing stronger, Australia’s Bureau of Meteorology said last week.
News by Bloomberg, edited by ESM
