Funds Trim Bullish Commodity Bets as Global Growth May Decline

Funds reduced bullish bets on commodity prices for the first time in four weeks as Greece’s debt crisis spurred speculation that global growth will decline, curbing demand for raw materials.

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Funds Trim Bullish Commodity Bets as Global Growth May Decline

By Yi Tian
20 June 2011

Funds reduced bullish bets on commodity prices for the first time in four weeks as Greece’s debt crisis spurred speculation that global growth will decline, curbing demand for raw materials.

Speculators cut their net-long positions in 18 U.S. commodities by 0.9 percent to 1.3 million futures and options contracts in the week ended June 14, government data compiled by Bloomberg show. That’s the first drop since May 17. Declines were led by a 63 percent plunge in bets on rising wheat prices. Natural gas holdings tumbled 41 percent.

The Standard & Poor’s GSCI Index of 24 raw materials slumped 4.7 percent last week, the first loss since early May. The International Monetary fund lowered its forecast for U.S. growth in 2011 on June 17, saying that weaker growth in the country along with “challenges in the euro area periphery pose greater downside risks” to worldwide expansion.

“The big question is whether the global economic slowdown will result in weaker demand for agricultural commodities,” said James Dailey, who manages $200 million at TEAM Financial Management LLC in Harrisburg, Pennsylvania. Fund holdings may decline again next week, he said.

Investors pulled $973 million out of commodity funds in the week ended June 15, according to EPFR Global, a Cambridge, Massachusetts-based researcher. That’s the biggest outflow since mid-May, EPFR said.

Wheat Bets

Managed-money funds and other large speculators reduced bullish bets on wheat prices by 12,896 contracts to 7,558. That was the biggest decline since investors were net-short in November.

Wheat futures for September delivery tumbled 9.9 percent last week, the most for the contract since mid-March. Russia, once the world’s second-largest shipper, plans to remove an export ban on July 1, boosting speculation that global supplies will be ample.

“You’ve got the prospects of a big Russian crop, with them back out exporting again,” Tomm Pfitzenmaier, a partner at Summit Commodity Brokerage in Des Moines, Iowa, said on June 16. “The whole thing looks pretty negative.”

Prices still have surged 48 percent in the past year as adverse global weather threatened crops. Corn has jumped 74 percent, and soybeans have gained 44 percent.

A measure of net-long positions in 11 U.S. farm goods rose by 0.6 percent in the week ended June 14, the fourth straight increase. Wagers on rising corn prices gained 5.4 percent. Sugar holdings jumped 25 percent, and bullish cocoa bets more than quadrupled.

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