Hedge Funds Lift Bets to Two-Month High as Rally Accelerates: Commodities (Source : Bloomberg)
Hedge funds increased wagers on rising commodity prices to the most in two months and the rally in raw materials accelerated as the Federal Reserve pledged to keep borrowing costs low for three more years. Money managers raised combined bullish positions across 18 U.S. futures and options by 13 percent to 742,902 contracts in the week ended Jan. 24, Commodity Futures Trading Commission data show. The so-called net-long position in copper jumped 53 percent to the highest since August and in silver by 22 percent to the most since September. Speculators also expanded bullish bets in sugar, soybeans, cotton, gold, gasoline and crude oil.
Fed policy makers said Jan. 25 they will keep their target interest rate for overnight loans between banks near zero at least until late 2014 and didn’t rule out buying more bonds. The Fed first pushed rates to a record low in December 2008 and has since purchased $2.3 trillion of debt in two rounds of so-called quantitative easing that ended in June 2011. During that period, commodities rose more than 80 percent. The Standard & Poor’s GSCI Spot Index of 24 raw materials jumped 2.2 percent last week, after a 0.1 percent gain a week earlier, as the dollar depreciated to a seven-week low.
Investors Abandoning, Copper, Cotton, Crude (Source : CME)
The commodities market is shrinking.
Amid plunging prices and soaring volatility, investors and traders reduced bets on 13 key commodity contracts by 19% in 2011, according to a Wall Street Journal/Dow Jones Newswires analysis of U.S. Commodity Futures Trading Commission data. The data show so-called open interest, or the number of futures and options contracts outstanding in each commodity. The exodus was the biggest in at least 12 years, outpacing the flight seen in 2008 during the financial crisis, the data show. And it came from a range of commodities -- from crude oil to copper to cotton. Investors of all stripes bolted for the exits, including hedge funds and producers and consumers of raw materials. Index funds and other investment products often used by retail investors also showed outflows in the last months of the year, according to Barclays Capital.
The price swings of 2011, led by worries about Europe's debt troubles and fears China would slam the brakes on its economy, have cast doubts about whether the decadelong commodities rally can continue. Investors had flocked to the commodities markets, chasing gains driven by growing developed and emerging economies. Small investors also were able to join the game, as commodity-focused mutual funds and exchange-traded funds sprang up. "Commodities were a one-way bet," said Rich Soultanian, co-president of NUS Consulting Group, which helps companies manage their energy costs through hedging. He says clients dialed back hedging activities in 2011 after years of oil- and energy-price swings, and that many are skeptical that hedging their future needs is a safe bet: "It's not so simple any longer." Open interest in 13 key commodities dropped to 8.7 million contracts at the end of last year, from 10.7 million contracts at the end of 2010, according to the data.
The collapse of commodity-trading firm MF Global Holdings in October also likely contributed to the decline, as positions held by MF customers were liquidated, analysts say. While there is no direct link between market activity and prices, declines in open interest have previously preceded the end of a price surge. In 2011, prices of oil, copper and cotton dropped after open interest peaked. And, even though commodities rose Thursday, the data show prices typically don't have a sustained rebound until open interest halts its declines. John Hummel, chief investment officer of AIS Futures Management in Wilton, Conn., which manages $400 million in assets, cut the size of his commodities wagers in half over the past few months, after his computer algorithm told him the market was getting too risky. "Some of the statistics on commodities suggest there is an extreme level of pessimism and disinterest," Mr. Hummel said.
Some analysts say investors could soon step back into the market, especially if the rally that began earlier this month gains momentum. A resolution to the debt situation in Europe or confirmation U.S. economic growth is accelerating would help reset commodities to a trajectory of rising prices, potentially encouraging investors to get back in the market, said Michael McGlone, senior director of commodities at Standard & Poor's, which operates the S&P GSCI index. "We all know how this will change," Mr. McGlone said. "Once you get something that looks like a substantial trend . . . then, there will be more interest for longer-term holdings." CME Group Inc., operator of the main U.S. commodity exchanges, acknowledged the overall use of products to bet on commodities had fallen but said the decline in open interest for benchmark contracts had outpaced that of the broader commodity market.
Natural gas bucked the trend, with open interest growing 24% last year, as investors ramped up bets on lower prices. Other energy markets didn't fare as well. Open interest in crude-oil futures and options fell 29% from March to the end of the year, to 2.2 million contracts, the lowest since May 2007. After an uptick in the beginning of the year, investor flows into commodity-focused ETFs, index funds and certain other products fell $4.1 billion in the final three quarters of 2011, according to a report by Barclays Capital. That reduced inflows to $15 billion for the year -- well down from the $67 billion of 2010 and $77.1 billion in 2009. "We believe commodity investment flows will rebound in 2012, but will not go back to the very high levels reached in 2009-10," the Barclays analysts wrote.
Some investors are still reeling from 2011 and may take a while to return to the market, said Tim Evans, an analyst at Citi Futures Perspective in New York. "When you look at the price volatility here, that can chew traders up," Mr. Evans said. "After a while, you get the idea that you should cut down on the total size of your position, or maybe you should trade elsewhere."
Corn (Source : CME)
US corn futures end higher on growing export demand, climbing despite weakness in wheat and soy. Fresh export sales announced, coming on the heels of two straight weeks of improved sales, supported the market, analysts say. They also note that US Gulf cash market bids continue to surge, possibly fueled by exporters who have had to scramble to find supplies to meet existing sales commitments. Market is being driven by short-term supply worries, as nearby March continues to expand its premium to deferred contracts. Deferred contracts have lagged on expecations farmers will plant a huge crop this spring. CBOT March corn ends up 7 1/4c to $6.41 3/4 a bushel, CBOT Dec. corn closes up 5c to $5.71.
Wheat (Source : CME)
US wheat futures end lower, sagging amid easing supply worries and spread-trading. Prices fell despite gains in corn, which has driven wheat's recent rally. Although some worries have emerged this week about a potential drop in Russian wheat exports, some traders say the threat is overblown, particularly given abundant world supplies. "There's a ton of wheat around, whereas there's not a ton of corn around," says John Kleist at ebottrading.com. But US export demand has picked up recently, and traders on Monday will be watching for potential winterkill damage from an expected cold snap in the former Soviet Union. CBOT March wheat fell 6 1/4c to $6.47 1/4 per bushel, March KCBT dropped 9c to $7 and March MGEX declined 1c to $8.26 1/4.
Rice (Source : CME)
US rice futures end slightly lower in light trade amid weak demand. The market has traded a tight range for a couple of weeks and needs fresh demand to break higher, traders say. They add that volume has been light. March rice ends down 5 1/2c to $14.63 1/2 per hundredweight.
US wheat dips from 3-week top, Russian crop in focus
SINGAPORE, Jan 27 (Reuters) - U.S. wheat slid as the market took a breather after six straight sessions of rallies sparked by concerns over Black Sea supplies and enhanced risk appetite following a pledge by the U.S. Federal Reserve to keep interest rates low.
"The market is trying to guess how the crop will progress in the Black Sea region? Is there going to be a large amount of winter kill in Russia?," said Ole Houe, director of advisory services at Sydney-based brokerage Advance Trading Australasia.
US corn export premium at 10-yr high on thin supply
CHICAGO, Jan 26 (Reuters) - The export premium for U.S. corn surged to its highest midwinter level in at least a decade as cash-flushed farmers held tight to their grain and squeezed pipeline supplies to Gulf of Mexico shipment points, trade sources said on Thursday.
U.S. corn has become more competitive on world export markets, bolstered by a slide in domestic prices and higher values in competing countries due to crop losses and logistical issues.
Argentine soy, corn crops seen shrinking this year
BUENOS AIRES, Jan 26 (Reuters) - Argentina's soy and corn harvests will be smaller this season than in the previous crop year, the Buenos Aires Grains Exchange said on Thursday, underlining concerns that recent dry weather might crimp world food supplies.
A weeks-long drought has raised questions about how much corn will be available for export from the No. 2 global supplier, which the world had been counting on to replenish supplies after a disappointing U.S. harvest.
U.S. corn growers say higher yields to boost ethanol
BUENOS AIRES, Jan 26 (Reuters) - The United States is headed for a corn output boom over the years ahead that will increase supplies available for ethanol production, the head of an industry chamber said on Thursday.
The robust growth of the ethanol sector in recent years has altered the structure of the U.S. corn market and ethanol producers now consume about 40 percent of the crop, sparking criticism that food supplies are at risk.
Rain and snow bring some relief to drought-hit U.S.
Jan 26 (Reuters) - Rains brought a respite to drought-hit areas of the South and Southeast, and pushed back drought in the western U.S. in the last week, but long-term forecasts still show threatening dry weather ahead, according to a drought report issued Thursday.
Heavy rains across portions of Georgia and Alabama improved fields for farmers and others who have been struggling with dryness.
Ukraine grain harvest could fall 30 pct to 40 mln T
KIEV, Jan 26 (Reuters) - Ukraine is likely to reduce its grain harvest to about 40 million tonnes in 2012 from a record of 56.7 million tonnes in 2011 due to a fall in harvested area after poor weather during winter grain sowing, analyst ProAgro said on Thursday.
ProAgro said the wheat harvest was likely to fall to about 14 million tonnes this year from 22.3 million tonnes in 2011 because drought in July-November damaged more than 1 million hectares of the area sown for winter wheat.
Argentina Soy, Corn Prices Jump As Drought Drags (Source : CME)
Argentine soy and corn prices gained strongly this week as a lingering drought continued to stoke worries of major damage to the developing crops. Those fears helped boost global prices this week, as traders fretted over the prospects for less output coming from South America this season. "Local prices kept climbing without a pause, boosted by enthusiastic buying," the Rosario Grain Exchange said. Spot soybeans rose to 1,335 Argentine pesos ($311) per metric ton at the Rosario exchange Thursday, up from ARS1,270 last week. Spot soy has risen ARS110 per ton over the past eight sessions, according to the Rosario exchange. May soy sold for $300 per ton, up from $297 a week ago. Earlier Thursday, the Buenos Aires Cereals Exchange made its first forecast for 2011-12 soy production, pegging the crop at a disappointing 46.2 million tons. That's well under the 50.5 million tons the U.S. Department of Agriculture has predicted coming from Argentina this season.
Hot, dry weather through December and early January backed the soy and corn crops and cut into potential yields. Argentina is the world's No. 3 soybean exporter behind Brazil and the U.S., and the leader in global exports of soymeal and soyoil. Meanwhile, March corn sold for $175 per ton, compared with $168 for February corn last Thursday. The Buenos Aires exchange also made its first estimate for corn, pegging the crop at 22 million metric tons. That's down steeply from early expectations from the government of up to 30 million tons. Argentina is the world's second leading corn exporter and the drought fears helped buoy global corn prices this week. Wheat sold for $150 a ton, unchanged from a week ago. Argentina is a significant global wheat exporter, with most shipments going to neighboring Brazil.
EU Banks Withdraw From Financing Iran Grain (Source : CME)
Major European banks, including Rabobank, have halted trade finance for grain or any agricultural products bound for Iran, European banks and traders told Dow Jones Newswires. Disruptions to trade come as sanctions on Iran, the world's fourth-largest oil producer, begin to tighten. The European Union and U.S. have both introduced trade restrictions on the Central Bank of Iran. "Rabobank has pulled out of financing grain trades that are destined for Iran," a bank spokeswoman said. Rabobank one of Europe's largest provider of agricultural commodity financing. "Our bank hasn't touched anything that is destined for Iran," a European grains trader said, adding that as far as he was aware all European banks had halted dealings with the country. "All physical traders have stopped trading with Iran because of the country's difficulties in obtaining letters of credit," the trader said.
"Many Western countries are avoiding sending panamax vessels to Iran," a London-based ship broker told Dow Jones Newswires. Panamax vessels are vessels that typically carry dry bulk cargo, such as grain, around the globe. Iran typically imports around 5 million tons of grain a year, most of which is corn. "It is very likely that Iran is having issues with letters of credit, given the sanctions imposed on them," said Andrey Sizov Sr., senior economist and chief executive of Moscow-based think-tank SovEcon. According to official port records, at least 11 vessels carrying foodstuffs have been waiting for several days to dock at Iranian ports, due to a "lack of readiness of cargo owners." It is unclear if the delays are tied to sanctions.
Three Asian-flagged vessels carrying sunflower oil are waiting at Imam Khomenei port, as is a Cypriot-flagged vessel carrying corn for livestock usage. A Panama-flagged vessel and a Hong-Kong flagged vessel, respectively carrying corn for livestock and soybeans, are also stuck at Imam Khomenei port, according to the records. At Amirabad port five Russian-flagged vessels carrying corn and barley are queueing to enter the port.
Japan Buys 150,191 Tons Wheat For March (Source : CME)
Japan purchased 150,191 metric tons of milling wheat in a tender, a senior government official said. The government bought the wheat in three grades for bulk shipment in March, said the official with the Ministry of Agriculture, Forestry and Fisheries. Japan has purchased 474,705 tons for March shipment. Japan, one of the world's largest wheat importers by volume, purchases milling wheat from the U.S., Canada and Australia.
India Wheat Sowing Rises (Source : CME)
India's wheat sowing until Friday rose marginally to 29.53 million hectares from 29.16 million hectares a year earlier, farm ministry data showed. The sowing trends indicate that this year's wheat crop will be near last year's record harvest of around 86 million tons, which would help the government to roll out an ambitious food security program this year. In India, wheat is sown in October-November and harvested from end-March to early April. The data showed also that acreage under oilseeds from Oct. 1, 2011, until Friday fell to 8.43 million hectares from 9.31 million hectares, while area under pulses declined to 14.58 million hectares from 14.67 million hectares.
Corn Seen Opening Higher on Rising Demand; Wheat May Fall; Soybeans Steady (Source : Bloomberg)
-- Corn futures are called to open 3 cents to 5 cents a bushel higher on the Chicago Board of Trade on speculation that adverse weather this month reduced output in South America, Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa, said in telephone interview. Farmers withheld inventories, boosting premiums that grain companies are paying to acquire prompt supplies.
-- Wheat futures may open 1 cent to 2 cents a bushel lower on the CBOT, the Kansas City Board of Trade and the Minneapolis Grain Exchange on speculation that protective snow cover and moderating temperatures next week will limit damage to crops in parts of Russia and Ukraine, Roose said.
-- Soybean futures may open 1 cent a bushel lower to 1 cent higher in Chicago amid forecasts for beneficial rain in the next two weeks in South America and speculation that China will increase purchases next week, Roose said. Soybean-oil futures are expected to open 0.1 cent to 0.15 cent a pound lower, and soybean-meal futures may open 50 cents to $1 lower per 2,000 pounds.
Colombian exports of fine beans seen flat in 2012
BOGOTA, Jan 26 (Reuters) - Colombian exports of specialty coffee beans are expected to remain flat in 2012 due to lower national production and crimped demand in Europe, experts and officials at the coffee growers federation said.
Colombia - the world's top producer of high-quality Arabica beans and one of the world's main coffee exporters - should see a fourth straight year of lower-than-capacity total output in 2012 as heavy rains continue to hurt production.
Malaysia raises sugar subsidies as election draws closer
KUALA LUMPUR, Jan 26 (Reuters) - Malaysia has more than doubled subsidies on sugar, a government source said on Thursday, a sign that Prime Minister Najib Razak may be delaying economic reforms to appease voters ahead of elections.
The source with knowledge of the decision, who declined to be identified, said subsidies were raised at the start of the year to 54 Malaysian sen per kilo, or 18 U.S. cents, from 20 sen to offset higher prices for imported sugar.
Oil Trades Near Two-Day Low Before European Leaders Meet for Debt Talks (Source : Bloomberg)
Oil traded near a two-day low in New York before a meeting of European Union leaders in Brussels to discuss the region’s debt crisis, which has slowed the economy and threatened to curb fuel consumption. Futures were little changed after advancing 1.1 percent last week. EU chiefs will meet in the Belgian capital to complete a German-led deficit-control treaty and endorse the statutes of a 500 billion-euro ($660 billion) rescue fund to be set up this year. International Atomic Energy Agency inspectors arrived in Tehran yesterday for talks on Iran’s nuclear program. Crude for March delivery was at $99.42 a barrel, down 14 cents, in electronic trading on the New York Mercantile Exchange at 11:16 a.m. Sydney time. The contract declined 14 cents to $99.56 on Jan. 27, the lowest close since Jan. 25. Prices are 8 percent higher the past year.
Brent steady above $110 on demand growth hopes, Iran
SINGAPORE, Jan 27 (Reuters) - Brent crude held steady above $110 on hopes of steady demand growth as positive data from the United States boosted expectations of economic expansion gaining momentum in the world's top oil consumer.
"The Fed's lower interest rate stance is still getting priced in. The statement caught markets by surprise as it so explicitly stated the interest rate outlook," said Natalie Robertson, an analyst at ANZ.
Iran could ban EU oil exports next week -lawmaker
TEHRAN, Jan 27 (Reuters) - A law to be debated in Iran's parliament on Sunday could halt exports of oil to the European Union as early as next week, the semi-official Fars news agency quoted a lawmaker as saying on Friday.
"On Sunday, parliament will have to approve a 'double emergency' bill calling for a halt in the export of Iranian oil to Europe starting next week," Hossein Ibrahimi, vice-chairman of parliament's national security and foreign policy committee, was quoted as saying.
China fuel oil demand seen strong for 4th straight mth
SINGAPORE, Jan 27 (Reuters) - China's fuel oil demand, which has been strong for three months since December-arrival cargoes were imported, is expected to remain firm for currently-trading March-arrival parcels, traders said on Thursday.
Its smaller, private refiners, known as teapots, have been buying above-average volumes of straight-run fuel oil, due to insufficient supplies of refining feedstocks, with cargoes moving directly into China from non-traditional sources in Europe, they added.
Indian Oil seeks diesel imports on low inventory levels
SINGAPORE, Jan 27 (Reuters) - Indian Oil Corp , the country's biggest oil refiner, is looking to import more diesel to build low inventory levels in some parts of eastern India, industry sources said on Friday.
Stock levels fell because of a spike in diesel consumption for back-up power generators following a shortfall in coal supplies late last year that caused several blackouts in the country, one of the sources said.
Brazil to keep ethanol blend at 20 pct - report
SAO PAULO, Jan 26 (Reuters) - Brazil does not plan to raise the ethanol blend in gasoline from the current 20 percent to 25 percent as might be expected with the start of the new sugarcane harvest in April, a local paper reported Thursday.
Ricardo de Gusmao Dornelles, the director of renewable fuels at the energy ministry, told the Valor Economico newspaper that even though prices for ethanol have been falling, there were no plans to raise the mix in April when the cane crushing season started.
Gold Bulls Ascendant Amid Best Start to Year in Three Decades: Commodities (Source : Bloomberg)
Gold traders are bullish for a fourth consecutive week, betting that the Federal Reserve’s pledge to keep interest rates low until late 2014 will extend the metal’s best start to a year in more than three decades. Nine of 15 surveyed by Bloomberg expect prices to gain next week. The value of gold held in exchange-traded products jumped $3.9 billion on Jan. 25, the most since October, as the central bank laid the groundwork for a possible third round of asset purchases, data compiled by Bloomberg show. Lower interest rates increase the appeal of bullion because it generally earns investors returns only through price gains.
Bullion rose 2.7 percent, the most in three months, after Chairman Ben S. Bernanke said he’s considering additional bond purchases to boost growth. The Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 to June 2011, during which gold appreciated about 70 percent. Investors are now buying American Eagle gold coins from the U.S. Mint at the fastest pace since July 2010, data on its website show.
METALS-Copper falls from 4-month high; heading for weekly gain
KUALA LUMPUR, Jan 27 (Reuters) - Copper slipped from a four-month high on Friday, but prices were on track for their third straight week of gains, with the prospect of additional U.S. stimulus moves supporting sentiment.
Three-month copper on the London Metal Exchange lost 0.6 percent to $8,540.25 a tonne by 0115 GMT, reversing some of the previous session's 2.5 percent gain. The metal is headed for a 4 percent increase this week. The Shanghai Futures Exchange is closed this week for the Lunar New Year holiday.
PRECIOUS-Gold dips after rally; heads for 4th week of gains
SINGAPORE, Jan 27 (Reuters) - Gold fell from a 7-week high on Friday as speculators booked profits ahead of U.S. GDP data, but prices were heading for a fourth week of gains with the Federal Reserve's pledge to keep interest rates near zero for some time supporting sentiment.
Although gold investors were relieved by the Fed's move to keep rates historically low, they will now turn their attention again to the outcome of the Greek debt crisis, with U.S. funds still cautious about lending to banks in the troubled euro zone.
