Capital Press | Report: Investors pulling money from commodities

After a decade of blistering growth, global commodity prices have generally been declining since 2012, and the financial sector has begun withdrawing its sizable investments from commodities markets, according to a new economic report by Washington, D.C.,-based Worldwatch Institute.

However, the independent research organization’s report finds agricultural goods have fared better than most other commodity classes.

Though commodities traded on public exchanges saw a combined 6 percent decrease in prices during 2012, agriculture — helped by limited supplies due to a severe drought — energy and precious metals were the exceptions, making price gains, according to the report.

“If the drought hadn’t hit, I think agricultural prices would have been maintained or in line with other commodities and dropped a little bit,” Konold said, acknowledging population growth and increasing variability in weather could help buffer agriculture from future sharp declines.

Prior to 2002, Konold explained, commodities were demanded primarily by developed nations, and prices were in a gradual decline. Konold said that’s when developing economies in countries such as China, Brazil and Russia began entering the fray, with insufficient capital expenditures in equipment and production capacity constraining supply.

Commodity prices surged by an average of 9.5 percent per year over the next decade and investment poured in, a phenomena the report describes as the Commodity Supercycle. The exception to the rapid growth was 2008-2009, when the start of the recession hurt prices of the major commodity classes, except precious metals.

Global investment in commodities, which totaled $10 billion at the start of the 2000s, increased to $460 billion by the end of 2012.

Konold believes demand for commodities cooled in 2012 because the largest developing nation, China, took steps to curb inflation after years of record-setting growth largely driven by a construction boom.

Furthermore, large investment banks that turned to commodities for safe harbor during the recession have begun pulling out their money to balance their portfolios as the economy has improved. This year, through the end of April, commodities lost $63 billion in investment.

“So far in 2013, we’re seeing a continued slow-down of commodity prices and a continued exodus of finance,” Konold said. “It will be interesting to watch if that reduction continues and at what pace. That will give us an idea of if it’s a full-on mass exodus or if prices will stable out, and this is the modern commodities market.”

University of Idaho Extension economist Paul Patterson noted the Chinese “can’t produce enough of their own food, so they’re still the majority player in agricultural commodities.”

Prices of major agricultural commodities are declining this year, and economists were predicting declines in 2012, prior to the drought. Rather than a broader trend, Patterson believes the fundamentals of supply and demand have affected agricultural prices.

Patterson agrees investment banks will continue pulling funding from agriculture and other commodity classes to invest in stocks and other options in an improving economy.

But he insists that’s not necessarily a bad trend, provided that the money is taken out gradually so the market has time to adjust. Patterson believes over-investment in commodities tended to drive “high prices higher and low prices lower,” and the volatility increased market risk.

Soybeans Drop After Rally Spurs Farmer Sales; Wheat Declines

Soybeans fell the most in three weeks as the highest prices this year prompted U.S. farmers to boost sales and processors offered smaller premiums for deliveries. Wheat futures also slid while corn rose.

Processors in Mankato, Minnesota, cut the premium to 6 cents a bushel over July futures yesterday, down from 80 cents a week earlier, according to data compiled by Bloomberg. Export terminals near New Orleans cut premiums to 86 cents over Chicago futures for July delivery today, down from $1.48 a week earlier, according to the U.S. Department of Agriculture. Prices surged as much as 11 percent since the end of April, reaching a six-month high yesterday.

“The soybean basis is retreating in both the U.S. and South America, after farmers increased sales this week,” Richard Feltes, the vice president of research for R.J. O’Brien & Associates in Chicago, said in a telephone interview. “Crushers now have enough supplies until the end of June.”

Soybean futures for delivery in July slid 1.6 percent to close at $14.7625 a bushel at 1:15 p.m. on the Chicago Board of Trade, paring this week gain to 1.9 percent. It was the fourth straight weekly increase, matching a run of advances through Feb. 1. Yesterday, the price touched $15.4675, the highest for a most-active contract since Nov. 2.

Soybeans for delivery in November, after the harvest, rose 0.4 percent to $12.4775 on forecasts that wet weather will slow planting in the U.S., increasing the risk of lower yields.

Trading of oilseed and grain futures in Chicago will be closed May 27 for a national holiday.

Wheat futures for July delivery declined 0.8 percent to $6.975 a bushel on the CBOT. Prices gained 2.1 percent this week on speculation that demand for U.S. inventories would increase. U.S. exporters sold 180,000 metric tons of soft red winter wheat to China, the USDA announced today.

Corn futures for December delivery rose 0.3 percent to $5.365 a bushel in Chicago. The contract has fallen 11 percent this year as farmers plan to sow the most acres since 1936 and rains have replenished soil moisture after last year’s drought.

To contact the reporters on this story: Jeff Wilson in Chicago at jwilson29; Tony C. Dreibus in Chicago at tdreibus

To contact the editor responsible for this story: Steve Stroth at sstroth

Corn Futures Rise on U.S. Export Demand, Ethanol Data

Corn futures jumped the most in a week as demand rose for exports from the U.S., the world’s biggest shipper, and inventory of grain-based ethanol dropped to the lowest since November 2010. Wheat and soybeans gained.

The U.S. Department of Agriculture reported sales of a combined 540,000 metric tons of corn to China and unknown destinations for delivery in the 12 months that start Sept. 1. Ethanol output rose to the highest in 11 months, and stockpiles dropped for the fourth straight week, government data showed.

Supplies of ethanol, a gasoline additive, “are now as low as they usually are coming out of the end of the driving season in late August,” Jerry Gidel, the chief grain-market analyst at Rice Dairy LLC in Chicago, said in a telephone interview. “There is little reason to expect production to slow as U.S. driving demand will increase demand the next several months.”

Corn futures for July delivery rose 2.9 percent to settle at $6.585 a bushel at 1:15 p.m. on the Chicago Board of Trade, the biggest gain for a most-active contract since May 13.

U.S. supplies of the grain left from last year are forecast to fall to the lowest since 1996 before the 2013 harvest, the government said on May 10.

Wheat futures for July delivery advanced 1.2 percent to $6.885 a bushel, the biggest gain since May 9, partly on signs of increasing use in livestock feedstock.

“Wheat is a cheaper feed alternative to corn on a per-pound and protein basis,” Dave Marshall, a farm-marketing adviser at Toay Commodity Futures Group LLC in Nashville, Illinois, said in a telephone interview. “Wheat supplies are not positioned where mills and exporters need them, and because of the shortage of corn, there is increased feed demand.”

Soybean futures for July delivery climbed 1.1 percent to $14.9425 a bushel. The price rose for the fifth straight session, the longest rally in more than a year.

Wet weather in the next two weeks will delay sowing in the Midwest, Gidel said. Planting was 24 percent completed on May 19, down from 42 percent on average in the previous five years, the USDA said on May 20.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29

To contact the editor responsible for this story: Steve Stroth at sstroth

Soybeans Climb Above $15 on China Demand, Shrinking U.S. Supply

Soybeans Climb Above $15 on China Demand, Shrinking U.S. Supply

Soybeans advanced to a six-month high, heading for the best run in more than a year, on signs that demand will increase in China even as U.S. supplies shrink.

Soybeans for July delivery gained as much as 0.6 percent to $15.025 a bushel, the highest for a most-active contract since Nov. 8, on the Chicago Board of Trade and were at $14.9475 by 10:23 a.m. in Singapore. Prices are set to climb for a sixth day, the best streak since March 2012.

China’s soybean imports, the world’s largest, will start increasing sizably from this month onward and jump 17 percent in the next season, according to Oil World. Purchases may climb to 68 million metric tons in the 2013-2014 marketing year that begins Aug. 1 from 58.2 million tons, the Hamburg-based researcher said May 21. U.S. inventories before the next harvest will shrink to 125 million bushels, the smallest since 2004, the U.S. Department of Agriculture estimates.

“It’s an old-crop market that is extremely tight,” Michael Pitts, a commodity sales director at National Australia Bank Ltd., said by phone from Sydney. “China has been a consistent importer over the year and is likely to continue.”

Futures rallied to a record $17.89 a bushel in September as U.S. crops were hurt by the worst drought since the 1930s. Logistical bottlenecks in Brazil supported prices in recent months as shipments to importers including China were delayed. “There is concern about a lack of soybeans in July and August” in the U.S., Oil World said.

Wheat for July delivery gained as much as 0.4 percent to $6.91 a bushel and traded at $6.905. Corn for December delivery, most active by open interest, was little changed at $5.3025 a bushel.

To contact the reporter on this story: Phoebe Sedgman in Melbourne at psedgman2

To contact the editor responsible for this story: James Poole at jpoole4