Hedge funds raised bullish commodity bets to a 15-week high after a drought in Brazil threatened crops from coffee to soybeans.
The net-long position across 18 U.S.-traded commodities climbed 15 percent to 900,330 futures and options in the week ended Feb. 4, the biggest gain since August, U.S. Commodity Futures Trading Commission data show. Investors turned bullish on arabica coffee for the first time since July 2012 and soybean wagers rose by the most in almost three months. Brazil is the biggest exporter of both crops.
The Standard & Poor’s GSCI Agriculture Index of eight commodities rose 3.3 percent last week, reaching an eight-week high Feb. 6. In Brazil, also the top sugar grower, the driest January since 1954 drained dams and scorched plants. Extreme global weather also is threatening other crops with too much rain hampering Indonesia’s cocoa harvest and freezing temperatures damaging U.S. wheat.
"Agriculture is probably the best hope for a decent commodity run this year," said Peter Sorrentino, who helps manage $4.4 billion at Huntington Asset Advisors in Cincinnati. "These weather issues will definitely have a decided positive influence on prices."
The S&P GSCI Spot Index of 24 raw materials gained 2.1 percent last week. The MSCI All-Country World index of equities rose 0.8 percent, while the Bloomberg Treasury Bond Index slid 0.1 percent. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, dropped 0.8 percent. The S&P GSCI Agriculture Index slid 0.1 percent at 10:44 a.m. New York time.
Money managers held a coffee net-bullish position of 7,981 contracts on Feb. 4, the CFTC data show. That’s the first bet on a rally since July 2012. Prices for arabica, the variety favored by Starbucks Corp., surged 24 percent since Dec. 31, the best start to a year since 1997.
Plantations in Brazil are enduring dry weather just when rain is needed the most for tree roots to absorb nutrients as the beans begin to grow inside the coffee cherries. Rain may be "too late" and there isn’t enough time to reverse the damage to trees and beans, Terra Forte, a Sao Joao da Boa Vista-based shipper, said in a report.
Hot, dry weather cut potential soybean yields in as much as 40 percent of Brazil’s growing areas, Commodity Weather Group LLC in Bethesda, Maryland, said in a report Feb. 7. In Kansas, the top winter-wheat-growing state, 35 percent of the crop was in good or excellent condition, down from 58 percent on Dec. 30 after sub-zero temperatures swept the nation, the government said Feb. 3. The Indonesian Cocoa Association sees the nation’s crop dropping to the lowest in a decade as rains in the third- biggest grower hurt flowering and delay the harvest.