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Hedge Funds Extend Longest Soy Bear Run Since 2006: Commodities

August 18, 2014

Hedge funds extended the longest bearish streak for soybeans in eight years as improving crop conditions bolster prospects for a record harvest in the U.S., the world’s largest grower.

Money managers have been betting on declines for five straight weeks, the most since October 2006. The U.S. on Aug. 12 raised its outlook for domestic production that was already forecast at an all-time high. The bumper harvest will swell global inventories to the biggest ever.

Prices tumbled 18 percent this year, the second-largest decline among the 22 raw materials tracked by the Bloomberg Commodity Index. The gauge last week erased its 2014 gains, led by a 24 percent plunge for cotton. U.S. stockpiles of the fiber are set to expand at the fastest pace in almost three decades, while American corn farmers will increase production to a record. Global food costs tracked by the United Nations have fallen for four straight months.

"It’s going to be tough for the news to get any better because you’re talking about record crops and generally really nice yields and we’ve had great weather," Rob Haworth, a senior investment strategist at U.S. Bank Wealth Management, which oversees $124 billion, said Aug. 14. "We’re going to need weather to turn and some other sort of problem for investors to get interested again, and for the price trend to change."

Prices Drop

Soybean futures in Chicago lost 3 percent last week, the most since July 11. The Bloomberg Commodity Index fell 1.3 percent last week. The MSCI All-Country World Index of equities climbed 1.6 percent. Soybeans for delivery in November settled at $10.5775 a bushel at 2:15 p.m. in Chicago, up 0.5 percent.

The net-bearish position in soybeans reached 11,704 futures and options in the week ended Aug. 12, the U.S. Commodity Futures Trading Commission data show. That compares with 14,613 a week earlier, as a drop in short holdings outpaced the declines for long wagers, which slid to the lowest since February 2012.

The U.S. Department of Agriculture raised its outlook for the domestic crop to 3.816 billion bushels, from 3.8 billion a month earlier. Production will rise 16 percent from a year earlier, and stockpiles will triple to 430 million.

Ample rain and cool weather provided ideal growing conditions, and average yields will reach an all-time high of 45.4 bushels an acre, the USDA said Aug. 12. Domestic corn production will climb to 14.032 billion bushels, a second straight record harvest, and spring-wheat output will rise to the highest in four years.

Yield Risk

Pockets of dry weather in the Midwest, including in Indiana and Kentucky, pose a risk to the yield outlook for soybean and corn crops that are still a month from being harvested, according to Chris Narayanan, the head of agricultural research at Societe Generale SA in New York.

About 12 percent of the Midwest was suffering from abnormally-dry to moderate-drought conditions as of Aug. 12, according to the U.S. Drought Monitor. That was up from 11 percent a week earlier. In Indiana, where about 6.5 percent of this year’s crop is planted, about 17 percent is abnormally dry.

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