Billions of dollars of speculator funds have recently left commodities for equities and other investments. In just one late June week, speculative hedge funds cut 20,379 contracts off their net long position. As of June, within three years, the overall index fund net position dropped by nearly 30%.
"Within the next three years, I see corn with a $3 in front of it and soybeans with an $8 in front of it."
Funds Pull. "Our clients tell us they no longer want to be involved in ag," says Dan Basse, president, AgResource Co. "They see added production worldwide, growing U.S. supplies, steady to sagging demand and a buildup of stocks. In three years, I see corn with a $3 in front and soybeans with an $8 in front."
An increasing number of institutions are decreasing their investment in commodities and banks that trade them. Morgan Stanley exits trading of some commodities. "The commodities revenue pool available to firms within our sector has fallen by almost 50% from 2007-09," states a company memorandum.
Hedgers, including farmers, are also reducing their use of futures contracts. Because farmers use
forward contracts to price grain, a reduction in forward pricing also means grain elevators will not offset those positions in the futures market.
Lawrence Kane, Stewart-Peterson, estimates that 20% to 25% of 2013 corn and soybean production had been pre-sold as of June 11, compared to typical levels of more than 40%. Contrary to popular belief, the reduction in exposure of spec funds in commodities poses no risk for farmers, says Scott Irwin, a University of Illinois ag economist.
- Summer 2013