Investors Flee Commodity-Backed Products Amid Grain Glut

05:00PM Oct 03, 2014
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Investors last month pulled more money out of U.S. exchange-traded products backed by commodities than they have all year, as signs of supply gluts drove the biggest price slump since the financial crisis.

Power Hour Noon LogoAbout $1.05 billion was removed from the ETFs in September, the biggest monthly withdrawal since December, data compiled by Bloomberg show. Outflows were led by redemptions from precious metals and energy. Money mangers have cut their combined bullish bets across 18 U.S. traded commodities for 13 straight weeks, the longest streak since the data begins in 2006, while open interest in raw materials fell last quarter by the most in two years.

The Bloomberg Commodity Index slumped 12 percent in the three months ended Sept. 30, the most since the last quarter of 2008. Prices fell amid expanding supplies, a surging dollar and weakening economic growth in China, the world’s largest consumer of grains, metals and energy. Eighteen of the 22 raw materials tracked by the measure dropped.

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"Demand has been tepid, more so than people expected, particularly for the crude-oil market, which is awash in supply," Aakash Doshi, an analyst who tracks investor flows at Citigroup Inc. in New York, said in a telephone interview. "On the grain side, we’re seeing very strong Northern Hemisphere supply. On metals, there are concerns about China."

The Bloomberg Commodity Index fell 6.3 percent this year, dropping to a five-year low Thursday. The MSCI All-Country World Index of equities slid 0.1 percent. The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, climbed 4.7 percent.

Climbing Supplies

U.S. farmers are collecting the biggest corn and soybean crops ever, and global inventories of nickel tracked by the London Metal Exchange are at an all-time high. U.S. crude oil production is near the highest since 1986, compounding a surplus. China is poised for its slowest expansion in two decades.

Combined net-long positions across 18 U.S. traded commodities dropped 10 percent to 450,424 futures and options contracts in the week ended Sept. 23, the lowest since August 2013, according to the Commodity Futures Trading Commission. Money managers are bearish on copper, sugar, soybeans and wheat, and are holding the smallest net-bullish wager on gold since January.

Investors pulled $776.6 million from ETFs tracking precious metals last month. Assets in gold-backed ETPs fell for seven straight quarters and are at the lowest in five years.

Gold Slide

Gold futures slumped 8.4 percent last quarter, the first such loss this year. The metal touched $1,204.30 an ounce on Sept. 30, the lowest since January. Goldman Sachs Group Inc. says the worst isn’t over for bullion, forecasting prices at $1,050 by year-end.

Platinum prices in New York fell to a five-year low yesterday on concern that demand will falter for the metal used in pollution-control devices in cars. Silver tumbled 19 percent last quarter.

Corn and soybeans will extend this year’s price slump as yields in the U.S., the world’s biggest grower, beat government estimates and boost domestic stockpiles, Damien Courvalin, a New York-based analyst at Goldman, said in a report Sept. 30. The grain extended a drop to a five-year low yesterday, and the oilseed dropped to the cheapest since 2010 in Chicago.

Societe Generale SA on Sept. 12 lowered its price forecasts for more than half of the 43 raw materials it tracks, and on Sept. 24, Citigroup pared its outlook on commodities including crude oil, gold, corn and wheat.

"I hope we’re nearing the end of this, but I think we’re in the middle of a substantial financial liquidation," Michael Shaoul, the chief executive officer of Marketfield Asset Management LLC, which oversees $17 billion, said in a telephone interview from New York. "If it’s financial liquidation, it should be peaking" and create "a floor under commodity prices," he said. "If instead, it really is global demand for commodities deteriorating, or being overwhelmed by supply, then it could continue."