Speculators dumped crop positions before biggest rally

March 19 (Bloomberg) -- Speculators slashed wagers on higher agricultural prices by the most in eight weeks, missing out on this year’s biggest rally as parched fields from South America to Europe curbed expectations for record harvests.

Money managers trimmed positions across 11 U.S. farm goods by 2.5% to 661,067 futures and options in the week ended March 13, Commodity Futures Trading Commission data show, the biggest reduction since Jan. 17. Bets on sugar fell the most since November before prices posted their biggest weekly gain in five months. Funds also became more bearish on wheat, which jumped to its highest in almost two weeks.

The Standard & Poor’s GSCI Agriculture Spot Index rose 3.5% last week, the most since December, as drought damaged soy, corn and sugar crops across Brazil and Argentina and slowed wheat shipments from eastern Europe and Russia. World food costs had dropped about 11% from a record in the past year on prospects for the most grain supply ever, before rallying in January and February, United Nations data show.

“There are some issues with crop production,” said Jeffrey Sherman, who helps manage about $30 billion of assets for DoubleLine Capital in Los Angeles. “The weather is very, very dry in the southern hemisphere. The opportunity now is in agriculture.”

Sugar, Hogs Climb

The eight-member agriculture gauge climbed to a four-month high on March 16 as the S&P GSCI Spot Index of 24 commodities rose 0.4% last week, led by sugar, hogs and wheat. The MSCI All-Country World Index of equities advanced 2%. The dollar slid 0.3% against a basket of six major trading partners, and Treasuries lost 1.2%, a Bank of America Corp. index shows. The S&P measure of farm futures rose less than 0.1% to 449.82 at 9:21 a.m. in New York today.

Corn and soybeans reached six-month highs as the drought in South America reduced supplies. It’s been the driest and warmest growing season since 2009, when corn output fell 30% in Argentina and 13% in Brazil, according to data from the U.S. Department of Agriculture.

South America’s crops are wilting at a time when China’s appetite for meat from grain-fed livestock is lifting global consumption, boosting the outlook for exports from the U.S., the world’s biggest shipper. Increasing overseas demand helped U.S. net farm income reach a record $98.1 billion in 2011, the government said last month.

Corn Shipments

Jilin Corn Center Wholesale Market Co. said March 15 that China’s purchases of domestic grain plunged to 1.2 million metric tons this year from 11 million tons a year earlier, signaling more imports may be needed. In the week ended March 8, U.S. shippers reported sales for delivery before Sept. 1 jumped 88% from a week earlier, the USDA said.

While investors cut corn wagers 0.3% last week, bets are still up 65% this year, heading for the first quarterly advance since the third quarter of 2010. The net-long position in soybeans surged more than sevenfold in 2012.

The rally is being caused by “the pervasive lack of buffer stocks,” Rabobank International’s commodity analysts, led by London-based Luke Chandler, said in a March 14 report. Record harvest are needed to meet demand and that’s being “thwarted by weather,” the team wrote.

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