Hedge funds cut positions to six-month low before rally

Deutsche Outlook

Energy and industrial metals are “undervalued” and an acceleration in global growth is creating a “more constructive outlook for commodity returns heading into 2013,” analysts at Deutsche Bank AG led by Michael Lewis, the London-based head of commodities research, said in a report Jan. 8.

Funds boosted positions on a crude-oil rally by 12% to 168,066 contracts, the highest since Sept. 25, CFTC data show. Futures have climbed for five consecutive weeks in New York, the longest rally since August.

Gold net-long positions tumbled 13% to 92,115 contracts, the lowest since Aug. 14. Those for silver slumped 7.7% to 21,002 contracts, a sixth straight drop that’s the longest run of declines since May. Silver prices climbed 1.5% last week, the first gain since Nov. 23.

A measure of net-longs for 11 U.S. farm goods dropped 16% to 328,443 contracts, the biggest loss in eight weeks, the CFTC data show. The S&P GSCI Agriculture Index of eight commodities jumped 2.1% last week, the most since July.

Corn Positions

Corn holdings fell 15% to 115,113 contracts, the lowest since June 26. Futures rose 4.2% in Chicago last week, the most since July.

Stockpiles in the U.S., the top grower and exporter, shrank more than analysts expected because of a drought-reduced harvest and rising demand for livestock feed, a government report showed Jan. 11. Global inventories will decline 12% from a year earlier as Chinese consumption jumps 11%.

“China is in the middle of a bottoming process and a possible uptick,” said John Toohey, a vice president of equities investments with USAA Investments who helps manage about $54 billion of assets in San Antonio. “The recessionary worries in Europe are not as bad, and overall the global environment is more favorable than it was a few months back.”

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