Hedge funds cut their bullish commodity wagers by the most in seven weeks before prices dropped to an eight-month low on signs of surplus supply and slowing economic growth in China.
The net-long position across 18 U.S.-traded commodities fell by 11% to 678,885 futures and options in the week ended Jan. 7, U.S. Commodity Futures Trading Commission data show. Investors are the most bearish on wheat (CBOT:WH14) ever and anticipate lower prices for corn, coffee, sugar and soybean oil. Bullish gold (COMEX:GCG14) wagers rose to the highest since mid-November.
Raw-material prices fell 3% since Dec. 31, the worst start to a year since 2007. In China, the biggest user of everything from pork to zinc to cotton, producer prices declined in December for the 22nd straight month, the longest decline since the Asian financial crisis in the 1990s. World stockpiles of wheat and soybeans will be bigger than analysts estimated, the U.S. Department of Agriculture said. Copper and nickel will be in surplus this year, Barclays Plc forecast.
“Supplies of many commodities are rising, while demand, especially in China, remains weak,” said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors LLC, which manages $1.3 trillion of assets. “We remain underweight on commodities.”
The Standard & Poor’s GSCI Spot Index of 24 raw materials slid 0.7% last week, and reached 603.56 on Jan. 9, the lowest since April 23. The MSCI All-Country World index of equities gained 0.4%, while the Bloomberg Treasury Bond Index rose 0.6%. The Bloomberg Dollar Index, a gauge against 10 major trading partners, fell 0.2%.
A gauge of China’s services industries decreased to 50.9 in December from 52.5 the previous month, HSBC Holdings Plc and Markit Economics Ltd. said Jan. 6. It was the second straight decline. The nation’s economy will expand 7.5% this year, the slowest since 1990, according to the median of 55 economist estimates compiled by Bloomberg. The country is the top metals and energy consumer.
Open interest across the members of the GSCI slumped 6% from last year’s high in June. Contracts outstanding fell 3.2% in the two months through December, the most in a year. Investors pulled a record $50 billion from passive index-swaps and exchange-traded products that are commodity linked, Citigroup Inc. said Jan. 7. That compares with an inflow of $27.5 billion in 2012.