Hedge funds boosted bullish commodity bets to the highest since 2012 as extreme weather threatened global crops and a polar blast increased U.S. demand for heating fuel.
The net-long position across 18 U.S.-traded commodities rose 18 percent to 1.25 million futures and options in the week ended Feb. 18, the highest since September 2012, U.S. Commodity Futures Trading Commission data show. Investors tripled the net- long position in arabica coffee this month to the most bullish since May 2011. Gold wagers climbed to a 16-week high.
Brazil, the biggest sugar and coffee grower, had the driest January in six decades, scorching crops. Arctic-like cold is projected for the eastern two-thirds of the U.S. at the end of the month, boosting demand for natural gas. From extreme cold in the Midwest to drought in California and South America, weather is the “big driver of commodities,” Barclays Plc said in a Feb. 21 report. Commodity funds are headed for the first monthly inflows since September, EPFR Global data show.
“With coffee and things, these rallies are absolutely weather-driven right now,” said Shonda Warner, the managing partner of Chess Ag Full Harvest Partners in Clarksdale, Mississippi, which manages about $150 million of assets. “If we continue that dry weather, we’re going to have a lot of damaged crops, and we’re going to be in short supply, and that’s going to be positive for the markets.”
The Standard & Poor’s GSCI gauge of 24 raw materials climbed 1.7 percent last week, the third consecutive gain and longest rally in four months. Every commodity except copper and zinc rose, led by coffee, natural gas, hogs and sugar. The MSCI All-Country World index of equities rose 0.5 percent, while the Bloomberg Treasury Bond Index was little changed. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, increased 0.3 percent.
A measure of speculative positions across 11 agricultural products climbed 19 percent to 573,187 contracts, the highest since October 2012, CFTC data show. The gauge doubled since the end of January. The S&P GSCI Agricultural Index of eight crops climbed 3 percent last week, the fourth straight weekly increase and the longest rally since September 2012.
Investors are holding a net-long position in coffee of 24,291 contracts, the highest since May 2011, CFTC data show. Arabica-coffee prices on ICE Futures U.S. in New York surged 19 percent last week, the biggest gain since August 2001, and reached a 16-month high of $1.775 a pound on Feb. 20. Before February, speculators were betting on lower prices, holding a net-short position for 18 months. Prices touched a seven-year low of $1.0095 in November on forecasts of ample Brazil supply.
Growing areas in Brazil that account for a third of the world’s coffee production are experiencing their weakest rainy season in decades, just when moisture is needed the most for tree roots to absorb soil nutrients. Yields and quality for arabica beans “will be constrained during this season and the next,” Rabobank International said in a report Feb. 21. While rain in the near term may send prices lower, they will be supported by longer-term concern that output will be limited, the bank said.
Persistent dryness also may damage sugarcane and threaten soybean yields, Rabobank said. Raw sugar on ICE Futures U.S. jumped 6.8 percent last week, the biggest gain for a most-active contract since September 2012, and touched 17.79 cents a pound today, the highest since Nov. 19. Soybean futures are up 7.2 percent this month at $13.75 a bushel on the Chicago Board of Trade.