Commodities are king despite S&P high

Brazil Sugar

Brazil, the biggest exporter of both commodities, may see lower sugar production, as dryness is expected to persist into this week, MDA Weather Services in Gaithersburg, Maryland, said in a report on Feb. 20. Investors are the least bearish on sugar since December, trimming net-short positions to 26,489 contracts, compared with 38,576 a week earlier, CFTC data show. Bullish bets on soybeans jumped 11 percent to 195,492 contracts, the highest since September 2012.

Soybean production in Brazil and Argentina is still projected to climb 10 percent, even with the dry weather, Rabobank said in its report. Corn and soybean harvests in the U.S. this year will be the biggest ever, meaning an increase in stockpiles before next year’s harvest, the U.S. Department of Agriculture said in a report on Feb. 21.

Record Crops

Corn yields in the U.S., the world’s top grower and exporter of the grain, may jump 4.1 percent this year as output reaches a record 13.985 billion bushels, leaving Aug. 31, 2015, stockpiles at 2.111 billion bushels, or 43 percent bigger than a year earlier, the USDA said. Soybean output will be 3.55 billion bushels, almost doubling reserves to 285 million bushels next year, the agency said. Corn futures fell the most in three weeks on Feb. 21, and prices are down 46 percent from the all-time high of $8.49 a bushel in August 2012.

“There’s no doubt that the rally in those markets, sugar and coffee, has caught the attention of some of the grain trade and people are wondering if there is an adverse impact on soybean yields,” said Dan Cekander, the director of grain- market analysis for Newedge USA LLC in Chicago. “The grain fundamentals themselves don’t suggest a bull story -- not without a significant Northern Hemisphere problem in 2014.”

The S&P GSCI Enhanced Commodity Index, Goldman Sachs Group Inc.’s preferred measure, will drop 4.3 percent in the next 12 months, the bank said in a Feb. 12 report. Agriculture will decline 9 percent as precious metals retreat 14 percent, the bank’s analysts said.

Fuel Demand

Net-long wagers on four U.S. natural gas contracts rose 5 percent to the highest since May, CFTC data show. Futures surged 18 percent last week in New York, the second straight increase. U.S. stockpiles tumbled 250 billion cubic feet to 1.443 trillion in the week ended Feb. 14, the least for that period since 2004, government data show. January was the coldest start to a year since 2001, the National Oceanic and Atmospheric Administration said in a report Feb. 13.

Gold bets climbed 31 percent to 90,942 contracts, the highest since Oct. 29 and triple the level of bullish bets eight weeks earlier, the CFTC data show. Signs that growth in the U.S. economy, the world’s largest, is weaker than some economists had forecast spurred demand for the precious metal as a haven asset. American sales of previously owned homes fell last month to the lowest in more than a year, the National Association of Realtors said Feb. 21. Federal Reserve Chairman Janet Yellen said on Feb. 11 that the recovery in the labor market is “far from complete.”

Gold Inflow

Gold prices rose 0.4 percent last week, the third straight increase, and reached $1,339.20 an ounce today, the highest since Oct. 31. Prices gained 11 percent this year after losing 28 percent in 2013, the biggest annual decline since 1981. Assets in SPDR Gold Trust, the biggest exchange-traded product backed by the metal, are heading for the first monthly inflow since December 2012, according to David Mazza, the head of ETF Research at State Street Bank & Trust Co., the marketing agent for the fund.

While speculators remained bearish on copper, they reduced their net-short positions to 8,888 contracts, compared with 15,792 the previous week, the CFTC data show.

Investors added $1.03 billion to commodity funds in February, heading for the first monthly inflows since September, said Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Money managers have pulled $2.69 billion from funds this year, after record outflows of $43.3 billion in 2013, the most in data going back through 2000, EPFR data show.

“With the decline in prices that we saw last year, you’ve re-established that equilibrium between supply and demand, so the prospects for better growth should pull industrial commodities higher,” said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which oversees $63 billion in assets. “I don’t think we’re back in the middle of a commodities super cycle at the moment, but returns this year should be relatively rewarding.”

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