THE INVESTMENT binge in US agriculture funds has ended as record crops and the promise of improving meat supplies send prices plunging.
After taking in more money than precious metals or energy funds during the first five months of this year, exchange-traded products (ETPs) backed by agricultural commodities had a net outflow for the year of $57.7 million (R615.1m) as of Friday, down 2.9 percent, data show.
Energy, precious metals, industrial metals and broad-based funds saw net inflows over the period, boosting total raw material investment by $341m, or 0.5 percent.
While coffee, cattle and hogs have posted gains that beat most commodities this year, prices for cotton, soya beans, maize and wheat fell into bear markets.
Speculator bets on an agriculture rally are down 78 percent since April as farmers in the US prepare to collect what the government predicts will be record harvests.
Global food costs fell for four consecutive months through July.
“We’re coming up on what could be one of the biggest crop years ever,” Kurt Nelson, a founder and partner at SummerHaven Investment Management in Connecticut, said last week.
“There’s more certainty now about the success of the crop,” he said. “It looks like we’re not going to have any surprises.”
As recently as the end of May, after rains caused planting delays that sparked a crop price rally, US agriculture ETPs had a net inflow of $45.8m for this year.
At that point, precious metals funds had a net outflow of $380.5m and energy funds had contracted by $12.7m, while industrial metals were up $48.6m.
Near-ideal weather followed, and farmers were now expected to reap a record 356.4 million tons of maize and 103.8 million tons of soya beans, the US Department of Agriculture (USDA) said on August 12. Crop conditions on August 24 were the best for that time of year in at least two decades, the USDA said.
Futures for both commodities have touched four-year lows on the Chicago Board of Trade since June and are down more than 30 percent from this year’s highs.
Prospects for cheap feed grain has pared gains for cattle and hog futures. While prices are still up, ETPs linked to livestock have had a net outflow of $10.2m as of Friday, down 19 percent for the year, compared with a net inflow on May 30 of $3.2m, data show.
Money managers, whose net long positions across 11 different agricultural commodities surged to 1.1 million futures and options contracts in early April, the most since 2010, had cut their bullish holdings to 248 335 contracts by August 26, according to US Commodity Futures Trading Commission data going back to 2006.
Speculators were bearish on soya beans, cotton and sugar.
The Bloomberg agriculture index of seven farm products, excluding livestock, has tumbled 21 percent since the end of April, as all prices fell.
The Bloomberg commodity index of 22 raw materials slid 8.1 percent over the same period, while the MSCI all world index of equities gained 4.2 percent.
The Bloomberg treasury bond index rose 2.1 percent.
As most crop futures dropped, some metals rose. Copper futures posted four consecutive months of gains through July, the longest rally for a most-active contract since 2011, as global stockpiles fell to the lowest since 2008.
Aluminium is up 16 percent, its best start to a year since 2009. Gold futures have gained 6.6 percent this year to $1 281.50 an ounce, as conflicts from Ukraine to Gaza to Iraq spurred demand for a haven.
US ETPs backed by precious metals have seen a rebound since May, with a net inflow this year of $123.3m as of Friday, data show. Industrial metals funds are up $105.5m, energy funds have a net inflow of $154.7m and broad-based funds are up $25.3m.
Agriculture may still rebound. Maize and soya bean harvests will not start for another few weeks in the US, so there is still the risk of weather damage from rain or frost for the nation’s two largest crops.
The Pro Farmer Midwest Crop Tour pegged the soya bean crop at 103.7 million tons, less than the USDA estimate, noting crops in Minnesota and South Dakota looked “average”, the group said on August 22. Wheat futures rose 0.2 percent last week, the first gain in three, as fighting expanded between Ukraine and Russia. The two countries will account for a fifth of global exports this year, the USDA estimates.
“We’re at the low end of the grain-value range,” Ashmead Pringle, the president of GreenHaven Commodity Services, said. “The grains are going to see some strength going forward.”
More than a third of Texas, the largest cotton- and cattle-producing state, remained in severe drought as of August 26, according to US Drought Monitor. Cattle futures are up 12 percent this year, feeder cattle have rallied 29 percent, and hogs have gained 15 percent as producers were slow to rebuild herds, even as cheaper grain reduces the cost of animal feed.
Coffee production in Brazil might drop as much as 18 percent as a prolonged drought plagued growing areas, the National Coffee Council said. Arabica coffee futures have surged 82 percent this year.
For now, the weather is primed to promote crop growth, and the USDA raised its estimates on August 12 for US beef and pork output this year, citing cheaper feed.
Through last month, the Bloomberg commodity agriculture and livestock index posted four consecutive months of losses, reversing four consecutive advances at the start of the year that marked the longest rally since 2010. – Bloomberg