Hackett Advisors in the News

Funds pull out of commodities, most bearish since end-2011

By Josephine Mason
New York| Saturday June 2, 2012 12:05am BST

(Reuters) - Hedge funds and other money managers withdrew more than $2.3 billion from commodities markets in the final week of May, taking their most bearish stance since the end of December, trade data on Friday showed.

Data showing speculators took cash off the table for a fourth consecutive week in the week to May 29 came as the commodity market was on the brink of bear territory.

The Thomson Reuters-Jefferies CRB index .CRB is down 18 percent from its late February highs after Friday's sharp sell-off, with Brent crude below $100 per barrel, triggered by weaker-than-expected monthly U.S. jobs data. Many investors consider a 20-percent decline to be a bear market.

Disappointing unemployment numbers compounded an already-gloomy global economic picture following poor manufacturing data from China and dismal European reports on factory activity.

"All commodities are pretty much in a bear market right now," said Shawn Hackett Shawn Hackett of Hackett Advisors, Boynton Beach, Florida, focusing in particular on corn and soybeans.

"There are pretty much surpluses in everything and demand is not robust enough to offset that."

Gold was the only pocket of strength, rising more than 3 percent as investors sought safety amid increasing despair over the global economy and on expectations that the Federal Reserve will soon take further steps to stimulate the stuttering U.S. economy.

Ahead of Friday's blood bath, speculative investors cut net length for a fourth consecutive week, liquidating almost $2.3 billion in 22 commodity futures and options as May drew to a close, trade data for the week to May 29 showed.

That took the net length measured in dollars to just over $59 billion, its lowest level since the last week of December when commodity markets were roiled by a strong dollar and year-end liquidation.

The exodus of speculative cash was mostly in corn with over $1.3 billion swept off the table. Prices fell 11.1 percent in the week covering the data as money managers bet on a stellar harvest in the fall after farmers' record planting pace.

"The huge surplus will bury corn for a couple of years unless mother nature does something dramatic," said Hackett.

Their net long position was cut by two thirds to 15,578 lots, its lowest level in almost two years, the Commodity Futures Trading Commission's weekly commitments of traders report on Friday showed.

While the outflow measured by dollar value was largest in corn, it was countered by natural gas.

Net length in natural gas rose to its largest in nearly a year. The investor group added 54,224 contracts in NYMEX natural gas futures and options, NYMEX Henry Hub Swaps, NYMEX Henry Hub Penultimate Swaps, and ICE Henry Hub Swaps, and were net long by 164,947.

This marks a 148-percent increase in net length since May 1. Even so, prices for NYMEX natural gas futures decreased 10.3 percent to $2.429 on the week to Tuesday.

Elsewhere in energy, money managers bet on lower U.S. crude oil prices cutting net length in New York and London by 1,771 contracts to 139,168 during the period.

U.S. crude fell almost 1 percent to $90.76 a barrel in the week, but selling intensified in the days after the period covered by the data. Prices dropped to close to eight-month lows on Friday to $83.23 a barrel.

In metals, money managers doubled their short copper position to 6,757 lots as the market continued to fret about inventory in China and waning demand in Europe.

They had switched to a short position in the previous week for the first time since January. And after Friday's sell-off, copper on COMEX was on the brink of a bear market, down almost 18 percent since February's high of $4 per lb.

"It reinforces the already-negative sentiment about increasing copper stockpile and production indexes around the world were very weak," said Frank McGhee, head precious metals trader of Integrated Brokerage Services LLC.

Ahead of gold's spectacular run-up on Friday, hedge funds kept their net length at 2008 lows. A tug-of-war between longs and shorts ended in a rise in net longs of just seven lots to 77,325 contracts.

Next week's data is likely to show a return of the longs in gold after its spectacular rally on Friday on expectations of imminent actions by central banks to boost economic growth, McGhee said.


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