Fund money is returning to the grains and oilseeds sectors after a six-month exodus, which should help keep prices high for some time, analysts say.
“It’s starting to come back in very small doses,” said Darin Newsom, president of Darin Newsom Analysis Inc.
Much of the money invested started flowing out of the grain and oilseed futures markets in mid-April, as investors found more attractive options such as lumber, energy and coffee.
Now that they have milked these products, their focus is once again on grains such as spring wheat and oats.
Both of these markets have inverted futures curves, in which nearby futures are higher than deferred contracts, a clear signal that these are fundamentally bullish markets.
The funds appear to “pick and choose” agricultural commodities and have yet to take huge positions in any of these markets.
“The next obvious thing would be corn,” Newsom said.
Corn futures are not reversed, but spreads are still bullish, much more so than soybeans.
He thinks fund managers are biding their time because they know the harvest is still going on and there is no rush.
“They still have energies screaming all over the place, so they can play in other arenas while keeping an eye on what’s going on in the grains and oilseeds playground and then come back when it’s time,” he said. said Newsom.
Arlan Suderman, chief commodities economist at StoneX, also noticed that funds from the funds have been flowing back to agriculture since the end of September.
He thinks this is “inflation trading” driven by anxious investors who are getting more and more nervous about rising inflation rates.
They want to invest in the main commodities that make up the consumer price index and drive up rates.
“Why not own these commodities? That’s kind of the philosophy,” he said.
Various commodity indices hit seven to 11 year highs, reflecting increased investor interest.
“Those commodities with the strongest history earn more money than those with the poorest fundamental history,” Suderman said.
Winners include crude oil, Minneapolis wheat, and vegetable oils.
Investors are aware of the spring wheat shortage due to disappointing harvests in Canada and the United States and are tracking record or near record prices for palm, soybean and canola oil.
He believes the influx of this inflationary trade will help support the bull run that has occurred with important Canadian crops such as spring wheat and canola.
Newsom does not agree with this assessment of the markets.
“It’s a fundamentals game. It has nothing to do with inflation,” he said.
But both analysts agree that fund money is definitely starting to reappear, which bodes well for the grains and oilseeds markets.
Newsom believes the market highs were set in May and will not be seen again.
However, prices are expected to remain strong this winter and possibly the spring before they run out of steam, in part because of what it predicts will be a stronger US dollar in 2022.
He is somewhat concerned about spring wheat prices, however, as fund managers may soon decide they have ridden this horse as far as it goes and invest in corn instead.
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