Funds are bullish on commodities for only the second time since
2012, amid a "positive outlook" for prices this year - including in ags, in which
cocoa is seen as being particularly undervalued.
The proportion of fund managers saying they are overweight
in commodities in their portfolios this month exceeded those viewing their
position as underweight, Bank of America Merrill Lynch said, after a survey of investors
with $632bn under management.
While the gap was only small, at 3% of fund managers surveyed,
it represented only the second time since December 2012 that more investors are
betting on commodity price gains than positioned for price falls.
Last month, fund managers were a net 3% underweight on the
asset class, with bearishness peaking early in 2015, when a net underweight
figure above 30% was recorded.
The shift reflected a "rotation" by investors into
commodities this month, besides into emerging market and eurozone assets, with sentiment
cooling towards investing in industrials and utilities, the bank said.
And it comes amid broker expectations of further gains in
commodity prices this year, after a 2016 which provided lucrative returns for
funds which forecast the asset class pulling out of a long-term decline.
According to Preqin, commodity funds Tribeca Global Natural
Resources Fund, with returns of 149%, Montreux Natural Resources Fund, with
142%, and Front Street Canadian Energy Resource Fund, with 133%, were among the
best-performing hedge funds last year.
Commodity values rose by 11.3% last year, as measured by the
Bcom index, recording their first calendar year of progress since 2010.
'Prices expected to
For 2017, "the outlook for commodity prices remains positive…
supported by healthier global macroeconomic dynamics", FocusEconomics said,
after analysis of broker recommendations on the sector.
With world economic growth seen accelerating to 2.9% this
year, from 2.6% last year, "commodity prices are expected to increase", albeit
by a more modest 3.6%, when taking expectations for average values in the
Agricultural commodity futures are forecast to be 5.2%
higher on average in the quarter than in the last three months of last year.
While "supply conditions in most agricultural commodity
markets" are viewed as "adequate" for now, "prices are expected to receive
support from a global reflationary environment, stronger economic growth and
rising energy and fertilizer prices," FocusEconomics said.
Regulatory data show hedge funds net long in the top 13 US-traded agricultural commodities by more than 677,000 contracts as of last week - a figure up 80% from that on December 27 last year.
Sweet on cocoa
Analysts are particularly optimistic over values of New York
cocoa futures, seeing values average $2,312 a tonne in the October-to-December
quarter – well above the $1,960 a tonne being factored in by the December
New York futures, as measured by the nearest-but-one contract,
fell below $1,900 a tonne in the last session for the first time in eight years,
weighed by ideas of ample supplies being stoked by resales by Ivory Coast of 180,000
tonnes of cocoa so far.
"The main factor weighing on the market is the expectation
of a sharp rise in global production and a surplus on the cocoa market in the
current 2016-17 season," Commerzbank said.
"In total, roughly
350,000 tons of cocoa might have to be resold [in Ivory Coast], which is
putting additional pressure on prices."
While in arabica coffee, market consensus, at 154 cents a
pound for the October-to-December period, is in line with the futures curve, investors
are notably bearish in sugar, in which they see values at 18.6 cents a pound in
That compares with the 20.10 cents a pound that October futures
were trading at on Wednesday.
And, among grains, the market consensus is notably downbeat
on price prospects for Chicago wheat, at $4.55 a bushel for the
October-to-December period – well below the $5.03 ¼ a bushel being factored in by
The wheat market, in a bear market since 2008, is viewed as
being at a particularly intriguing stage, testing chart points of its downward
price run which – if exceeded - could provoke fund buying, and a bounce in