Inflation fears prompted investors to raise their exposure
to agricultural-based exchange traded products for the first time in eight
months, Societe Generale said, in a note recommending long bets in sugar and
Exchange traded products (ETPs) in gold and silver were the commodity
sector's main beneficiaries of the increased fears for rises in retail prices
stoked by central bank action to boost economic growth through easing monetary
Measures such as quantitative easing tend to provoke
concerns over currency debasement, stoking inflation, and so increasing the
appeal of assets such as commodities which tend to rise in line with retail prices.
"The anticipation in August and reality through September of
new European Central Bank and Federal Reserve monetary programmes helped lift
inflation expectations and likely currency devaluation expectations – both
bullish for commodities in general and precious metals in particular," SocGen
analyst Jeremy Friesen said.
Total assets under management in commodity ETPs reached $197.4bn,
narrowly short of the record high in August last year, and reflecting a net
inflow of $4.93bn over the month.
While paling against the cash injected into precious metals,
this figure also included the first monthly inflows – of some $10m - into agricultural
ETPs since January, and only the second in 18 months.
And it contrasts with an exit from agricultural futures and
options, both by non-commercial investors as a whole, which ended the month
with roughly 100,000 lots fewer open in US contracts than they started, and
managed money, a proxy for speculators, in particular.
Managed money's open bets on US agricultural commodity
futures and options also fell by some 100,000 last month, with a particular
decline in long exposure, which profits when prices gain, as harvest pressure sapped
values of Chicago corn and soybeans.
The declines left Societe Generale well positioned, as one of the more downbeat commentators on agricultural commodities, a position Mr Friesen
"We remain broadly bearish on the grains sector," he said,
recommending in particular a negative position on Chicago soybeans, for which
an "overall improved supply outlook remains bearish for prices", with the US
harvest beating expectations and South America's crop due early next year.
"Without any sudden jump in demand, markets are likely to
become increasingly less concerned over the tightness in the market, allowing
prices to continue to drive lower."
'Still a positive
However, wheat was set to outperform oilseeds and other
grains, boosted by the worsened prospects for southern hemisphere harvests.
"The winter wheat planting season in the US is still being
affected by poor moisture conditions, while wheat production in Australia and
Argentina has become a bullish risk," Mr Friesen said.
And the bank rated sugar too, with copper, gold and lead, among
its top five bets for prices over the next month.
"Weather is still a positive risk for sugar and we expect
that current heavy rain conditions in Brazil and this season's delayed monsoon
in India, coupled with a likely bottoming of global growth, shift risks back to
The comments came ahead of the release on Tuesday of twice-monthly
data from industry group Unica on the progress of the cane harvest in Brazil's
key Centre South region.