Softs look the biggest winners among commodities of
the fund rebalancing exercise, and are set for inflows of $600m – although this
will not necessarily mean higher prices, Morgan Stanley said.
Funds tracking the S&P GSCI and DJUBS indices today
begin their annual rejig aimed at bringing portfolio weights to those of the index
they follow, an exercise sparking the buying and selling of billions of dollars
Largely, the rebalancing means selling last year's top
performing commodities, rendered overweight by their gains, while buying up
However, the process is complicated by the changing by
indices of base weightings, with the DJUBS index in particular instigating changes,
introducing soymeal, for instance, while cutting back on soybean and soyoil.
This mean that funds are set to snap up more than 50,000
soymeal contracts, despite futures in the animal feed ingredient rising 36%
last year to represent one of the top commodity performers.
At some $2.1bn of value, soymeal ranks as a major winner of
the rebalancing, second only to Brent crude, which will see some $3.6bn of
inflows, according to Morgan Stanley calculations.
Coffee and sugar purchases
However, the grains and oilseed complex will also witness
heavy sell-downs in soybeans and soyoil, and Chicago soft red winter wheat which,
besides itself being a strong performer last year, and so in line for an index
fund trim, is seeing its weighting slashed in the DJUBS index, in favour of
Kansas hard red winter wheat.
"We expect the largest selling in the [grains and oilseeds]
complex – we estimate $1.3bn of outflows, most likely in the March contracts,"
Morgan Stanley said.
But "we expect the process to bring inflows of $1.5bn
to the softs," the bank said, thanks to their poor performance last year, and to
increased weightings in the DJUBS index.
New York raw sugar, in which the DJUBS weighting is
increasing to 3.9% from 3.0%, will be the biggest gainer among soft commodities
in contract, 33,000, and value, $664m, terms.
New York-traded arabica coffee will see a net inflow of
Livestock will see $872m of outflows, thanks to a cut in the
DJUBS weightings for both live cattle and lean hogs.
However, even the extent of these cash flows did not mean
that prices were necessarily fated to move accordingly, given the time markets
have had to prepare for the rebalancing.
"The price impact of rebalancing is murky," Morgan Stanley
"While rebalancing will likely lead to some price action, if
history is any guide, most of the impact is likely already priced.
"Despite an estimated $3.2bn of inflows to natural gas in
2012, prices fell 11% during the rebalancing.
"While Brent gained material weighting last year, it
actually fell during the rebalancing as European Union issues weighed, and only
rose again on mounting Mideast tensions."