Speculators Commodity Positions

The World Bank pointed out this month that there is every reason for hedge and other investment funds to exit the commodities stage after 15 years of almost continuous investment growth.  The fall in oils and agricultural commodity prices is on the back of weak commodity prospects.  Indeed, only 8 out of 45 commodity-based unit trust funds have made money in the last year and only 12 in the last 3 years.  No investment trusts have made money on commodities over either period.  Most of these asset management funds have been primarily based on oils and other hard commodities (mined) rather than the agricultural (softs), but softs are included in some of them.

As if to back up this comment, speculators turned suddenly very bearish only this week and sold their long wheat position at the fastest pace on record, focusing chiefly on the Chicago Board of Trade.  In the short-term, the exit of funds from the market simply adds to the downwards pressure on prices.  Longer-term, ‘speculators’ have been blamed for some of the additional volatility seen on commodity markets – including agricultural ones.  Their withdrawal might therefore be seen as a good thing.  However, liquidity in the markets will be reduced if fewer trades are being made.