Commerzbank commodities head says speculation will be forced out of agriculture markets

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Commerzbank’s head of fundamental global commodities research predicts all speculative capital will ultimately leave the world’s agricultural markets, as some blame it for hiking prices of grains by one quarter this year alone.

Spot prices of grains, as measured by the S&P GSCI Grain spot index, have risen by 26.5% so far this year.

Commerzbank’s Eugen Weinberg said a veto on speculation will not solve the problem of high prices, but a moratorium will happen, nevertheless.

Managers of a newly launched commodities fund from Commerzbank have decided not to invest in the agricultural complex for this reason, he said.

“We believe the pressure from the media and politicians [is] for all investment capital to leave agricultural commodities. The goal of governments for stable prices will not be achieved [by excluding speculation],” he added.

The United Nations’ trade and development arm Unctad has argued that commodities prices have been distorted by speculative money, saying the demand from outside consumers and producers has become “overwhelming” over the last decade.

But efforts to curb speculation have hit snags.

In the US, for example, the Commodity Futures Trading Commission is having to fight a legal battle to limit how much any single investor can hold in commodities such as corn and cocoa.

Weinberg’s cautionary words came at Investment Europe’s Pan-European Fund Selector Summit in Lausanne last week, around the same time the UN warned food reserves are so low that a major hunger crisis could hit next year if severe weather blights food-exporting countries.

Recent poor harvests after drought hit exporters such as the US, South America, Russia and the Ukraine have left stockpiles at their lowest level since 1974, the UN said.

Consumption will this year exceed production for the sixth year in the past 11.

Countries now have under 74 days of food supply, down from an average of 107 days a decade ago.

Production of wheat in 2012 is forecast to be 5.2% smaller than last year’s crop, while yields of most other crops is also declining, the UN said.

Meanwhile, Standard & Poor’s last week spoke of “rapidly diminishing supplies of corn” boosting the S&P GSCI Corn index by 2.25% in October – making it the best performing agriculture commodity price for this month.

The firm pointed to US farmers storing grains in the hope of higher prices, and also the greater prevalence of aflatoxins, a mould that is common in corn cultivated in hot, dry conditions. Farmers are paid less for corn hit by this than for unaffected corn.

Weinberg’s words about agricultural commodities came as data from Lyxor suggested, in precious metals, near-term speculative activity was falling.

It found last week, traders turned over €326m less of the Gold Bullion Securities ETF on-exchange, and €48m less of the ETFS Physical Gold than they had the week before. However, the week turnover totals of €468.4m and €175.3m respectively still ranked these ETFs among the 10 most popular for last week.

On-exchange turnover of commodities ETFs fell by 45.3% week on week.

No agricultural ETF ranked in the top 10, based on weekly turnover.

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