Hedge Funds Remain Bullish on Commodity Revival in 2017
Bloomberg Markets – Whilst markets in general did not have an easy time in 2016 given the many factors that had a large-scale negative global impact for the year, commodities had a resurgence in 2016, with their first annual advance since 2010. Hedge funds globally are signaling these gains will continue this year for many of the markets, a sign that is sure to generate hype for many investors around the world who have been waiting this sentiment for some hard years.
Money managers boosted their combined net-long position across 18 commodities by almost 10 percent (government data); a year earlier, these same managers were net-short, in other words wagering on declines. In terms of this sentiment for Barak, investors in the first week of January are bullish on cotton, cattle, oil and soybean meal. However, the opposite for corn, cocoa and wheat.
What is interesting is that Barak is taking a strong view on Cocoa markets, particularly with the West African region, despite cocoa markets being big losers in 2016, with some global markets finishing the year down some 32 percent. There has been a recent upturn in deliveries to ports in the Ivory Coast. On aggregate, they are still down year on year, but this is unlikely to be the case for long, and this is the region will focus heavily on in 2017. Agrimoney provides some bullish commentary on cocoa in West African production, stating that “The downward trend is being fueled by expectations of increased production in West Africa, thanks to improved weather conditions… recent government-mandated price hikes in the Ivory Coast and Ghana are likely to temper the decline in global prices.”
Bloomberg continued its positive sentiment on commodities for the new year, with after five straight years of losses, raw materials rebounded as supply gluts receded for metals and energy. There’s a growing chorus of voices that says the rally isn’t over, they continued. Goldman Sachs Group Inc. in November recommended an overweight position for the asset class for the first time in more than four years. Commodities have become “a very attractive asset class,” said Quincy Krosby, a market strategist at Prudential Financial Inc., which oversees about $1.3 trillion. “You began to see stimulus spending in China, along with monetary policy designed to bolster demand and growth. And also, you began to see pickup in economic activity in the U.S., suggesting that commodity prices would be bottoming and gaining.”
The Bloomberg Commodity Index, which tracks returns for 22 components, climbed 11 percent in 2016, entering a bull market in June. This sentiment appears to be carrying into 2017, and Barak has seen first-hand this feeling with its up-tick in investor, as well as borrowers, interest in commodity-based trade finance transactions.