August 31st, 2012

Commodity Investing – Commodities investors increased their holdings by the most since March as oil posted the biggest rally in six months and soybeans gained to a record.

Open interest, or outstanding contracts, of raw materials tracked by the Standard & Poor’s GSCI Index added 1.3 percent this month at 10.72 million contracts as of Aug. 29, according to data compiled by Bloomberg. Chicago-traded soybeans extended their rally for a third month, climbing to a record yesterday, and West Texas Intermediate crude futures advanced 7.4 percent.

Holdings expanded as prices of the GSCI gauge climbed 4.9 percent in August, suggesting investors are adding bets on a further price rally. The worst U.S. drought since 1956 and dry weather in Russia spurred buying in grains and soybeans, while increasing Middle East tensions boosted crude.

“Open interest in commodities increased across the board with agriculture as a meaningful contributor, as the U.S. drought brings fresh buyers and sellers,” said Diego Parrilla, chief investment officer of Nareco Advisors, a Singapore-based hedge-fund firm. “We see risks skewed toward higher prices in energy, grains and precious metals.”

Gains in energy and agriculture boosted the GSCI index for a third consecutive month after a 13 percent slump in May when concern that Europe may not be able to contain its debt crisis caused the biggest loss in raw materials since 2008. Yesterday, Spain’s Prime Minister Mariano Rajoy delayed seeking a second rescue while pledging to continue bailing out its regions.

“We are concerned the market may get too complacent with expectations of further monetary stimuli and a smooth resolution of the European crisis,” said Parrilla.

Soybeans, Crude

Soybeans soared almost 45 percent this year, reaching a record $17.7125 a bushel yesterday on the Chicago Board of Trade, and are the biggest gainer on the GSCI. Wheat and corn ranked second and third on the gauge. Hedge funds’ bets on a rally in corn are the most in 16 months and near the largest for soybeans since at least 2006, U.S. Commodity Futures Trading Commission data show.

West Texas Intermediate crude was little changed at $94.60 a barrel as of 1:46 p.m. Singapore time.

Commodity assets under management rose by $16 billion in July to $406 billion, Barclays Plc said in an Aug. 24 report. Still, in the first seven months investors withdrew almost $6 billion, compared with a $7.8 billion inflow during the same period last year, according to the report.

The S&P GSCI gauge entered a bull market on Aug. 21, rising more than 20 percent from a June low. The index was little changed at 666.97 today.

- Chanyaporn Chanjaroen in Singapore at Bloomberg.