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Commodity markets expected to remain volatile as funds hold record long positions

A pair of commodity market experts say producers should expect volatility in prices while managed money continues to hold record long positions. 

When funds are “long” in commodity markets, it means institutional investment vehicles (like hedge funds or commodity trading advisors) have bought and hold contracts expecting the price of those raw materials to rise. Brian Basting, ag economist with Advance Trading, tells Brownfield it’s played a major role in the recent rally.

“It certainly is a welcome sight to see it go up, but if there’s any type of bearish surprise lurking out there, boy, if all those funds were to start to liquidate those long positions at once, it could change directions,” he says.

AUDIO: Brian Basting – Advance Trading

Matt Bennett, co-founder of AgMarket.net, says it’s the same situation across all major commodities.

“A lot of folks have been sitting here somewhat long all commodities.”  He says, “The combined corn, soybeans, and wheat is a record. The funds clearly want to own these commodities.”

Bennett says the funds purchase commodities as a hedge against inflation, and with the current world political environment and tight global grain stocks, their position isn’t likely to change soon.

“We’re not building stocks.”  He says, “And when you’re not building stocks, you’re fine, unless you have a hiccup. You have a hiccup; that’s a major problem. I think that’s part of the reason why the funds continue to want to maybe remain long.”

Both say producers should take advantage of some of the best commodity prices they’ve seen in a few years but also recognize the factors that have led to the run-up and protect their balance sheets.

AUDIO: Matt Bennett – AgMarket.net