Cereal Killer Looks Good For Hedge Funds

Predictions a couple of months ago that wheat will be the next hot commodity are coming true, and hedge funds are looking to harvest healthy returns on the commodity as prices are poised to soar to record levels.

Predictions a couple of months ago that wheat will be the next hot commodity are coming true, and hedge funds are looking to harvest healthy returns on the commodity as prices are poised to soar to record levels. Brent Harris of PIMCO’s Commodity Real Returns Strategy Fund says wheat prices already have zoomed 50% this year and are likely to hit 1996 levels, as drought in world wheat producers U.S., Australia and the Ukraine take their toll. “I expect to see new records being set in the next two to three years because of global shortages,” adds Stephan Wrobel of Diapason Commodities Management in a Bloomberg News interview. The shortages, which have sent costs at top cereal makers Kellogg and Kraft Foods spiraling up, are expected to leave world inventories of wheat at 43%, a level not seen in 25 years. That’s all good new for hedge funds. “I am extremely bullish on wheat given the shortages in world inventory,” Rudolphe Roche of Schroders explained to BN. Hedge funds are responding as expected. Greg Smith, who manages Australia’s Global Commodities, for example, has upped his grain holdings from 1% of assets earlier this year to 14%. And he’s not alone. There is speculation that the new crop of winter wheat, which will be harvested in the spring, will soothe the heavy demand, but according to Harris, “not enough to crimp demand.”