NEW YORK (Reuters) – Index funds, the biggest participants in the commodities markets, last week sold a record amount of agricultural futures valued at over $7 billion and could double those sales amid recession fears and falling inflation expectations.
Commodities markets research provider Peak Trading Research said on Tuesday the funds, the investment vehicles for large endowments, foundations and sovereign wealth funds, could sell 200,000 to 300,000 contracts in agricultural commodities futures.
They have already sold some 156,000 contracts last week, a record amount for the period, equivalent to $7.3 billion in contracts, it said.
“Index fund investors are very nervous about the softening economy and lower forward-looking inflation expectations… and could sell a lot more agriculture futures,” Dave Whitcomb, head of research at Peak said in a note.
“That would drive agriculture futures prices significantly lower,” he said.
Whitcomb said that index funds invest in agricultural futures as a “store of value” and inflation hedge, and their positions usually track U.S. inflation expectations closely.
Soybeans, corn, sugar, cattle and coffee are among the most traded agricultural commodities futures in the derivatives market.
Whitcomb said that inflation data to be released on Wednesday and oil prices, which highly correlate to inflation pressures, are the catalysts to be watched regarding the risk for another large sell-off of agricultural commodities futures by the index funds.
(Reporting by Marcelo Teixeira; Editing by Marguerita Choy)