Australia's Merricks Capital hot on wheat for 2017, cool on sugar, soyabean

Merricks Capital, one of a handful of Asia-Pacific based hedge funds specialising in agricultural markets, believes Australian wheat prices will stay strong this year, even though the global market is flush with the cereal. "Australia will have no problem moving wheat export surplus this year," Adam Davis, head of commodities at the Melbourne-based fund, said in an interview on Thursday. Merricks has A$200 million ($146 million) in assets.
Davis said Merricks remains bullish on Australian wheat because it is considered high-quality compared with other producing countries. Australia, the world's No. 4 wheat exporter, is on track for a record crop of 33 million tonnes in 2016/17, adding to ample global supplies that keep US wheat prices near 10-year lows.
"The imbalance between local farmers not necessarily wanting to sell at low prices and exporters eager to fill booked shipping slots could lead to higher-than-anticipated premiums for Australian wheat," said Davis, who actively trades soft commodity futures contracts in the United States and France. But Merricks is bearish on prices of sugar, which jumped 28 percent last year, the largest annual gain since 2009.
That view is based on several factors, including plentiful global supply, all-time high long trading positions in sugar held by some investors, and the risk of a weakening Brazilian real, Brazil being the world's largest sugar exporter. Since 2010, the real has halved in value against its US counterpart, forcing growers to shift away from sugarcane ethanol to sugarcane crushing. While that's a more profitable product in the local currency's terms, the move also added to ample global sugar supply. "The market may underestimate how deep the correction could be if there were a large liquidation in the speculative long positions," said Davis, adding he was short on the March 2017 white sugar futures contract.