17 December 2012, by Joe Richter (Bloomberg)

Excerpt:

Hedge funds cut bullish commodity bets by the most in a month as the Federal Reserve warned the U.S. budget impasse may damage the economy, increasing concern about demand just as prices head for the first loss since 2008.

Speculators and money managers decreased net-long positions across 18 U.S. futures and options by 11% to 802,817 contracts in the week ended Dec. 11, U.S. Commodity Futures Trading Commission data show.

Sugar holdings tumbled 68%, the most in five years, and those for wheat dropped to the lowest since June. Wagers on higher crude-oil prices tumbled 21%, the most since May.

The Standard & Poor’s GSCI Spot Index of 24 raw materials retreated 4.2% this quarter, with U.S. lawmakers in a stalemate on how to avoid about $600 billion in tax increases and spending cuts that start next month.

The Fed “doesn’t have the tools” to counter the risks to the economy should there be no deal, Chairman Ben S. Bernanke said Dec. 12.

“The fact that the Fed is saying that there’s only so much they can do spooked people,” said John Stephenson, who oversees about $2.74 billion at First Asset Investment Management Inc. in Toronto.

“They basically admitted that they don’t have what it takes to deal with the fiscal cliff, and it took the shine off the idea that unlimited money printing will help commodities.”

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