Rothschild cuts farm commodities after food price row

Thu Nov 15, 2012 1:22pm GMT

* Speculators under scrutiny for role in food prices

* Follows Commerzbank, Volksbanken withdrawal

* Says will switch agricultural investments to metals

By Emma Farge

GENEVA, Nov 15 (Reuters) - Rothschild's $20 million commodities fund is pulling out of livestock and soft commodities and reviewing its grains investments after criticism that speculative trading by banks has helped drive food prices to record highs.

Banks like Commerzbank and Austria's Volksbanken have already cut investment in agriculture as surging corn and soybeans prices this summer spurred fresh debate on the role of financial investors.

"We will allocate zero to livestock and zero to soft commodities and we will review our position in the grains market," Edward Ennis, managing director of commodities and structured products at Rothschild Wealth Management told Reuters on the sidelines of the Global Grains conference.

"We will be following our friends in Germany," he added, referring to the Commerzbank decision.

The size of the Rothschild commodities fund, which is actively managed and based on the S&P Goldman Sachs Commodity Index, is small in a market worth around $140 billion.

But the move is some indication of banks' concern over charges by lobbyists that institutions like pension funds have inflated food prices by buying raw materials through bank-backed commodity index funds.

Corn and soybeans prices have retreated somewhat recently, but markets remain on edge over the outlook for next year following a year of bad weather that included one of the worst droughts in U.S. history.

In Switzerland - one of the locations for Rothschild's wealth management business - a political party is seeking to drum up support for a national vote to ban banks and other financial institutions from speculating in agricultural commodities.

David Roth, head of the Young Socialist Party, told Reuters at an anti-speculation rally in Geneva this week that the party has about 15 percent of the required signatures.

SWITCH TO METALS

Pressure on banks to cut agricultural investment adds to difficulties they already face in devising new commodity index products as once-fat returns fizzle out and in responding to tighter regulations.

Ennis said that the debate on the impact of the role of speculators in commodity prices remained "unresolved", although he conceded that they could exaggerate price moves.

"Our view is that speculators do not cause the price rise but they can increase volatility. The price rise comes due to an event already in the market," he said.

Although Rothschild has yet to make a final decision on investment in grains, Ennis said that the bank would be reducing its allocation in favour of metals like copper.

"Before the end of the year we will reduce grains position and put more in the metals market. The copper market has probably bottomed out," he said.

So far this year, the Rothschild commodities fund is about 0.5 percent to 1 percent above the S&P GSCI, he added. (Reporting by Emma Farge; editing by Patrick Graham)