Cotton futures bounce back

29 Mar '08

3 min read

There have been some rumors that possibly a hedge fund and a merchant might team up to combine financial strength and expertise in an effort to control the certificated stock. But even though there is a potential profit of 200-250 points in this spread game, hedge funds typically look for more than a 3-4% return when tying up that much capital for seven months.

Speaking of joint-ventures between hedge funds and commercials, it was reported today that Ospraie Management LLC, a $9 billion hedge fund, agreed to buy ConAgra Foods' commodity trading and merchandising operation for $2.1 billion.

The ConAgra unit has 144 facilities, which are mostly located in North America, and employs 950 people. The New York-based hedge fund two years ago started its Special Opportunities fund, which buys stakes in commodity producers such as agriculture and mining companies. We believe that this marks the beginning of a new trend in which cash rich outfits are looking to invest in the commodities arena by acquiring trading companies.

Despite all the news headlines regarding a credit crunch, there is no shortage of cash in the world. Even though some investment bankers, broker-dealers and hedge funds feel a severe liquidity squeeze or crisis after some of their highly leveraged deals have gone bad, there is plenty of cash around waiting for an opportunity.

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