Hedge funds jumping into physical ag mkts

By Ayesha Rascoe

WASHINGTON (Reuters) - Strong prices are drawing giant hedge funds into agricultural markets like corn, wheat and soybeans as demand for biofuels continues to soar, an agricultural analyst said on Tuesday.

Gary Blumenthal, president and chief executive officer of World Perspectives, told the Reuters Agriculture and Biofuels Summit that hedge funds are raising their allocations for commodities and investing more in physical agricultural assets.

Illustrating that trend, Whitebox Advisors LLC, a hedge fund, is currently finalizing a deal to buy a Minnesota grain elevator from U.S. agribusiness Cargill Inc.

"The big-money folks believe this is a bull commodity market for some years to come and now they want to start owning the underlying commodities," Blumenthal said.

In addition, Blumenthal said a major hedge fund is currently looking to buy farmland in South America, Eastern Europe, and even Africa.

Hedge funds have traditionally limited their activity to futures markets and left physical trading to big commercial players like Archer Daniels Midland Co (ADM.N: Quote, Profile, Research, Stock Buzz) and Bunge Ltd (BG.N: Quote, Profile, Research, Stock Buzz), Blumenthal said.

But hedge funds are looking to expand their market power by getting in on the "delivery game," enabling them to take physical delivery of futures contracts, analysts said.

Blumenthal said he expects commodity prices to continue to rise for at least the next two to three years.

When the bottom falls out of the market eventually, shrewd commercial players like Cargill will be there to snap up the bargains, Blumenthal said.

"Maybe Cargill will sell off a piece or two and make some near-term money but eventually this all collapses and they buy it all back dirt-cheap," Blumenthal said.

(For summit blog: summitnotebook.reuters.com/)

(Editing by Matthew Lewis)