Hedge funds raise profile in U.S. grain business

By Sam Nelson

CHICAGO (Reuters) - The presence of hedge funds in the U.S. agricultural sector expanded on Thursday with the sale of ConAgra Foods Inc's (CAG.N: Quote, Profile, Research, Stock Buzz) grain business to Ospraie, as speculators increasingly tie their futures trades to physical markets.

Trade sources said the sale was also a sign of tough times for grain companies which must find ways to protect against wild swings in the futures market and raise extra money for margin calls due to a credit crunch.

ConAgra said earlier Thursday it would sell its commodity trading and merchandising operations to Ospraie Special Opportunities fund, an affiliate of investment management firm Ospraie Management.

ConAgra's chief executive said the sale would allow the Omaha, Nebraska-based company to focus on its core food operations and address investor concerns over the long-term volatility of the trading business.

In the past, hedge funds have typically restricted their involvement with commodities to speculation in the futures market. Funds have been notorious for buying and selling huge chunks of various futures contracts within a short time frame as opposed to index funds which are noted for investing for the long haul.

The ConAgra deal illustrates how some funds now seek a presence in the physical commodities markets in order to make more well-informed trades.

John Duryea, who manages the Ospraie Special Opportunities fund, told Reuters in an interview: "The combination of ownership and trading of commodity assets is very important and is a powerful business model."

Grain traders said Ospraie was expected to play a big role in trading grains in the cash market.