| Commodity Market Higher In June, Relieved by Progress in Eurozone Crisis |
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11/07/2012 00:07 (312 Day 19:12 minutes ago) | |||||
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The FINANCIAL -- Nelson Louie, Global Head of Commodities in Credit Suisse’s Asset Management division, said, “Commodities were higher in June after reacting positively to the outcome of the European leaders’ summit, which established some guidelines for how the Euro area crisis will be handled and revealed that Germany is willing to compromise. However, we believe that the key driver of commodity prices as we move into the second half of the year will ultimately be global growth. While we continue to hold the view that global GDP growth will be stronger in the second half of the year than the first, the ongoing downswing in cyclical momentum should be monitored closely.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “The worsening economic environment in Europe and a perceived slowdown in China have raised concerns of a possible softening in underlying consumption for economically sensitive commodities such as petroleum and base metals. However, further easing measures may increase inflation expectations and the likelihood of inflation overshooting expectations. Commodities have historically tended to outperform during periods of higher than expected inflation. We believe investors will continue to benefit from the long-term diversification benefits that commodities provide.”
The Dow Jones-UBS Commodity Index Total Return was up by 5.49% in June. Overall, 14 out of 20 index constituents increased in value. Agriculture was the best performing sector, up 13.87% for the month. Concerns over crop stress and yield loss due to the hot weather in the US Midwest (especially in the Southern Corn Belt) were the key factors supporting the recent rally.
The USDA’s Quarterly Stocks and Acreage reports revealed that US corn stocks as of June 1st were below market expectations and down 14% year-on-year, which lent further support to the market. Livestock increased, gaining 2.92%, amid reported lower Live Cattle slaughter rates and relatively poor US pasture conditions. Lean Hogs gained with hot weather amplifying a tightening of pork supplies that usually happens this time of year. The heat in the Midwest – home to 70% of US hog production – has caused hogs to eat less, resulting in smaller meat cuts per animal and lower pork supplies.
Energy also increased, up 2.53% for the month, led by Natural Gas. The hot weather in the US and continued coal-to-gas switching drove increased power generation demand. This led to smaller than expected weekly storage injections, as reported by the Department of Energy. The Precious Metals sector ended the month 1.84% higher.
As Credit Suisse AG reported, european leaders agreed to create a single supervisory body for Eurozone banks and allow them to be recapitalized without adding to government debt, easing fears over Italy and Spain. Gold was also supported by further discourse that Basel accounting rules will classify gold as a Tier 1 asset. The Industrial Metals sector was relatively unchanged, up 0.38%, due to demand growth concerns as Chinese and European manufacturing activity appeared to contract, according to some recent economic surveys. The Federal Reserve’s hesitance at engaging in further quantitative easing also weighed on the sector.
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