June 2013: What’s Hot and What’s Not

Read about some commodity highlights in June from an interview with Courtney Nebons, our studio producer.  Click here to watch the video.

Q1.  This month we heard a lot about the Fed easing its monetary policy, so how did that impact commodities?

Commodities reacted negatively to the news that the Fed may ease its bond buying program since as the dollar strengthens, goods priced in dollars become more expensive for other currencies.  On June 20th, after the meeting all 24 commodities in the S&P GSCI fell, and the news sent Coffee, Nickel, Silver and Gold into bear markets for the year. Gold lost 12.2% in its worst month since January 1981.

Q2.  Was there anything else besides the quantitative easing driving down commodities this month?

The weather was an overarching theme, driving down grains and natural gas. Grains dropped 6.5% in June from adequately moist soil and larger than expected crop yields. The same mild weather also drove natural gas down 11% in June and is now at the same level as at the start of the year. At its peak on April 19 it was up 26.7% for the year from cold weather but as the weather warmed and inventories grew, the natural gas index gave up its gains.

Q3. Were any commodities hot like the weather?

In the index in June, livestock gained 3.1%, petroleum was up 3.0% and cotton was the big winner returning 7.8%.   Fundamentals were key to overriding the risk off declines from the quantitative easing.  For example, there is concern over a pig virus that may further curb production while meat-packers cut slaughter rates to offset tighter-than-expected seasonal hog supplies, which reduced the flow of pork to end-users at a time when demand heats up for summer vacations and outdoor cookouts.

Q4. Given crude oil is such a heavyweight, can you tell us briefly about the fundamental driver in that market?

WTI crude oil in the index was up 4.8% in June from the growing capacity to ship crude from the Cushing, Oklahoma delivery point in the U.S.

Q5. Is there anything else you would like to add?

Overall, the S&P GSCI was once again driven by the themes of the quantitative easing, Eurozone crisis, and Chinese demand. Although the quantitative easing and uncertainty over China’s demand were strong negative influences on commodities this month, the fundamentals prevailed pulling the index into positive territory, finishing up 23 basis points.

The posts on this blog are opinions, not advice. Please read our disclaimers.

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