Commodities markets struggled under the weight of an acceleration in trade tensions between the U.S. and China and growing evidence of a slowdown in global economic activity in August. The S&P GSCI was down 5.6% for the month but remained up 6.7% YTD. The Dow Jones Commodity Index (DJCI) was down 2.7% in August and up 3.2% YTD, reflecting its lower energy weighting. Ongoing rallies in nickel and gold markets were insufficient to override notable declines across the energy, agriculture, and livestock markets, leaving the broad commodities indices notably lower for the month.
The S&P GSCI Petroleum ended the month down 7.0%. Market participants put greater weight on a weakening demand trajectory, further deterioration of U.S.-China trade relations, and an ongoing need for OPEC constraint as the month progressed. Beijing’s announcement that it would levy a 5% tariff on U.S. crude oil marked the first time the fuel had been targeted since the world’s two largest economies started their trade war more than a year ago.
Industrial metals displayed divergent monthly performance, as most metals were lower, while nickel extended its impressive performance, up 24.3% for the month. The S&P GSCI Nickel’s 69.3% YTD gain made it the best-performing commodity YTD, passing iron ore to take the top spot. On the last trading day of the month, the Indonesian government confirmed expectations that it would ban exports of nickel ore starting on Jan. 1, 2020, two years earlier than initially indicated, pushing the market into a deficit. With less liquidity due to the events on the last trading day of August and no daily trading limits set by the London Metals Exchange, the price spiked over 8.8% that day—the biggest daily price move in nickel in 10 years.
Gold continued its strong YTD performance by starting the month breaking through the USD 1,500/oz. level on the back of a new front in the trade war, as China allowed its currency to break the psychological level of CNY 7.00 versus the USD. With geopolitical and trade war issues at the forefront of investors’ minds amid global central bank easing, gold continues to be one of the more popular assets in 2019. In August, gold ETF holdings were the highest since 2013. As more government bonds across the globe display negative yields, gold seems positioned well to be the safe-haven alternative for investors.
It was a difficult month for agricultural commodities, with the S&P GSCI Agriculture falling 6.8%. The S&P GSCI Corn led the decline, down 9.5% over the month, following a USDA crop report in the middle of the month that stunned the market with a lofty forecast for the size of the U.S. corn crop, despite uncertainties surrounding this year’s late-planted crop. Meanwhile, the S&P GSCI Sugar fell 8.6% in August. A slumping Brazilian real, which has encouraged more exports from the world’s largest producer, and India’s move to provide export incentives to help clear its domestic stockpile both weighed on the supply side of the market in August.
A fire at one of the largest beef packer plants in the U.S. in the middle of August sent livestock markets markedly lower, as the S&P GSCI Livestock fell 8.7% for the month. The plant is estimated to represent 6% of U.S. beef packing capacity and could be out of action until 2020, creating a notable void in processing capacity that will likely affect the cattle market for many months.