The biggest rally in commodities in a year may stall in the fourth quarter as supply of everything from copper to corn expands, tensions in the Middle East ease and the Federal Reserve refrains from tapering stimulus as it seeks more evidence of sustained growth.
Six of 15 commodities will drop by the end of 2013, seven will gain and two will move less than 1 percent, according to the median of estimates from 144 analysts surveyed by Bloomberg News. Cocoa, gasoline and cotton will lose the most as natural gas, coffee and soybeans lead the winners. Goldman Sachs Group Inc. says raw-material prices will be mostly lower in a year.
The Standard & Poor’s GSCI Total Return Index of 24 raw materials rose 4.8 percent in the third quarter as crude, which has the biggest weighting, surged on the threat of strikes on Syria that some judged would disrupt oil supply. Gold led metals higher as the Fed unexpectedly held stimulus steady, increasing the risk that inflation will accelerate. Corn capped the longest drop since 2009 as farmers prepared to reap a record world crop.
“The bottom line is it’s going to continue to be a very mixed picture with different commodities driven by very different things,” said Julian Jessop, the head of commodities research at Capital Economics in London. “People who regard them as an asset class without thinking about the individual stories are missing a trick.”
The S&P GSCI narrowed this year’s loss to 1.5 percent, still lagging behind the 13 percent advance in the MSCI All- Country World Index of equities and the 2.4 percent gain in the Bloomberg U.S. Dollar Index, which tracks the currency against 10 major peers. The Bloomberg U.S. Treasury Bond Index lost 2.4 percent. Global stocks beat all other asset classes in the third quarter with a 7.4 percent return. Last quarter’s gain for the S&P GSCI was the most since the 2012 third quarter.
Goldman Sachs forecast in September that its favored gauge, the S&P GSCI Enhanced Commodity Index, will be 2 percent lower in 12 months, with declines in energy, precious metals, agriculture and livestock. Investors may still profit by buying and rolling contracts closest to delivery in backwardated markets such as oil, where prices are declining into the future, the bank’s analysts said.
Credit Suisse Group AG said Sept. 20 it recommended a neutral position in commodities because stabilizing Chinese economic growth has yet to boost demand. The Asian nation, the biggest consumer of everything from coal to cotton to copper, will expand 7.6 percent in 2013 and 7.4 percent in 2014, the weakest level in almost a quarter century, according to the mean of 56 economist estimates compiled by Bloomberg.
Nineteen of the S&P GSCI’s 24 commodities rose last quarter. Cocoa gained 22 percent to $2,640 a metric ton, the most in four years, with traders anticipating shortages as a lack of rain threatened West Africa’s crop. With stockpiles still sufficient to make up a shortfall, analysts expect prices to drop 7.2 percent from yesterday’s close to $2,450 by the end of the year on ICE Futures U.S. in New York, the biggest decline of any of the 15 raw materials in the Bloomberg News survey.
Rallies in gold and silver also will slow as traders anticipate less U.S. stimulus. Analysts surveyed Sept. 18-19 by Bloomberg predicted the Fed will reduce its $85 billion of monthly bond purchases at a meeting in December. Gold rose 70 percent from December 2008 to June 2011 as the central bank pumped more than $2 trillion into the financial system. Some investors buy gold and silver as a hedge against accelerating consumer prices and as protection against currency debasement.
Gold will rise 1.6 percent to $1,350 an ounce by the end of December after a 7.6 percent advance in the third quarter that was the largest gain in a year, according to the survey. Prices are still poised for the first annual drop since 2000 after tumbling into a bear market in April as some investors lost faith in the metal as a store of value. Silver will appreciate 1.4 percent to $22 an ounce, after rising 10 percent to $21.69 in the past three months.
U.S. natural gas will advance 9.6 percent to $3.90 per million British thermal units by the end of December on the New York Mercantile Exchange, as the Northern Hemisphere’s winter boosts demand for heating. That’s the most of any of the commodities in the Bloomberg News survey and compares with last quarter’s 0.1 percent loss.
Arabica coffee will be the second-best performer, rising 4.7 percent to $1.19 a pound on ICE Futures U.S. in New York, as lower Central American output and increasing demand cut the world’s surplus. Next quarter’s gain still won’t be enough to erase this year’s 20 percent retreat or even last quarter’s 5.6 percent drop that reduced costs for Seattle-based Starbucks Corp., the largest coffee-shop chain.
Raw sugar will be little changed at 18.2 cents a pound by the end of the year, even as global production contracts for the first time in five years just as demand expands to a record. Prices rebounded 7.2 percent last quarter, still not enough for the commodity to exit the bear market that began in September 2012.
Commodity assets under management rose to a four-month high at $363 billion in August, according to a report today from London-based Barclays Plc, which tracks index and exchange- traded funds and medium-term notes. Holdings are still about $65 billion less than at the end of 2012. Combined open interest, or contracts outstanding, across the members of the S&P GSCI fell 0.5 percent in the past quarter, trimming this year’s expansion to 8.2 percent, data compiled by Bloomberg show.
Speculation that the super cycle, or longer-than-average period of rising prices, in commodities is over is premature, McKinsey & Co. said Sept. 26. Some supply is still constrained and emerging-market demand is strengthening, McKinsey said in a report. The S&P GSCI rose 73 percent since the end of 2001.
“There seems to be a constant discussion at the moment that the super cycle is coming to an end, but I’m not a believer in that,” said Jeremy Baker, a senior commodities strategist who helps oversee about $700 million at Harcourt Investment Consulting AG in Zurich. “Continued infrastructure development and capital investment will support broader commodities.”
Hedge funds and other large speculators increased combined bullish bets on a basket of 18 commodities for the first time in four weeks at the end of last month, U.S. Commodity Futures Trading Commission data show.
Corn, which was the third quarter’s worst-performing commodity after slumping 14 percent, may rebound 1.9 percent to $4.50 a bushel on the Chicago Board of Trade by Dec. 31, Bloomberg’s survey showed. The grain dropped for four straight quarters, the longest losing streak since 2009. Soybeans will gain 3.3 percent to $13.25 a bushel. Prices of both crops slid yesterday after a government report showed larger U.S. inventories than analysts expected. U.S. farmers are set to harvest bigger crops after drought cut production last year.
Cheaper grains help contain costs for Laurel, Mississippi- based Sanderson Farms Inc., the third-largest U.S. poultry producer, and Springdale, Arkansas-based Tyson Foods Inc., the biggest U.S. meat processor. World food prices tracked by the United Nations fell for a fourth consecutive month in August.
West Texas Intermediate crude, the U.S. benchmark, will be little changed at $103 a barrel by the end of the year on the Nymex bourse. Brent, the European benchmark, will drop 3.6 percent to $104.50 a barrel. Both had risen on the threat of military strikes on Syria, which receded after the U.S. and Russia agreed last month on a plan for the Middle East nation to surrender its chemical weapons.
Copper will drop 2.7 percent to $7,107.50 a ton on the London Metal Exchange by the end of the year, paring some of the previous quarter’s 8.2 percent advance that was spurred by signs of improving growth in China. Barclays says supply will outpace demand this year and next and stockpiles monitored by bourses in London, Shanghai and New York expanded 60 percent in the past year, according to data compiled by Bloomberg.
“There’s kind of a mixed bag for commodities,” said Michael Haigh, the head of commodities research at Societe Generale SA in New York. “We can see cycles within super cycles, with the movements ebbing and flowing in commodities. But the super cycle still holds.”
–With assistance from Alfred Cang in Shanghai, Chanyaporn Chanjaroen, Nicholas Larkin, Maria Kolesnikova, Agnieszka Troszkiewicz, Grant Smith and Isis Almeida in London, Marvin G. Perez, Luzi Ann Javier, Christine Buurma, Eliot Caroom, Debarati Roy and Elizabeth Campbell in New York, Aya Takada and Jae Hur in Tokyo, Phoebe Sedgman in Melbourne, Jeff Wilson in Chicago, Supunnabul Suwannakij in Bangkok and Diep Ngoc Pham in Hanoi. Editors: Sharon Lindores, John Deane
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