Commodities headed for the first annual drop in five years as supply exceeded demand for corn to sugar to nickel and after investors lost faith in precious metals as a store of value amid signs economies are improving.
The Standard & Poor’s GSCI gauge of 24 raw materials fell 0.4 percent to 633.51 by 1:44 p.m. in London for a 2 percent decline this year. Corn led the retreat with a 39 percent plunge, with silver and gold the next worst performers. Commodity-fund investments fell by a record $88 billion to $332 billion in the first 11 months, Barclays Plc estimates.
As prices that more than doubled in the past decade spurred miners and farmers to boost production at time when China’s economic growth slowed, Citigroup Inc. said the "super cycle" of gains has ended. Copper to wheat to cocoa entered bear markets this year as investors shifted money to equities. Gold and silver are set for the biggest drop since 1981 as an economic rebound prompted the Federal Reserve to cut stimulus.
"Perceptions of improving supply and supply overhangs pressured commodities," said Jeremy Baker, a senior commodities strategist who helps oversee about $600 million at Harcourt Investment Consulting AG in Zurich. "There was concern about China’s growth. Once we get the first quarter out of the way it looks a pretty good market for some of the base metals. Not a very strong sustainable market, but better than last year."
The fall in the S&P gauge since the start of January compares with a 20 percent gain for the MSCI All-Country World Index of equities and a 3.4 percent increase for the Bloomberg U.S. Dollar Index, a measure against 10 major currencies. The Bloomberg U.S. Treasury Bond Index lost 3.1 percent.
Corn is set for its worst year in a half century as the U.S. harvest, the world’s biggest, climbed to a record 355.3 million metric tons, rebounding 30 percent from the prior season when crops were hurt by the worst drought since the 1930s, according to the U.S. Department of Agriculture. Sugar output will exceed demand by 4.73 million tons in the 2013-14 season that started in October in most countries, the fourth straight global surplus, the International Sugar Organization says.
Nickel, the worst performing industrial metal this year with a drop of 18 percent, will have a 149,000-ton surplus this year, Barclays estimates. Zinc has performed best among the six metals traded on the London Metal Exchange, down 0.6 percent.
Economic expansion in China, the biggest user of everything from copper to soybeans, slowed every year since 2011. Economists surveyed by Bloomberg News expect growth of 7.5 percent in 2014, down from 7.6 percent this year and the least since 1990. The International Monetary Fund estimated in October that emerging markets will expand 4.5 percent this year, down from a projection of 5.6 percent made a year earlier.
"The biggest factor has been emerging market growth and that it has been weaker than expected has weighed on commodities," said Nic Johnson, who helps manage $30 billion of commodity assets at Pacific Investment Management Co. in Newport Beach, California. "Developed market growth will support prices of some commodities."
Global economic growth will accelerate to 3.6 percent in 2014, from 2.9 percent this year, according to the IMF. Christine Lagarde, managing director for the fund, said Dec. 22 that the group is raising its outlook for the U.S. economy. The Fed cut on Dec. 18 the pace of its monthly bond purchases to $75 billion from $85 billion.
Gold is set to mark the first annual drop in 13 years with a 29 percent slide and silver slumped 36 percent as central bank stimulus measures failed to boost inflation. U.S. consumer prices were unchanged in November after a 0.1 percent drop the prior month, according to Dec. 17 data from the Labor Department. Bullion traded at $1,196.62 an ounce in London today, down from a record $1,921.15 reached in September 2011.
Analysts, traders and investors surveyed by Bloomberg earlier this month predicted metals and crop prices will rebound next year. Copper will rise to as high as $7,836 a ton in 2014, from $7,360 now, the median estimate showed. Platinum will reach $1,650 an ounce, compared with $1,362.87 now and corn will increase to $5.225 a bushel from $4.225 today.
"Gold has had a horrible year and there are still no reasons for the story to change," said Donald Selkin, who helps manage about $3 billion as the New York-based chief market strategist at National Securities Corp. "Economies are doing better, interest rates are going higher. I think industrial metals will do better as sections of the world are improving."