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Commodities Erase Gains for Year as Lean Hogs to Crude Decline

12:37PM Aug 14, 2014
Cotton beauty shot Charles Parker Farm 2011

Commodities erased gains for the year as oil and grains declined on signs of ample supplies as economic growth halted in Europe and factory output slowed in China, the biggest consumer of industrial metals and energy.

The Bloomberg Commodity Index of 22 raw materials dropped 0.5 percent to 125.593 by 5:11 p.m. in London, for a 0.1 percent decline this year. Lean hogs, Brent crude and gasoline fell at least 2 percent today. Lean hogs, Brent crude and aluminum fell at least 1.6 percent today.

Cotton, grains and oilseeds are the worst-performing commodities this year in the Bloomberg index. Soybeans dropped 20 percent and corn lost 12 percent on record U.S. harvests. Brent is heading for a second monthly decline, the longest streak since May 2013, as shale fracking allowed the U.S. to pump the most oil in 27 years even as fighting in the Middle East threatened to disrupt supplies.

"Perfect growing conditions in Europe, the Black Sea and the U.S. have sent grains down," said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. "The energy sector has become more robust. This is not least due to the continued rise in non-OPEC production, especially in the U.S."

Stocks Comparison

The Bloomberg Commodity Index’s 2014 gain lags behind a 3.4 percent advance in the MSCI All-Country World Index of equities and the 4 percent increase in the Bloomberg Treasury Bond Index. The Bloomberg Spot Dollar Index rose 0.1 percent.

The euro-area’s economic recovery stalled in the second quarter as Germany, France and Italy all failed to grow, underlining the vulnerability of the region to weak inflation and the deepening crisis in Ukraine.

Germany is the third-biggest buyer of copper, after China and the U.S. Copper declined 0.8 percent to $6,827 a metric ton today, the lowest since June 23 and extending this year’s drop to 7.2 percent. Aluminum fell 1.6 percent to $1,993.75 a ton.

Japan’s economy contracted the most since 2011 last quarter and China’s industrial production and lending for July were below economist forecasts, reports yesterday showed. The International Monetary Fund last month cut its forecast for global economic growth this year to 3.4 percent from 3.6 percent forecast in April.

Goldman’s View

Goldman Sachs Group Inc., in a July 28 report, kept its neutral commodities outlook for the next 12 months and said nickel and palladium would outperform iron ore and soybeans. Industrial metals have the best short-term outlooks, Barclays Plc said in a July 30 report. The bank recommends buying nickel and crude and selling gold. Gold climbed 9.1 percent this year.

Soybeans rose 0.8 percent to $10.5475 a bushel on the Chicago Board of Trade today after touching $10.3875 a bushel, the lowest since Sept. 17, 2010. Corn futures advanced 0.5 percent to $3.7175 a bushel.

U.S. farmers will harvest a record 3.816 billion bushels of soybeans this year and an all-time high of 14.032 billion bushels of corn, the U.S. Department of Agriculture said this week.

Bulging Stockpiles

Brent declined 1.8 percent to $102.43 a barrel on ICE Futures Europe, after touching the lowest since July 2013. Prices dropped 7.6 percent this year. Cotton fell 0.3 percent today, down 24 percent in 2014. A bigger U.S. crop is supplementing bulging stockpiles in China, according to the USDA. Lean hog futures retreated 1.3 percent.

Hedge funds and other large speculators cut their bets on rising commodity prices by Aug. 5 to the lowest level since January, U.S. Commodity Futures Trading Commission data show.

"For the remainder of the year the upside seems limited," Saxo Bank’s Hansen said. "A potential return to recession in Europe, China bumping along without much fireworks together with ample supply of key commodities should keep a lid on rallies."