Commodity Market Decreased in October Due to Supply-Side Fundamentals

NEW YORK, Nov. 11, 2013 /PRNewswire/ -- Commodities were lower in October, led by Energy and Agriculture, due to increasing supply expectations for select commodities.

Nelson Louie, Global Head of Commodities in Credit Suisse's Asset Management business, said, "The recent improvements in the global economy have led macroeconomic uncertainty to fall back to pre-crisis levels for the first time since the failure of Lehman Brothers in September 2008, according to the University of Stanford's daily US policy uncertainty index. This may contribute to a further decrease in cross-asset class correlations, improving the diversification benefits of commodities. We continue to expect supply-side fundamentals to play an increasing role in individual commodity returns."

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Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "As anticipated, the October FOMC statement was very similar to that released after the FOMC's previous meeting in September. The future of fiscal policy will most likely hinge on if the federal government averts another shutdown in mid-January.  A shutdown may also once again impact monetary policy, with the previous instance potentially forcing the Federal Reserve to delay tapering, after well-telegraphing it in the early summer.  The Fed has gone to great lengths to ensure the marketplace that they will err on the side of tightening too late rather than too early.  While most are not currently concerned with inflation, it may materialize faster than expected should economic growth exceed expectations."

The Dow Jones-UBS Commodity Index Total Return decreased 1.48% in October.  Overall, 13 out of 22 index constituents posted negative returns.  Energy ended the month 2.62% lower following larger-than-expected increases in inventories, which weighed on WTI Crude Oil.  Natural Gas also declined on the back of mild weather forecasts and expectations of continued production growth.  Agriculture declined 2.26%, led lower by Cotton and Coffee.  Expectations of a large US corn and soybean crop also weighed on the sector as harvests were reported to be 59% and 77% complete at the end of the month, respectively.  Corn also fell on expectations that the US would reduce its targets for usage of renewable energy fuels such as ethanol.  Precious Metals was relatively unchanged, up 0.01%. The sector was supported by the US Federal Reserve's decision to maintain its economic stimulus measures, but positive US economic data and a strengthening US dollar limited gains.  Industrial Metals increased 0.42%, led by Nickel and Zinc.  Zinc gained on expectations that global demand will increase.  Preliminary surveys also showed that China's manufacturing sector strengthened further in October, although mixed signals in important areas including export orders suggested a recovery in their economy will be gradual.  Livestock gained 1.45%, led by Lean Hogs. Live Cattle also increased following a Cattle on Feed report which revealed expectations of lower fed cattle and beef production for the fourth quarter.

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy has been managed for 19 years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:

  • Spot Return: price return on specified commodity futures contracts;
  • Roll Yield: impact due to migration of futures positions from near to far contracts; and
  • Collateral Yield: return earned on collateral for the futures.

As of October 31st, 2013 the team managed approximately USD 10.8 billion in assets globally. 

Credit Suisse AG

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In its Asset Management business, Credit Suisse offers products across a broad spectrum of investment classes, including hedge funds, credit, index, real estate, commodities and private equity products, as well as multi-asset class solutions, which include equities and fixed income products. Credit Suisse's Asset Management business manages portfolios, mutual funds and other investment vehicles for a broad spectrum of clients ranging from governments, institutions and corporations to private individuals. With offices focused on asset management in 19 countries, Credit Suisse's Asset Management business is operated as a globally integrated network to deliver the bank's best investment ideas and capabilities to clients around the world.

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Important Legal Information

This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change without obligation to update. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not a guide to future performance. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.

Certain information contained in this document constitutes "Forward-Looking Statements" (including observations about markets and industry and regulatory trends as of the original date of this document), which can be identified by the use of forward-looking terminology such as "may", "will", "should", "expect", "anticipate", "target", "project", "estimate", "intend", "continue" or "believe", or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Credit Suisse has no obligation to update any of the forward-looking statements in this document.

Certain risks relating to investing in Commodities and Commodity-Linked Investments:  Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative's original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy.

SOURCE Credit Suisse AG



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