January Sees Supply Fundamentals Drive Commodity Markets Lower

NEW YORK, Feb. 11, 2015 /PRNewswire/ -- Commodity performance in January was largely driven by supply fundamentals across multiple commodity sectors, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was negative for the month, with 17 out of 22 Index constituents trading lower.

Credit Suisse Asset Management observed the following:

• Livestock was the worst performing sector, down 8.52%, led lower by Lean Hogs. Live Cattle also declined 6.08% after the USDA reported higher beef production due to heavier cattle weights as a result of cheap feed and benign weather paired with reduced 2015 export forecasts.
• Energy declined 6.74% as WTI Crude Oil dropped the most within the sector, after the US Department of Energy reported larger-than-expected inventories of crude oil and a sharp decline in refinery utilization during the month. 
• Agriculture was down 5.73%, led lower by increased global wheat supply expectations. This eased supply concerns emanating from Russia, which restricted wheat exports in December to control food costs due to a sharply declining Ruble. Soybeans and soy byproducts also declined after the USDA reported weaker export sales while forecasts of sufficient rains in Brazil ahead of the upcoming soybean harvest increased supply expectations.
• Industrial Metals was 5.36% lower, led by Copper, after the latest Chinese manufacturing data continued to indicate slight economic contraction, dampening demand expectations. Base metals were also impacted by declining oil prices, which reduced energy-related production costs for miners and smelters.
• Precious Metals was up 8.45% for the month. Demand expectations for precious metals increased after the European Central Bank (ECB) announced its formal quantitative easing program on January 22nd, which was slightly larger than anticipated.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management said: "Supply fundamentals continued to be important drivers of commodity returns at the start of the new year. However, macroeconomic factors dominated. The SNB's announcement to end the minimum exchange rate between the Euro and Swiss Franc and the size of the ECB's quantitative easing program both supported precious metals. Weak China PMI indicators weighed on demand expectations for cyclically sensitive commodities. In the U.S., fourth quarter GDP came in lower-than-expected. However, personal consumption contributed significantly to GDP growth, due to a combination of low oil prices, falling unemployment, and strong trend in consumer confidence."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "The U.S. Federal Reserve signaled it may keep interest rates close to zero longer than originally anticipated. A large focus will be on the ECB's bond-buying program and the Eurozone's recovery. Further action from central banks could be supportive of global growth.  Attention will also be on crude oil to see if prices have declined enough to encourage production cuts.  The latest Baker Hughes U.S. rig count data were lower than expected and led to a sharp rally in WTI Crude Oil.  This was a positive indicator that producers are reacting to low oil prices."   

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy has been managed for over 19 years and seeks to outperform the return of a commodities index, such as the Bloomberg 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 January 31, 2015, the Team managed approximately USD 9.7 billion in assets globally. 

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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.

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