Commodity Market Decreased in October Due to Supply-Side Fundamentals

Nov 11, 2013, 10:48 ET from Credit Suisse AG

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."


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. 

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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