Commodity Market Higher In July, Driven By Supply-Side Concerns

NEW YORK, Aug. 8, 2012 /PRNewswire/ -- Commodity performance was positive in July, as deteriorating crop conditions in the US Midwest pushed grains prices higher.  

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Nelson Louie, Global Head of Commodities in Credit Suisse's Asset Management division, said, "Weather was a key driving factor pushing the index higher in July, with the primary beneficiaries being grains and natural gas.  Weather will likely continue to be a key idiosyncratic factor driving these components in the near future.  Meanwhile, more economically sensitive commodities, like base metals, will continue to be focused on macroeconomic factors.  Economic readings for the US and China were mixed and suggested slowing growth.  This, along with continued economic malaise in much of Europe, suggests further monetary easing measures may be likely."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "However, inflation expectations remain anchored near historic levels with markets focused more on weak economic conditions than on the eventual impact of prolonged, exceptionally loose monetary policy on inflation.  This may lead to inflation overshooting expectations if economic activity begins to pick up more robustly than expected.  Commodities have historically tended to outperform during periods of higher than expected inflation.  Traditional asset classes, including equities and fixed income, may be impacted differently by these risks.  This should continue to drive short term cross-asset correlations lower.  We believe investors will continue to benefit from the long-term diversification benefits that commodities provide."

The Dow Jones-UBS Commodity Index Total Return was up by 6.47% in July.  Overall, 14 out of 20 index constituents posted positive returns.  Agriculture was the best performing sector, up 14.29% for the month.  An exceptionally warm and dry start to the summer in the US Midwest remained as the driving force behind grains performance.  Corn, up 28.33%, was the top performer in the index as the new crop entered the key pollinating and yield-setting period amid challenging weather conditions.  Energy increased, gaining 7.90%, led by Natural Gas.  Crude Oil and refined petroleum products were also higher amid fears that Iran was planning on disrupting supplies.  Iranian crude oil exports continued to decline under the weight of the European embargo and US sanctions.  The Precious Metals sector was relatively unchanged, up 0.52%, supported by the European Central Bank's pledge to protect the Eurozone and hopes for fresh stimulus in the US, but yet held back by doubts that serious efforts would be undertaken in the near future.  Livestock ended the month 2.02% lower, weighed down by sharply higher grain prices.  Industrial Metals decreased 2.48% as ongoing demand concerns due to macroeconomic weakness and uncertainty weighed on the sector.

The Credit Suisse Total Commodity Return Strategy group periodically produces updates on relevant industry topics. For a copy of the team's white paper, "Commodities Outlook: Increased Volatility, Increase Opportunity?", please contact your Credit Suisse Relationship Manager. 

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy has been managed for 18 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 July 31, 2012 the team managed approximately USD 10.6 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.

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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.

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