The Dow Jones-UBS Commodity Index was down 9.14% for the month of May, with some commodities striking multi-year lows as investors focused on the strong U.S. dollar and economic uncertainty in Europe and China. Moody’s Investor Service cut the ratings of 16 banks in Spain. Fitch Ratings also downgraded Greece’s credit. A new election in Greece on June 17 offers no guarantee of a viable government able to implement an EU-IMF bailout that has roiled the country.
The three most significant downside performing single commodity indexes were orange juice, cotton and WT1 crude oil, which ended the month down 21.01%, 19.97% and 17.79% respectively.
Orange juice futures breached a 2½-year low in the course of the month thanks to weak retail demand and the triggering of technical sales. This occurred amid a glut of warehouse supply of the product.
In May, cotton futures tumbled to a 2¼-year low, as market participants eyed the potential for a drop in demand from China—a top consumer of the product, as its mills produce around 40% of the world’s cotton goods. Bleak economic data out of China have fueled fears that China’s economy may be cooling faster than previously anticipated.
Soft Chinese data in addition to heightened political uncertainty in Europe pressured the crude oil market. However, according to a research report distributed June 1 by Barclays, fundamentals in the market were fairly stable despite the slowdown in growth in Indian and Chinese oil appetite for the product, and U.S. demand has made significant improvements, supported further by Organisation for Economic Co-operation and Development (OECD) Pacific demand.
The Dow Jones-UBS Single Commodity Indexes for lean hogs, feeder cattle and live cattle had the strongest gains with month-end returns of 5.51%, 2.00% and 1.91%, respectively.
Demand for hog and cattle futures contracts increased as the approach of the barbecue season boosted interest, and investors took notice of a continued discount to cash prices.
Year to date, the Dow Jones-UBS Commodity Index was down 8.74% with the Dow Jones-UBS Soybean Meal Subindex posting the highest gain of 24.44% so far in 2012 thanks mainly to weak supply. The Dow Jones-UBS Natural Gas Subindex had the most significant downside YTD performance, down 35.99%, due largely to record production levels.
