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The Dow Jones-UBS Commodity Index was down 3.88% for the month of October as weak economic data – including word that sales of existing homes declined 1.7% the previous month to a seasonally adjusted annual rate of 4.75 million – impacted commodities, with base metals being one of the groups that was hardest hit.
The three most significant downside performing single commodity indices were nickel, zinc, and coffee, which ended the month down 12.51%, 11.67% and 10.86%, respectively.
In addition to data weakness in the U.S., the nickel market took notice of a continued glut of supply and the fact that China reported the seventh straight quarter of slowing growth, while services and manufacturing in the 17-nation euro area last month contracted more than economists had forecast.
Lower global consumption also continued to weigh on zinc prices, as did word that fourth-quarter domestic zinc production was expected to compensate for a cut in the first three quarters.
Coffee prices declined during the month of October. According to research released by Commerzbank on October 30, after the harvest from a high-yield year in Brazil had already put pressure on prices of Arabica coffee, the effect was compounded by rising shipments from Central American countries. “In an environment in which stocks on the ICE total 2.41 million bags, the highest level since May 2010, this is having a dampening effect on price performance. Over a third of the stocks were built up in the current year alone,” researchers wrote in the Commerzbank report. Further, following last year’s record harvest in Vietnam, the world’s biggest producer of Robusta, more and more observers expected this year’s crop to achieve a similarly high level.
The Dow Jones-UBS Single Commodity Indices for lean hogs, natural gas and live cattle had the strongest gains, with month-end returns of 6.14%, 2.06% and 0.98%, respectively.
Near-term lean hog futures contracts benefitted from reports that hog farmers weren’t culling their adult female hogs as much as the market had expected amid a rise this year in the cost of animal feed. This suggested that fewer hogs than expected would be available for slaughter in coming weeks.
Natural gas prices rallied early in the month on expectations for increased demand due to a coming winter that could be colder than the abnormally warm 2011-12 winter.
Rising wholesale beef prices boosted the live cattle market. Market participants eyed prices that surpassed the highs of last spring and key resistance of $200 /cwt.
Year-to-date, the Dow Jones-UBS Commodity Index is up 1.47% with the Dow Jones-UBS Soybean Meal Subindex posting the highest gain of 66.91% so far in 2012. Dow Jones –UBS Coffee Subindex has the most significant downside YTD performance, down 35.05%, thanks largely to limited supply.
