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The Dow Jones-UBS Commodity Index was up 2.69% for the month of February as hints of improvements in the world economy boosted expectations for commodity demand. The Dow Jones-UBS Single Commodity Indexes for Brent crude, soybean meal and sugar had the strongest gains with month-end returns of 10.04%, 9.72% and 9.54%, respectively.
Although U.S. government data showed a larger-than-expected increase in crude-oil inventories, talk of expansion of the U.S. economy in January according to the Federal Reserve’s Beige Book and an infusion of liquidity by the European Central Bank (ECB) fueled expectations for increased use and supported Brent crude prices.
Reports from the 12 Federal Reserve Districts suggested that overall economic activity continued to increase at a modest to moderate pace in January and early February. In addition, manufacturing continued to expand at a steady pace across the nation, with many districts reporting increases in new orders, shipments, or production and several districts indicating gains in capital spending, especially in auto-related industries.
In December, the ECB said it would lend as much as banks wanted at an interest rate of only 1.0 percent for a period of three years in an effort to keep credit flowing in Europe despite a debt crisis and to address wariness on the part of banks to lend to each other during this period. In late February, the ECB said it would enact a second such operation.
Soybean meal saw gains after the United States Department of Agriculture (USDA) said declining South American soybean supplies would shift buyer focus to the U.S. According to the USDA, the production decline along with record October-December exports and crush reduced forecasted supply six million tons from the previous year and 10 million tons from the December forecast. "With global import demand expected to be three million tons higher than the previous year for the 2012 January-September period, there should be ample opportunity for the U.S. to carve out additional sales," the USDA said in a written report.
Sugar prices trended slightly higher in February, with some of the strength associated with softness in the U.S. dollar and therefore increased buying power by those holding certain foreign currencies. In addition, gains in crude prices buoyed sugar prices because sugar cane can be used in the production of the alternative fuel, ethanol.
The three most significant downside performing single commodity indexes were orange juice, nickel and coffee, which ended February down 8.58%, 7.86%, and 6.51%, respectively.
Orange juice futures prices declined after the U.S. Food and Drug Administration (FDA) said that the fungicide carbendazim found in Brazilian exports wasn’t a public threat and wouldn’t impact supply. The FDA said the presence of the fungicide would not require a recall.
Nickel prices moved in tandem with other base metals during the month and broke through key technical levels and triggered technical stops on the way down.
The price of Arabica coffee fell below the $2-a-pound mark in February for the first time in 14 months. The price of the commodity was impacted by expectations of a solid harvest in Brazil. A February Commerzbank research report said anticipation of a high-yield year within a two-year crop cycle also hurt prices.
Year to date, the Dow Jones-UBS Commodity Index is up 5.23% with the Dow Jones-UBS Silver Sub-Index posting the highest gain of 23.86% far in 2012. Silver was largely seen as oversold after sharp losses at the end of 2011.Dow Jones-UBS Natural Gas Sub-Index has the most significant downside YTD performance, down 19.64%, due in part to a warmer-than-normal winter across the U.S.
