The Dow Jones-UBS Commodity Index ended up 2.47% for the month of January as investors pondered word that the U.S. Federal Reserve is prepared to extend the time frame for exceptionally low interest rates through 2014 in an effort to provide additional stimulus to the U.S. economy. This action could increase growth and boost demand for commodities such as industrial metals. Further, a weakening of the U.S. dollar against other key currencies including the euro made dollar-denominated commodities more accessible to holders of other currencies.
The Dow Jones-UBS Single Commodity Indexes for tin, orange juice and silver had the strongest gains with month-end returns of 26.74%, 24.26% and 19.15%, respectively.
Tin gained in January as the prospect of low U.S. interest rates at least until 2014 boosted speculation of increased demand for the metal used in plasma screens, mobile phones and cars.
Orange juice saw its biggest gains since 1981 after the Food and Drug Administration detained imported juice shipments when 11 samples from Canada and Brazil tested positive for the banned fungicide carbendazim. Speculation was that a U.S. probe would reduce imports of orange juice for an undetermined period of time.
Silver followed gold higher in January as gold benefitted from the weakness in the U.S. dollar from a Fed commitment to keep U.S. rates near zero, investor and consumer demand, and central-bank purchases. Silver was also was supported by bullish technical factors as prices broke through key resistance levels.
The three most significant downside-performing single commodity indexes were natural gas, coffee and soybean oil, which ended the month down 17.01%, 5.20%, and 2.96%, respectively.
Natural gas prices fell in January as supply concerns mounted .The Energy Information Administration said on January 30 that natural gas production in the lower 48 states totaled 72.61 billion cubic feet per day in November, up 2.4% from October.
Coffee prices declined for the fifth straight month as expectations continued that growers in Brazil, the world’s largest coffee producer, will reap a record crop this year as coffee trees enter the higher-yielding half of a two-year cycle and rains boost yields.
The prospect of further rainfall in South America caused the price of soybeans to fall. According to a January 31 report from Commerzbank, better weather conditions in Argentina - an area which had been hit particularly hard by a prolonged drought - provided major relief to soybean crops. Commerzbank said that in the third week of January the Buenos Aires Grains Exchange had forecast soybean production of 46.2 million tons compared to 49.2 million in 2010/11, but the forecast could prove to be overly pessimistic. And, although the U.S. Department of Agriculture had scaled back its crop estimate by 1.5 million tons compared to its December figure, the USDA still expects a crop volume of 50.5 million tons. Commerzbank forecasts the expected harvest is likely to be somewhere between the two estimates.
