Commodity Performance Suffers In November
November has drawn to a close, which makes it a perfect time to recap monthly commodity performance.
But first, let’s look at how hard assets performed overall…
As you can see, the Reuters/Jefferies CRB index (blue line) suffered a 4% loss in November. Recent weakness has the commodity-focused index plummeting to a 9.2% loss on a year-to-date basis.
You’ll also notice the S&P 500 (red line) surged to new yearly highs last month. Clearly, stocks are outperforming commodities by a long shot in the second half of 2014.
To understand why the CRB gave up so much ground in November, let’s look at the biggest commodity movers over the past few weeks.
First, the top performers…
Wheat
A cold start to the US winter has wheat advancing 8.5% in November. According to industry experts, as much as 10% of the soft red winter wheat crop in the US Midwest may not emerge due to a recent bout of abnormally cold temperatures.
Adding fuel to the wheat rally is the fact Russia is also experiencing a very cold start to their winter. Analysts suspect unfavorable weather conditions may send 2015 Russian wheat production to its weakest level in years.
Since the US and Russia are two of the world’s largest exporters, there are concerns of a looming 2015 wheat supply crunch.
Orange Juice
Cold weather woes fueled a 7.7% rally in orange juice the past month. An unusually cold start to the US winter, along with Brazilian drought concerns, has investors jumping to the long side of the OJ market.
Natural Gas
The gaseous commodity gained 2.3% in November thanks to the same cold US weather that’s affecting wheat and OJ. It’s important to note that natural gas surged to $4.70 mmBtu in mid-November, which was a 17% monthly gain. However, the commodity turned lower in recent days thanks to warming temperature forecasts.
And now for the worst performers…
Crude Oil
The price of West Texas Intermediate (WTI) has literally collapsed in the second half of 2014. An 18.5% wipeout in November has the commodity trading down 33% on the year. The dramatic downturn comes thanks to fact OPEC, the world’s largest crude supplier, recently decided against cutting 2015 production.
Now that the influential oil cartel has essentially given up its global pricing power, market forces will decide where the crude market finds equilibrium.
Copper
The red metal sank 7.1% in November thanks to global growth concerns. The world’s largest consumer of copper, China, saw their gross domestic product (GDP) ease to 7.4% in the third quarter of 2014. While such growth is the envy of developed nations, it’s the slowest for China in over five years.
Cotton
The fibrous commodity lost 6.5% in November thanks to the ongoing slide in crude prices. In case you’re unaware, cotton is one of the most energy intensive crops a farmer can grow. Now that crude is plummeting to 5-year lows, investors are betting cotton producers can bring more supply to the marketplace.
Rounding out the worst November performers are sugar, platinum, and silver with losses of 3.1%, 2.8%, and 2.7% respectively.
There you have it…
Without question, it was a rough month in the commodity space. The dramatic downturn in the price of crude is having an enormous bearish effect on the CRB index. As long as the oil slide continues, overall commodity performance will remain decidedly weak.
Stay tuned to Commodity Trading Research, as we’ll be discussing the downturn in oil in more detail in coming days!
Until Next Time,
Justin Bennett
Category: Commodity Trading
