Did You Hitch Your Wagon To These Rising Assets?

| July 5, 2013 | 0 Comments

Oil and Naural GasOn Wednesday, we discussed the worst performing commodities for the first half of 2013.  Now it’s time to cover the top performers from the first six months of the year.

Let’s get to it…

Lean Hogs- up 17%:  The hog market is on fire this year.  This often-overlooked commodity surged from $0.70 a pound in mid-March to over a $1.00 in recent trading. 

The fuel for this outperformance is coming from US consumers.   With retail beef prices at their highest levels in years, consumers are switching to lower priced pork.  This change in eating habits increased demand for pork and made lean hogs the top-performing commodity in the first half of 2013.

Cotton- up 14%:  This year’s strength in cotton can be attributed to two things.  First of all, US farmers gave up cotton seeds in favor of higher priced corn this planting season.  As a result, the US cotton harvest is expected to be its lowest in years.  What’s more, increasing demand out of China, the world’s largest consumer of cotton, sent the price over $0.90 a pound twice in the past four months.

Natural Gas- up 13%:  As you know, we’ve talked a lot about natural gas here at Commodity Trading Research.  Even though the seemingly abundant commodity is still cheap by historical standards, it’s up solidly on the year.  A long cold spell in February and March kept demand buoyed in key natural gas heating regions.  As a result, US inventories dropped well below the five-year average, sending natural gas prices higher.

Crude Oil- up 7%:  Oil continues to be one of the most resilient commodities in the marketplace.  Traditionally, this commodity trades in an economically sensitive manner.  In other words, when economic slowdown fears hit, oil usually reacts with violent price downturns. 

But not this year.  Even though US crude inventories are at the highest levels in decades, the commodity just won’t weaken in price.  And now that trouble is brewing in the Middle East again, the next direction for crude is likely higher.

So there you have it. 

Those are some of the best performing commodities for the first six months of 2013.

Now, compare the list of losers from Wednesday’s article against today’s winners and you’ll realize it’s been a rough start to the year for hard asset investors.  General commodity performance can be characterized as “poor” for the first half.

But that may be about to change…

Investment banks JP Morgan and Goldman Sachs just came out with bullish views on commodities for the second half of the year.   In fact, JP Morgan recently recommended a net long, overweight exposure for institutional commodity investors. 

The reason for the bank’s bullishness is due to the fact that many commodities are trading at levels that will force production cuts.  For example, industrial and precious metals have fallen precipitously in recent months.  As a result, companies producing these commodities may have no choice but to pull in the reins on production.

Now take a look at this…

Baltic Dry Index

What you see above is a chart of the Baltic Dry Index (BDI).  In case you’re unaware, this index is a general measure of the cost to rent large, ocean-bound bulk ships.  As you can see, the price rose dramatically in June.  The higher the index rises, the more demand there is for moving bulk raw materials across the world’s oceans.

The BDI is a very good leading indicator of economic activity.  So when the index is turning higher, like it is now, it portends good things for the global economy.

And when the global economy is gaining strength- it’s good for commodity demand.

So if companies are slashing production right when the global economy is set to strengthen, we could see a supply shortage situation in various hard assets.  Of course, prices will move higher because of it.

Folks, don’t let commodity’s weak first half performance get you down…

If the big investment banks are right, and I believe they are, commodity investors are in store for a strong second half of the year!

Until Next Time,

Justin Bennett

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Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.