What Happened?
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Now that May is in the record books, it’s the perfect time to recap the best and worst performing commodities for the past month.
But first, let’s discover how commodities performed overall…
As you can see, the Reuters/Jeffries CRB index (blue line) traded sideways in May. Also notice how the S&P 500 (red line) gained a bit of ground last month with a rise of nearly 2%.
Clearly, commodities took a break in May while stocks played a bit of catch up.
To see how we got here, let’s look at last month’s best performers…
Feeder Cattle – Yet another stellar month for feeder cattle! The commodity gained an additional 7.5% in May. In case you’re unaware, cattle prices have been in a strong uptrend for months thanks to overwhelmingly bullish supply/demand fundamentals.
The US cattle herd is still sitting at exceptionally low levels thanks to decades of poor economics for ranchers. The current beef undersupply is not a situation that will be turned around quickly.
Cocoa – The South African commodity gained 5.3% in May. What’s more, cocoa is jumping over $3,000 a ton thanks to growing El Niño worries. If the worrisome weather anomaly hits, it will likely bring drought to Western Africa. Since this region produces the lion’s share of global cocoa supply, investors are rightly concerned of the effect on production.
Copper – Believe it or not, copper is rising from the dead. As you may remember, the red metal took a hefty dive below $3 a pound in mid-March. A rare Chinese corporate bond default had copper bulls running for the hills.
But since there hasn’t been another default, bulls are once-again getting comfortable in this market. And since Chinese economic data has come in a bit stronger than expected in recent weeks, investors are starting to see additional upside for copper.
Rounding out the top May performers are palladium and crude oil with gains of 2.7% and 2.6% respectively.
Now let’s look at last month’s worst performers…
Coffee – This high flying commodity is coming back to earth. Coffee lost 14% in May as investors took profits on the early year run. As loyal readers know, coffee went on a spectacular bull run a few months ago. In fact, on a year-to-date basis coffee is still outperforming all other commodities with gains of 57%!
Wheat – In spite of the ongoing troubles in Eastern Ukraine, the price of wheat plummeted by 13% in May. Lofty global production estimates are outweighing concerns of a poor US winter wheat crop.
Cotton – Cotton gave up 8.5% in May as investors feared soft demand from the world’s largest consumer of the commodity- China. However, US production fears have bulls ready to jump back on the long side of this market.
Precious Metals – Gold and silver turned in another poor monthly performance with losses of 4.5% and 4% respectively. Investors are wary of getting long the metals thanks to strong US economic data and lack of inflation. However, it’s important to point out that both metals are trading at price levels that make it very hard for miners to stay in business.
As a result, don’t be surprised to hear more about a looming supply shortage in gold and silver.
There you have it…
Big downturns in coffee and wheat kept overall commodity performance weak in May. However, with the Chinese and US economies predicted to strengthen in coming months, last month’s poor performance may soon be forgotten.
Until Next Time,
Justin Bennett
Category: Commodity Trading
