July Scorecard: Did You Avoid The Washout?
July is drawing to a close, which makes it the perfect time to recap the top commodity performers over the past month.
But first, let’s discover how commodities performed overall…
As you can see, the Reuters/Jeffries CRB index (blue line) experienced quite a downturn in recent weeks. July’s decline has the commodity-focused index sitting at a year-to-date gain of 6.47%. You’ll also notice the S&P 500 (red line) recently surpassed the CRB.
To see why the CRB lost so much ground, let’s look to this month’s biggest commodity movers.
First, the top performers…
Live Cattle
No doubt about it, live cattle is having a great year. The commodity added 5.1% in July, pushing year-to-date gains up to 18%.
What’s going on?
Investors are eyeing the ongoing depletion of the US cattle herd. As you may have heard, cattle numbers are near a multi-decade low partly due to extensive drought in the Southwestern US. This same catalyst pushed feeder cattle up 4.4% to record highs near $2.22 a pound.
Coffee
The luscious bean is recovering from a multi-month downturn on renewed Brazilian harvest fears. Coffee gained 4.7% on the month, pushing year-to-date gains to 63%.
A briefing from the highly influential FCStone’s Coffee Network indicated the early 2014 drought could have long lasting effects on Brazilian coffee plantations. As a result, the odds are growing for another push to the $2.00 a pound area or higher.
Palladium
Palladium tacked on 4.2% in July. The advance has the commodity sitting on a 22% year-to-date-gain. As you may remember, South African labor issues brought palladium production to a near standstill in recent months. And even though mining resumed recently, market tightness is still a major concern.
And now for the worst performers…
Soybeans
Heavy selling sent soybeans down a whopping 18.8% in July. Investors ran for the exits after the USDA forecasted a record 3.8 billion bushel crop. What’s more, ideal growing conditions have much of the US crop in “good” to “excellent” condition.
Corn
Corn followed soybeans lower with an equally remarkable 18.3% loss. Near perfect growing conditions has the USDA forecasting a record 165.3 bushel per acre yield for this year’s corn harvest.
Natural Gas
Natural gas bears came out of hibernation this month, pushing the commodity down 14.5% to $3.85 mmBtu. A relatively cool Eastern US Summer has natural gas demand at relatively low levels. As a result, weekly EIA storage injection readings have been well above last year and the 5-year average.
Rounding out the worst July performers are cotton (-11.7%), wheat (-9.7%), lean hogs (-9%), and sugar (-7.9%).
Clearly, this month’s losers outweigh winners by a large margin. And that’s precisely why the CRB index performed so poorly.
So there you have it…
Overall, it wasn’t a great month for commodities. However, that doesn’t mean there aren’t profit opportunities going forward.
For example, given the large selloff in natural gas, there’s a very good chance of an abrupt rebound soon. After all, inventory levels are still 20% below last year’s level and 23.5% below the 5-year average.
That means there’s still a very good chance storage levels will be below normal when the winter heating season arrives in November.
Until Next Time,
Justin Bennett
Category: Commodity Trading
