These Commodities Cratered…
Well folks, we’re finally entering the home stretch…
With October’s arrival, the fourth quarter of 2013 is officially underway in the markets. That means it’s the perfect time for a third quarter commodity performance review.
Let’s start with the worst performers over the past three months…
Corn: down 17% – No surprise here. Corn is easily the worst performing commodity of the past three months. A nearly perfect US growing season has the USDA forecasting an enormous crop.
As a matter of fact, in their last WASDE report, the government agency estimated this year’s harvest will produce a record 13.8 billion bushels of corn. That’s nearly 30% larger than last year’s crop.
However, while bearish fundamentals are certainly weighing on the price of corn, there’s still a good possibility of an imminent rally…
The essential grain is already trading at multi-year lows near $4.40 a bushel. If even the slightest bit of bullish news hits the headlines (say a sudden freeze that hurts northern US yields), corn could make a very quick reversal to the upside.
Soybeans: down 11% – Soybeans hit the skids in the third quarter as well. Much like corn, the essential grain was heavily planted by US farmers this year. Expectations of a large soybean crop have the grain crossing the tape at $12.75 a bushel… the lowest price since February 2012.
Lean Hogs: down 10% – After a monumental rally in the first half of the year, lean hogs dropped like a stone last quarter. In fact, contract rollover sent the price of hogs plummeting from $1.03 a pound to $0.85 cents a pound in mid-August… a 17% wipeout within a matter of days.
Since then however, the lean hog market has regained its composure, rallying back to nearly $0.95 a pound in late September.
Looking forward, investors will keep a close eye on the ongoing outbreak of the deadly PED swine virus that’s working its way through US hog farms. Should the virus continue decimating US hog supplies, we may see this commodity retest the highs set earlier this year.
Coffee: down 8% – Thanks to the global love affair with coffee, global producers are bringing forth massive supplies of the luscious bean. In fact, so much coffee has been produced in recent years that global supplies are overwhelmingly abundant. Bearish supply fundamentals have coffee trading at $1.15 a pound- levels not seen since mid-2009.
What’s more, growing expectations of a bumper Robusta crop in Vietnam have bullish investors steering clear of the coffee market for the foreseeable future.
Natural Gas: down 4% – Bullish market expectations for natural gas were sidelined in the third quarter thanks to temperate weather in key natural gas usage regions. While parts of the US did experience hot weather this summer, it wasn’t a sustained run of above average temperatures like last year.
As a result, natural gas inventories are currently in-line with the 5-year average of 3.4 billion cubic feet.
But remember, long-term weather forecasts are calling for a much colder winter this year. If this comes to fruition, bullish natural gas investors will return with a vengeance.
As you can see, it was rough for these commodities in the third quarter…
Besides bearish fundamentals in many of these individual markets, the near constant uncertainty created by Federal Reserve Chairman Ben Bernanke didn’t help either.
As you may know, the Fed has been toying with the idea of paring back US economic stimulus for months now.
Tune in on Monday and I’ll cover the big commodity winners from the last three months. You’ll be surprised at how many strong performers there were in the third quarter!
Until Next Time,
Justin Bennett
Category: Commodity Trading
