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Commodities Declined in August, Led Lower by Agriculture and Metals

Commodities declined in August, largely driven by supply fundamentals and evolving macroeconomic headlines, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was negative for the month, with14 out of 22 Index constituents posting losses.

Credit Suisse Asset Management observed the following: 

  • Precious Metals was the worst performing sector, down 4.95%, led lower by Silver. Positive US economic data increased expectations that the US Federal Reserve (Fed) may raise interest rates earlier than expected.
  • Agriculture declined 4.78%, led by Soybean Meal, due to a continued strong production outlook for Soybeans and Soybean Meal following supportive weather conditions in the US Midwest.
  • Industrial Metals ended the month 4.11% lower, with Nickel posting the biggest loss, as Chinese imports in July decreased, and economic data indicated continued weak demand. 
  • Livestock declined slightly, losing 0.09%, led lower by Live Cattle. The US Department of Agriculture's August 12th World Agricultural Supply and Demand Estimates Report revised projected beef production higher for 2016 and 2017. 
  • Energy was the best performing sector, up 3.56%. Gasoline gained the most after the US Energy Information Administration reported a larger-than-expected drop in gasoline inventories earlier in the month.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "With the US growing season for grains nearing completion, a large crop looks increasingly certain. Attention will slowly shift towards the upcoming planting season in Latin America. Weak emerging market currencies versus the US Dollar resulted in commercial consumers sourcing grains from outside of the US. As South American Corn and Soybean stocks are already low, any planting delays or weather disruptions may support prices. Within the oil and petroleum sector, market participants are shifting their focus to the upcoming OPEC meeting, where expectations for a potential agreement have increased as Iran has regained market share. Meanwhile, Saudi Arabia and Russia are both producing at or near record levels. However, US crude oil output has tightened from mid-2015 peak levels amid significant production cuts. This may provide support to oil prices, if and when OPEC decides to act."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "US Federal Reserve officials remained divided over when to raise rates. Positive US economic data reinforced that near-term risks remain subdued, increasing market expectations for a September rate hike. However, given the uncertainty across other major economies and the willingness of global central banks to use further easing measures to revitalize their economies, the Fed may remain patient. In the aftermath of the UK's vote to leave the EU, the Bank of England cut interest rates, while the Bank of Japan announced a new fiscal stimulus package. If the Fed refrains from increasing rates in September, they may only hike once more at the end of this year. This may lead to US Dollar weakness, which could potentially be positive overall for commodities."

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy is managed by a team with over 29 years of experience, and seeks to outperform the return of a commodities index, such as the Bloomberg Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:

  • Spot Return: price return on specified commodity futures contracts;
  • Roll Yield: impact due to migration of futures positions from near to far contracts; and
  • Collateral Yield: return earned on collateral for the futures.

As of August 31, 2016, the Team managed approximately USD 8.5 billion in assets globally.