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Commodities Decreased due to High Crop Supply Expectations and Reduced Safe Haven Demand
The Bloomberg Commodity Index Total Return declined for the month, with 16 out of 23 constituents posting gains.
Credit Suisse Asset Management observed the following:
- Agriculture declined 2.22% as beneficial weather conditions and higher-than-expected planted acreage raised supply expectations for soybeans, coffee and corn on top of already strong inventory levels.
- Precious Metals decreased 2.00% as the US Dollar rose along with the US stock market, reducing demand for Silver and Gold as safe haven assets.
- Industrial Metals increased 0.90%, led higher by Zinc, as the global refined supply deficit persisted into its third year, as reported by the International Lead and Zinc Study Group.
- Energy rose 0.66%, led higher by Gasoline, as supplies decreased over the month. WTI Crude Oil and Brent Crude Oil also gained from tightening supply and demand fundamentals.
- Livestock gained 6.30%, led higher by Lean Hogs, due to reports of improving trade relations between the US and China, and the continued outbreak of African swine fever across China’s hog herds. Both increased expectations of greater Chinese demand for US pork products.
Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "The trade dispute between the US and China came closer to reaching its one-year mark by the end of March, with both sides potentially motivated to finalize a deal to support their respective economies. The two nations made progress towards forming preliminary terms, with a target date of arranging an extensive trade agreement by the end of April. If trade talks progress as planned, the US' agricultural and livestock industries may receive a boost in Chinese export demand by May. The current draft may even be beneficial to the US energy markets, with China potentially increasing imports of US LNG. The domestic natural gas industry may be facing potential production growth headwinds as exploration companies focus on improving profitability by reducing new capital expenditure projects. Even base metals demand expectations could recover quickly, potentially improving from better global growth prospects in the near term."
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "The US economy appeared to remain resilient. Among recent economic highlights were an increase in new home sales year-over-year in February, near its strongest levels since the global financial crisis, and an unemployment rate that fell back down to 3.8%. However, the US ISM and Markit Manufacturing PMI figures were weaker than expected for February and seemed to indicate the manufacturing expansion may be cooling. The Caixin China General Manufacturing PMI reading for March returned to expansionary territory, surprising the market to the upside, potentially due to stimulus measures from their government. Meanwhile, the US Federal Reserve (Fed) indicated it was willing to remain patient and keep monetary policy looser for longer, rather than continuing to raise interest rates and risk being considered to be a major cause of a potential recession. The Fed even alluded that it may be willing to ease if needed as it keeps on eye on foreign growth prospects which would impact US growth. Even the European Central Bank (ECB) signaled that it may reconsider its stance on maintaining negative interest rates if economic data out of the Eurozone continued to soften. The Fed’s and ECB’s words and actions emphasize that the trend of more active central bank management of their respective economies is likely to remain."
About the Credit Suisse Total Commodity Return Strategy
Credit Suisse’s Total Commodity Return Strategy is managed by a team with over 35 years of combined 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 March 31, 2019, the Team managed approximately USD 7.5 billion in assets globally.