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Commodities Increased in September due to Supply Fundamentals in Agriculture and Energy

Commodities increased in September, broadly due to supply fundamental factors, according to Credit Suisse Asset Management.

The Bloomberg Commodity Index Total Return performance was positive for the month, with 18 out of 22 Index constituents posting gains.

Credit Suisse Asset Management observed the following:

  • Industrial Metals was the best performing sector, up 5.21%, led by Nickel amid reports that the Philippines may suspend additional mines for failing to meet environmental standards as a result of the government's audit. 
  • Agriculture ended 4.25% higher. Sugar gained the most as UNICA, the Brazilian Sugarcane Industry Association, reported lower-than-expected domestic cane yields. In addition, the International Sugar Organization forecasted a global sugar deficit for the 2016-2017 season.
  • Energy gained 4.17%, led by Gasoline, due to tightening supplies in the US. The US Energy Information Administration reported much larger-than-expected decreases in gasoline inventories at the beginning of the month.
  • Precious Metals increased 1.13%, led by Silver, as the US Federal Reserve (Fed) kept interest rates unchanged while reducing their outlook for future rate hikes. 
  • Livestock declined the most, down 13.24%, as higher supply expectations weighed on the sector broadly.

Nelson Louie, Global Head of Commodities for Credit Suisse Asset Management, said: "September was generally a strong month for commodities. Adverse weather impacted softs, particularly sugar, as frosts in Brazil and lower-than-average monsoon rain in India led to concerns over cane yields. The potential for future disruptive weather remains uncertain as expectations for a La Niña vary. Within Energy, OPEC's tentative agreement for modest production cuts boosted market sentiment. The details of the deal are not expected to be released until OPEC's meeting in November, and significant uncertainty remains. However, the provisional deal indicates that the group is once again willing to play a key role in managing global supplies and influencing prices. Saudi Arabia's actual production cuts will likely be integral to the agreement's impact in terms of bringing global supply and demand into balance more quickly."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added: "Global central bank policy may influence commodity returns through year-end. While the European Central Bank left its monetary policy unchanged in September, the Bank of Japan introduced a new stimulus tool that will set a target for 10-year interest rates. The ramifications of Japan's measures are unknown. Labor markets continue to show signs of improvement, and hawkish language after the FOMC's September meeting increased expectations for a December interest rate hike. If future economic data comes in below expectations or if the upcoming US presidential election leads to heightened risks, the US Federal Reserve may refrain from raising rates this year. Both US and non-US central banks seem committed to improving global growth and driving up inflation, each of which may prove supportive 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 September 30, 2016, the Team managed approximately USD 8.9 billion in assets globally.