The Dow Jones-UBS Commodity Index was up 1.70% for the month of September amid expectations that global central bank measures to stimulate economic growth may boost building and manufacturing. Fundamental factors also played a healthy role in the month’s activity.
China has a forthcoming change of government, with the politburo of the Chinese Communist Party to be elected on November 8, 2012. In mid-September, the Federal Open Market Committee (FOMC) voted to buy additional bonds and extend low interest rates into 2015 in an effort to further stimulate the economy. Meantime, the European Central Bank (ECB) outlined a bond-buying plan to help lower borrowing costs for struggling nations once they get assistance from Europe’s rescue funds.
The Dow Jones-UBS Single Commodity Indexes for lead, nickel and zinc had the strongest gains with month-end returns of 16.06%, 15.74% and 13.51%, respectively.
Lead futures saw an uptick during the month thanks largely to increasing demand from battery makers and strength overseas due to optimism regarding hunger for raw materials from the U.S. and China. Further, a perceived tightening in supply supported the market as the International Lead and Zinc Study Group reported that the supply surplus on the global lead market had diminished year-on-year from 137 thousand to 49 thousand tons in the first seven months of the year.
Nickel prices rose in tandem with other base metals, while receiving support from a pickup in domestic demand from alloy-makers. Zinc prices rose to their highest levels since February due to increased activity from commodity trading advisors (CTAs) and macro funds.
The three most significant downside performing single commodity indexes were soybean, soybean meal and cotton, which ended the month down 8.85%, 8.72%, and 8.56% respectively.
Soybean and soybean meal contracts saw a pullback in prices after some market participants took profits once the product reached record highs thanks to poor U.S. yields and continued strong demand.
Cotton futures prices fell to that contract’s lowest level in about two months in September, crossing 71 cents a pound. According to a research report distributed by Commerzbank on September 27, an upcoming harvest in the U.S. exerted pressure on prices, with the result that “market players can be expected to square their long positions.” According to Commerzbank, as of September 18, there were still net long positions of 15.1 thousand contracts. The Indian Textile Association, meanwhile, said it expects Indian cotton exports to be 50% lower in the 2012/13 crop year which begins in October. This is due to weaker demand from China and higher prices than on the world market. Further, the crop in India will be lower as a result of the poor monsoon season, yet domestic demand is picking up. “Less competition from India, the second-largest exporter of cotton, should lend support to U.S. cotton prices,” the Commerzbank report said.
Year to date, the Dow Jones-UBS Commodity Index is up 5.56% with the Dow Jones-UBS Soybean Meal Subindex posting the highest gain of 69.43% so far in 2012. Dow Jones-UBS Orange Juice Subindex has the most significant downside YTD performance, down 28.44%. A drop in demand for orange juice, coupled with the fact that storms in the Atlantic have missed key growing areas, created a negative impact on prices.
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Christine Marie Nielsen has worked for more than 14 years as a financial journalist, covering the fixed income market and Chicago exchanges for Dow Jones Newswires for eight years. She's also hosted a syndicated radio spot on the stock and futures markets from the floor of the Chicago Board of Trade. She is currently working as managing editor for JLN news service, a division of John J. Lothian & Co. Separate from her work at John J. Lothian & Co., Nielsen is the publisher and founder of Our Earth Issues (OEI). The site uses interactive video to create large-scale virtual "global town hall" meetings with the aim of facilitating dialog and finding solutions to problems common across the world. A patent is pending on the methodology and web site design. As part of the OEI project, Nielsen coined the term "Dialog Journalism" and registered the term for trademark in summer of 2011.