The Dow Jones-UBS Commodity Index was up 6.46% for the month of July as the impact from the worst drought conditions in approximately 60 years limited much of the agricultural crop output in the U.S. Midwest and largely overshadowed concerns about the resurgence of the EU debt crisis and a rise in the value of the U.S. dollar compared to most other trading partners of note. Commodities tend follow an inverse relationship with the value of the dollar, as a stronger dollar means less buying power for global players in the market.
The United States Department of Agriculture (USDA) released data July 31 that showed the overall farm-price index—an index that monitors the prices received by farmers for sales including crops and livestock—posted an 11-point month-to-month increase during July.
The Dow Jones-UBS Single Commodity Indexes for corn, soybean meal and wheat had the strongest gains with month-end returns of 28.32%, 19.80% and 17.30%, respectively.
Corn futures prices soared to record levels during the month, with the lead corn futures contract reaching an all-time high of $8.205 a bushel on July 31. Speculation was that hot, dry weather could decrease the U.S. corn harvest in autumn by over a billion bushels below what the federal government had forecasted only two months ago.
Soybean prices got a boost during the month from expectations that production estimates for the current crop could fall short. Front-month soybean futures closed the month at the highest levels in history at $17.21.
The highest prices were reached in wheat futures since May of 2011. Lead-month wheat futures closed out the month just below $9.00 per bushel at the highest level for 2012.
The three most significant downside-performing single commodity indexes were feeder cattle, orange juice and nickel, which ended the month down 9.82%, 9.73%, and 5.33% respectively.
Feeder cattle prices tend to move inversely to corn futures prices as high feed costs weigh on profit margins for livestock producers. As in the previous month, drought conditions in the U.S. Midwest that boosted corn prices hurt the feeder cattle market.
Orange juice prices held to near two-month lows as ample supplies and sluggish demand weighed on the market. Later, word that tropical storm systems would not severely impact Florida—the top producer of oranges for juice in the U.S.—furthered the negative tone in the market.
Nickel futures weakened during the month as growth in China slowed. China's economy grew 7.6 percent in the second quarter of 2012 from a year earlier, its slowest pace in three years. China had been the main driver of global nickel demand growth over the past five years.
Year to date, the Dow Jones-UBS Commodity Index was up 2.48% with the Dow Jones-UBS Soybean Meal Subindex posting the highest gain of 72.22% so far in 2012. Dow Jones-UBS Orange Juice Subindex had the most significant downside YTD performance, down 33.63%.
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 Services, 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.
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