Dry Bulk: Commodities Fall to Six-Month Low as Gains for Year Evaporate

grain elevators

By Maria Kolesnikova

Aug. 14 (Bloomberg) — Commodities fell to a six-month low, erasing almost all of this year’s gains, as oil and grains declined on signs of ample supplies and slower economic growth in China, the biggest consumer of industrial metals and energy.

The Bloomberg Commodity Index of 22 raw materials dropped 0.2 percent to 126.001 by 12:11 p.m. in London, after falling to the lowest since Feb. 3 and trimming this year’s advance to 0.2 percent. Soybean oil, lean hogs and Brent crude fell at least 0.7 percent today.

Cotton, grains and oilseeds are the worst-performing commodities this year in the Bloomberg index. Soybeans dropped 19 percent and corn lost 13 percent on record U.S. harvests. Brent is heading for a second monthly decline, the longest streak since May 2013, as shale fracking allowed the U.S. to pump the most oil in 27 years even as fighting in the Middle East threatened to disrupt supplies.

“Perfect growing conditions in Europe, the Black Sea and the U.S. have sent grains down,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “The energy sector has become more robust. This is not least due to the continued rise in non-OPEC production, especially in the U.S.”

Stocks Comparison

The Bloomberg Commodity Index’s 2014 gain lags behind a 3.3 percent advance in the MSCI All-Country World Index of equities and the 4 percent increase in the Bloomberg Treasury Bond Index. The Bloomberg Spot Dollar Index rose 0.2 percent.

The euro-area’s economic recovery stalled in the second quarter as Germany, France and Italy all failed to grow, underlining the vulnerability of the region to weak inflation and the deepening crisis in Ukraine.

Germany is the third-biggest buyer of copper, after China and the U.S. Copper declined 0.4 percent to $6,855 a metric ton today, the lowest since June 20 and extending this year’s drop to 6.6 percent.

Japan’s economy contracted the most since 2011 last quarter and China’s industrial production and lending for July were below economist forecasts, reports yesterday showed. The International Monetary Fund last month cut its forecast for global economic growth this year to 3.4 percent from 3.6 percent forecast in April.

Goldman’s View

Goldman Sachs Group Inc., in a July 28 report, kept its neutral commodities outlook for the next 12 months and said nickel and palladium would outperform iron ore and soybeans. Industrial metals have the best short-term outlooks, Barclays Plc said in a July 30 report. The bank recommends buying nickel and crude and selling gold. Gold climbed 9.1 percent this year.

Soybeans fell 0.3 percent to $10.44 a bushel on the Chicago Board of Trade today after touching $10.3875 a bushel, the lowest since Sept. 17, 2010. Corn futures retreated 0.4 percent to $3.6825 a bushel.

U.S. farmers will harvest a record 3.816 billion bushels of soybeans this year and an all-time high of 14.032 billion bushels of corn, the U.S. Department of Agriculture said this week.

Bulging Stockpiles

Brent declined 0.6 percent to $103.64 a barrel on ICE Futures Europe, after closing at the lowest since July 2013 on Aug. 12. Prices dropped 6.4 percent this year. Cotton rose 0.7 percent today, narrowing its decline for 2014 to 23 percent. A bigger U.S. crop is supplementing bulging stockpiles in China, according to the USDA.

Hedge funds and other large speculators cut their bets on rising commodity prices by Aug. 5 to the lowest level since January, U.S. Commodity Futures Trading Commission data show.

“For the remainder of the year the upside seems limited,” Saxo Bank’s Hansen said. “A potential return to recession in Europe, China bumping along without much fireworks together with ample supply of key commodities should keep a lid on rallies.”

Copyright 2014 Bloomberg.