Dow Jones Indexes held its annual mid-year commodities outlook at the Chicago Board of Trade Wednesday morning and analysts, for the most part, expect more of the same sideways action in commodities.
Phil Flynn, senior energy analyst for PFGBest Research, expects crude oil to remain range bound until the long awaited exit from economic stimulus arrives. A year ago Flynn was bearish crude and pointed out that the massive economic stimulus package and Federal Reserve quantitative easing policy had propped up the market. He was bearish on the expectation the exit strategy would began in late 2009 or at the beginning of 2010. We are still awaiting an exit. “Once we see an exit strategy, we will see oil go down,” Flynn said, targeting oil to go below $50 by year end.
Flynn added that there is a $20 to $30 stimulus premium in the price of crude oil and when that eventually goes away you could see a true bull market arise.
Jack Scoville, vice president with Price Futures Group, expects grain prices to remain in an “extended sideways pattern.”
Scoville set the range for corn this summer at $3 to $4.25. He sees a little more upside in wheat, potentially reaching $6.50, due to drought conditions in Russia and Asia. He sees less upside potential in soybeans, expecting a range of $8.50 to $11.
Matt Zeman, principal of the LaSalle Futures Group, is a little more bullish on gold. Zeman indicated that both traditional fundamentals of supply and demand along with concerns regarding the global debt crisis and currency valuations support gold. His long-term outlook for gold is $1,350 and he says the two wild cards are a sudden increase in interest rates and China.
Zeman said that the current zero percent interest rate policy can not go on forever and there will be a price to pay for continued low interest rates, though he expects rates to begin to rise in 2011. “At some point hyper inflation will kick in,” Zeman said.
Jon Fraade, managing director, UBS Securities LLC, expects to see institutional allocations to commodities increase. On the potential of regulatory restrictions to long-only commodity investing, Fraade says investors will find a way to allocate to commodities.
While none of the analysts predicted significant movement in current levels, John Prestbo, editor and executive director of Dow Jones Indexes and moderator for the panel warned, “beware of straight line projections.”