Commodities are back

There has been no shortage of fireworks in the commodities sector in the first quarter of 2014 after a relatively dormant second half of 2014. What has changed in the last three months?

Here, in no particular order, are the factors pushing the commodity complex.

At the Fed, leadership has changed with Ben Bernanke’s eight-year tenure having come to an end. Bernanke will likely be viewed as a cyclical dove. His dovish policies developed after an academic career of studying the “Great Depression” and what went wrong, destined him to learn from past monetary policy mistakes. He concluded that the main policy mistake was to remove stimulus too soon. Will Yellen continue along this same path? It is early, but so far Yellen is viewed as a structural dove. As we go further down the road and as we put more distance between ourselves and the financial crisis, it is likely that we reach a fork in the road and Yellen will go one way whereas Bernanke may have gone the other. The most noteworthy change communicated by Yellen to date appears to be the definition of what is meant by “a considerable amount of time” before tightening begins. It was previously perceived to mean one or two years, but we may now be looking at six months.

While commodities, in general, had a resurgence in Q1, the most dramatic moves happened in the softs sector. Take a look:

Coffee(NYBOT:KCK14)- Appreciated 86% January to March, lifting prices to two-year highs.

Sugar(NYBOT:SBK14)- In just over five weeks appreciated 23%.

Cocoa(NYBOT:CCK14) – Is currently hovering near 30-month highs and has gained 12% year-to-date.

Cotton(NYBOT:CTK14) – In the last five months has added 19% currently trading just below two-year highs.  

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