Commodities are back

Best of the rest

Carnivores have had to pay up at the grocery store with pork and beef prices both trading just off record highs. Lean hogs (CME:LHK14) futures have started to correct lower but prior to topping out two weeks ago prices had appreciated 32%. This move has largely been due to porcine epidemic diarrhea virus or PEDv, which has killed millions of piglets since first afflicting the United States last spring. As for beef prices, live cattle (CME:LCJ14) also appear to have reached an interim top in recent weeks. To a lesser extent cattle have gained 7.8% year-to-date. This trend may not be over as wholesale beef prices are still on the rise.

Year-to-date corn (CBOT:CK14) prices are up 20% with fuel being added to the fire by the March 31 planting intentions report. Ending stocks came in just below market expectation and acres were reduced so it was a bullish report. Old crop soybean (CBOT:SK14) prices are trading just below $15 per bushel near six months highs but the real story is the spread between old and new crop nearing $3. Soybean stocks came in line with the estimates and acres came in on the high side of expectations. Adverse weather domestically in wheat (CBOT:WK14) growing regions combined with the current situation in the Ukraine contributed to wheat prices gaining 29% inside of 60 days causing futures to challenge their highs from last fall. 

The seasonal appreciation we generally experience in RBOB(NYMEX:RBK14) (unleaded gasoline) in the first quarter did not materialize which will make it a rally that has happened now 15 out of the last 16 years. Still, keep in mind that past performance is not indicative of future results. It appeared into February that this year would be no different but prices corrected and are within pennies of where we started at the turn of the year.

The cold weather in the Northeast and Midwest that likely contributed to the slack demand in RBOB and price action also played a factor in the natural gas market as the Polar vortex helped propel futures in natural gas from November to March nearly 40% higher.

Dr. Copper has diagnosed China with an ailment and when we see a slowdown or the market prices in a slowdown in demand from the world’s largest consumer prices react. 50¢ per lb. were stripped out of the copper market before establishing an interim low in Mid-March. Staying with the same theme let’s touch on performance of gold and silver.

Gold (COMEX:GCK14) finished the quarter higher by $100 an ounce closing out near $1300 with two positive months and one losing month. Silver experienced a false start gaining 10% only to give it back and finishing nearly unchanged with prices currently hovering near $20 an ounce. I expect both gold and silver prices to remain range-bound.

Last year’s darling, the Nikkei, was actually one of worst performers in Q1 shedding 14%. This was unlike the U.S. equities which, by and large, continued to climb the wall of worry lifting prices to record highs. The S&P is near 1900, the Dow approaching 17000 and the NASDAQ within 7% of 4000.

Now more than ever, it is hard to overstate the importance of using alternative, non-correlated asset classes such as commodities and managed futures to diversify more traditional holdings such as stocks and bonds. With the taper under way and tightening on the horizon, equities appear to be ripe for a correction and interest rates are set for a move higher.

 

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About the Author
Matthew Bradbard

Vice President of Managed Futures & Alternatives at RCM Asset Management, brings hands-on analysis and trading experience to RCM Asset Management clients. Mr. Bradbard has been creating and executing trading strategies for over 10 years, and he is a respected commentator on a number of futures and options markets. Mr. Bradbard regularly publishes market commentary and trading ideas, and he is frequently cited in articles covering the futures and options space, and the role played by commodities in a diversified portfolio.

Trading futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more than your initial investment. Past performance is not necessarily indicative of future results.

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