Commodities become the best performing asset in Q1 2014

by CommodityOnline

Strength was concentrated on agricultural and livestock sectors while energy and industrial metals sectors suffered losses in the first three months of this year. 01 Apr 2014 LONDON (Commodity Online): Commodities have become the best performing asset class during the first three months of 2014, according to a quarterly report from Deutsche Bank. Strength was concentrated on agricultural and livestock sectors while energy and industrial metals sectors suffered losses in the first three months of this year. Commodity indices DJUBSCI gave a return of 7.2% while SPGSCI gave a return of 3.2%. Commodity revival was led by gains in Coffee, lean hogs and grains. Commodities that are more closely tied to the global business cycle, such as energy and industrial metals have under-performed. Outlook for key commodities Gold and Crude oil have been most vulnerable to an appreciating US dollar, while industrial metals have been more closely tied to the global growth cycle and specifically Chinese growth. Deutsche Bank maintains a bearish gold view, while deceleration in the WTI forward curve will slowly be surrendered and that a deceleration in manufacturing and real estate investment in China will damage demand prospects for steel and copper. For natural gas, a mild European winter and the latest IMF package significantly reduce price spike risk in European gas market. In contrast the record low level of natural gas inventories in the US provides strong fundamental support for this market. Deutsche Bank believes that market expectations are too optimistic for US gas production growth this summer and by implication, storage injection prior to next winter. "Therefore, we are bullish as injections are likely to disappoint through summer. "Agriculture and livestock have been the strongest commodity performers so far this year. In both sectors, rallies have been triggered by adverse supply events such as droughts in Brazil or the porcine virus now affecting 27 US states. We expect the next focus will be US planting intentions and whether or not US agricultural yields will suffer from another year of adverse weather. If not, then recent gains in grain prices may start to unwind on the prospects of a rebuilding in US inventories."

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