Commodity Market Higher In June, Relieved by Progress in Eurozone Crisis

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Jul 10, 2012, 09:42 ET

NEW YORK, July 10, 2012 /PRNewswire/ -- Commodity performance was positive in June, as concerns regarding the ongoing Eurozone crisis eased somewhat following the EU Summit.

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Nelson Louie, Global Head of Commodities in Credit Suisse's Asset Management division, said, "Commodities were higher in June after reacting positively to the outcome of the European leaders' summit, which established some guidelines for how the Euro area crisis will be handled and revealed that Germany is willing to compromise. However, we believe that the key driver of commodity prices as we move into the second half of the year will ultimately be global growth. While we continue to hold the view that global GDP growth will be stronger in the second half of the year than the first, the ongoing downswing in cyclical momentum should be monitored closely."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "The worsening economic environment in Europe and a perceived slowdown in China have raised concerns of a possible softening in underlying consumption for economically sensitive commodities such as petroleum and base metals. However, further easing measures may increase inflation expectations and the likelihood of inflation overshooting expectations. Commodities have historically tended to outperform during periods of higher than expected inflation. We believe investors will continue to benefit from the long-term diversification benefits that commodities provide."

The Dow Jones-UBS Commodity Index Total Return was up by 5.49% in June. Overall, 14 out of 20 index constituents increased in value. Agriculture was the best performing sector, up 13.87% for the month. Concerns over crop stress and yield loss due to the hot weather in the US Midwest (especially in the Southern Corn Belt) were the key factors supporting the recent rally. The USDA's Quarterly Stocks and Acreage reports revealed that US corn stocks as of June 1st were below market expectations and down 14% year-on-year, which lent further support to the market. Livestock increased, gaining 2.92%, amid reported lower Live Cattle slaughter rates and relatively poor US pasture conditions. Lean Hogs gained with hot weather amplifying a tightening of pork supplies that usually happens this time of year. The heat in the Midwest – home to 70% of US hog production – has caused hogs to eat less, resulting in smaller meat cuts per animal and lower pork supplies. Energy also increased, up 2.53% for the month, led by Natural Gas. The hot weather in the US and continued coal-to-gas switching drove increased power generation demand. This led to smaller than expected weekly storage injections, as reported by the Department of Energy. The Precious Metals sector ended the month 1.84% higher. European leaders agreed to create a single supervisory body for Eurozone banks and allow them to be recapitalized without adding to government debt, easing fears over Italy and Spain. Gold was also supported by further discourse that Basel accounting rules will classify gold as a Tier 1 asset. The Industrial Metals sector was relatively unchanged, up 0.38%, due to demand growth concerns as Chinese and European manufacturing activity appeared to contract, according to some recent economic surveys. The Federal Reserve's hesitance at engaging in further quantitative easing also weighed on the sector.

The Credit Suisse Total Commodity Return Strategy group periodically produces updates on relevant industry topics. For a copy of the team's white paper, "Commodities Outlook: Increased Volatility, Increase Opportunity?", please contact your Credit Suisse Relationship Manager.

About the Credit Suisse Total Commodity Return Strategy
Credit Suisse's Total Commodity Return Strategy has been managed for 18 years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using both a quantitative and qualitative commodity research process. Commodity index total returns are achieved through:

Spot Return: price return on specified commodity futures contracts;
Roll Yield: impact due to migration of futures positions from near to far contracts; and
Collateral Yield: return earned on collateral for the futures.

As of June 30, 2012 the team managed approximately USD 10.1 billion in assets globally.

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This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change without obligation to update. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not a guide to future performance. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.

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Certain risks relating to investing in Commodities and Commodity-Linked Investments:
Exposure to commodity markets should only form a small part of a diversified portfolio. Investment in commodity markets may not be suitable for all investors. Commodity investments will be affected by changes in overall market movements, commodity volatility, exchange-rate movements, changes in interest rates, and factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Commodity markets are highly volatile. The risk of loss in commodities and commodity-linked investments can be substantial. There is generally a high degree of leverage in commodity investing that can significantly magnify losses. Gains or losses from speculative derivative positions may be much greater than the derivative's original cost. An investment in commodities is not a complete investment program and should represent only a portion of an investor's portfolio management strategy.

SOURCE Credit Suisse AG