Commodity Online
In August, industrial metals performed all other categories except sugar. The MLCX TR index was down slightly at -1.42% for August, the DJ-UBS TR index posted a loss of -0.58% and the S&P GSCI TR returned -2.37%. The ML Broad Bond Market index yielded 1.13% and the S&P 500 TR index gained
3.61% in the month.

Last month crude oil and petroleum products were flat while US natural gas declined, according to a Bank of America-Merrill Lynch report.

WTI crude oil traded around the $70/bbl level during the month. While the oil and products were down only slightly, US nat gas returns were hurt by the steep contango. The MLCX Energy TR index returned -3.51% for August.

Sugar posted exceptional gains, helping the MLCX Softs TR index to a return of 12.28% for the month. Other agricultural products fell and the MLCX Grains TR index posted -6.07% and the MLCX Livestock TR index -5.74% for August.
Industrial metals appreciated, gold stayed flat.
Trade commodities or equities from across the globe. Join Now

The MLCX Ind Metals index posted 8.63% as most base metals recorded gains. In the precious metals sector, gold was relatively flat but silver posted a positive return and the MLCX Precious Metals TR index recorded 0.82% for the month.

Predicting commodity roll returns.
Beta investors with long exposure to commodities are now quite aware of the effects of negative roll returns on total return performance. Traditional commodity index benchmarks have suffered heavily from negative roll returns over the years. For instance, the S&P GSCI has generated an average of -4.28% pa in roll returns since 1990. In particular, roll returns have represented a drag on the performance of the agriculture and livestock sectors and, to a lesser extent, of the energy sector

Roll returns are related to storage economics through physical arbitrage. Roll returns are the returns associated with rolling the commodity futures investment forward, i.e., buying futures contract with a long maturity, holding it and then
selling it as it approaches expiry.

Indeed, if the net cost of physically storing a commodity is higher (lower) than the difference between spot and forward prices, market participants would sell (buy) the commodity on the spot market and buy (sell) it forward. Storage then helps to explain the relevance of roll returns in the energy and the agriculture sector. For energy commodities such as natural gas or crude oil storing is hard and expensive because of the fluid nature of the commodity . In agriculture, storage is valuable because crops tend to come into the market at a specific time of the year and lay in storage for most of
the year.

BAS-ML report said that roll returns provide a valuable signal for investors in their commodity asset allocation decisions.

Since January 2004, commodities have broadly outperformed traditional equity indices, but there has been diverse performance among commodity indices. Specifically, the MLCX TR index outperformed the Standard & Poor’s US 500 TR
index by 7.00% on average during the last five years. However, the same comparison for the S&P GSCI TR index yields -1.83% and for the DJ-UBS TR index the relative performance is 0.95%. In the time period, EM equities fared
better than commodity indices, primarily due to the recent correction to commodity prices. Over the last five years the ML US Broad Market Bond index performance was higher than the S&P GSCI TR and the DJ-UBS TR indices, while the MLCX TR index performed better.