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Deutsche Bank said in an update on commodity indices that the performance of Dow Jones UBSC Index (DJUBSCI) was affected by losses in agricultural and livestock sectors while gains in energy complex helped Standard &a..

12 Jun 2014

LONDON (Commodity Online): Commodities have lost their status as the world's best performing asset class as gains in the livestock, agriculture and precious metals sector have been surrendered during the second quarter.

Deutsche Bank said in an update on commodity indices that the performance of Dow Jones UBSC Index (DJUBSCI) was affected by losses in agricultural and livestock sectors while gains in energy complex helped Standard & Poors GSCI to post positive returns.

Crude oil fundamentals have remained tight over the past few months. This has been most noticeable in the WTI market, where the forward curve term structure has remained in steep backwardation. This has meant that the lion’s share of returns in crude oil so far this year has originated from the roll return rather than from the spot price. The tightening in WTI physical fundamentals reflects the ongoing decline in crude oil inventories at cushing while the ongoing supply disruptions in Libya, Iraq and Iran have helped to support Brent crude oil prices.

Precious metals
The sector has suffered additional losses in May with returns up just 2.6% since the end of last year. "We view the macro environment as remaining hostile to the sector and specifically gold given our belief that the S&P500 will hit fresh highs, US long term real yields are set to move higher and the possibility that divergent
monetary policies between the Fed and the ECB trigger a more meaningful turn in the US dollar during the second half of the year."

Industrial metals
Industrial metals have been the best performing sector on a total returns basis during the second quarter. A snap back in US GDP growth as well as the Fed preparing the groundwork for a turn in US monetary policy should be supportive for industrial metal prices over the coming year. Indeed nickel, copper and aluminium have
traditionally performed strongly in the months following a move higher in US short term interest rates. "While concerns towards the Chinese property market have escalated this year, we view the latest downturn as cyclical. Indeed we see a positive structural story regarding urban property demand and hence constructive
activity heading into next year. We therefore expect industrial metal returns will out-perform relative to energy and precious metals," Deutsche Bank said in the report.

Agriculture & Livestock
Last month, agricultural returns posted their largest monthly decline since May 2012. Weakness was concentrated in coffee and grains, which had been the strongest price performers earlier in the year. The next few months are likely to be equally hazardous given the risk of upgrades to US agricultural production for the
2014-15 crop year. History suggests that there is a high probability of grain returns posting negative monthly returns over the summer months in the event of a benign growing season in the US. 


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