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Commodities Review for 2012


Commodities were highly influenced by weather, political and financial issues around the world. This has been a trying year for commodities, but the year isn’t providing a breather as the Fiscal Cliff issue continues.

Commodities were relatively unchanged for the year depending on which commodity index you want to follow. Commodities more or less consolidated in 2012 after achieving record highs in 2011. The commodities bull market looks like it is still alive, as it has been in effect for about 12 years.

The highlight of the year had to be the lumber market. This fairly illiquid market gained about 50 percent on the year, which was the best performing commodity. The worst commodity of 2012 was coffee, which lost about 36 percent on the year.

Most of the largest losers on the year were in the softs complex. These markets often have erratic gains from year to year - sometimes from month to month. The grain commodities managed to hold onto good gains for the year, while the metals and oil products had modest gains.

Grains - The grain markets were not forecasted to have strong gains for the year as the weather started out favorably and farmers were expected to plant a huge amount of acreage.

Things can change very quickly in the commodity markets and weather is often the culprit. The Midwest and Plains had one of the worst droughts in history and grain prices screamed higher into the June / July timeframe. As in most weather markets, grain prices typically peak around this timeframe and they did.

Metals - Gold, silver and copper managed modest, single digit gains on the year. 2012 was more of a consolidation year for the metals. This could lead to some strong trending markets in 2013. It was somewhat of a disappointment for gold as there was no shortage of issues that could have caused gold to reach record highs.

Energies - Crude oil had about an 8 percent loss on the year, while the products of heating oil and unleaded gas has decent single digit gains. Natural gas had a surprising gain of 13 percent on the year.

Crude oil supplies increased in 2012 as the U.S. increased production and there was lackluster economic growth around the world. Gasoline and heating oil supplies are still near the low end of the 5 year range. Natural gas bottomed near $2 during the year and this could prove to be a long term bottom.

Softs - Sugar, coffee, cotton and orange juice were among the worst performers on the year. In their defense these markets were coming off record highs from the previous year. Cocoa had a gain of about 5 percent and traded mostly in a range for the year.

The fundamental picture for these markets changed dramatically in just a year. Supplies on these markets were very tight last year, but increased production around the world rebuilt supplies in short order. It remains to be seen how long the markets can maintain adequate supplies.

Livestock - The cattle and hog markets had good gains on the year. Cattle was up about 10 percent and hogs were up about 3 percent. These gains can be calculated differently based on which contract months you want to use. The same can be said for the grain markets.

The livestock markets found support from the high grain prices during the year. The high price of grains escalated feed costs and many farmers were forced to liquidate more of their herds than expected. This put a large amount of supply on the markets initially, but this is inevitably positive for prices as there will be less supply going forward.

The overall outlook still remains positive for commodities going into 2013. The strong worldwide demand is underpinning prices. The world commodity producers can barely keep up with the growing demand worldwide. Much of that demand is coming from China and other developing countries. It only takes one major weather event or an increase in global economic activity to quickly increase the price of a commodity.

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