The DJ-UBS Commodity index is showing signs of bottoming out following three weeks of selling which was led by a broad-based round of profit taking across the agriculture sector, writes Head of Commodity Strategy at Saxo Bank Ole Sloth Hansen.
"Once again, this sector saw negative performance this past week not least driven by a correction in soft commodities and continued weakness in corn and wheat," he said. "Industrial metals continue to make up lost ground with nickel and aluminum making good progress while platinum group metals outshone precious metals as supply concerns linger. Crude oil maintains its support as the seasonal pickup in demand can be added to the support the sector is already receiving from geopolitical concerns.
"While US stocks continue to trade near record levels some headwind for commodities could potentially come from a recovering dollar which has made tentative gains, not least against the euro since the cross almost hit 1.40 on
"The best performing sector for a second week in a row is the industrial metals sector with aluminium and copper receiving a boost from improved Chinese data and signs that US housing and employment data also continue to improve. Nickel, meanwhile, was higher following the recent bout of long liquidation as supply concerns related to
"This was another positive weekly performance of both Brent and WTI crude oil. The drivers behind the positive momentum are the combination of the annual pickup up in demand from refineries as production of gasoline escalates and geopolitical concerns mostly related to
"WTI crude is currently trading within a 100 to
"Precious metals continue to bounce between support and resistance with the only good news being that the current range can hardly become much narrower and a breakout is now on the horizon. The big question and the reason why we are stuck in this range is the uncertainty about where to go next and need to determine what themes should be the overall driver for this sector at the moment. Holdings in exchange traded products backed by physical gold continue to hit new 4½ year lows while physical demand may receive a boost from pent up Indian demand later this year when import restrictions are expected to be eased by the new government. With just one holiday shortened week (
"The platinum group metals (PGMs) consisting of platinum and palladium continue their strong performance as supply concerns emanating from the mining strike
"The price of key crops, such as corn and wheat on one side and soybeans on the other, went their separate ways with the cost of the new crop soybeans future rising strongly. Relentless demand for US soybeans, both from domestic processors and exporters, has driven current inventories down to precarious low levels. This is leaving little room for disappointment during the coming planting and season as a record soybean harvest is required to rebuild inventories for the 2014/15 season. As a result of the rally in soybeans, the relative price over corn is trading at its most expensive for this time of year in at least ten years and this could influence farmers' planting decisions this spring in favour of soybeans. Should growers decide to allocate an even higher acreage to soybeans at the expense of corn this could ultimately lend support as corn production estimates may have to be revised lower."
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