July Marks Worst Month for Commodities Since 2012

Despite the summer heat, commodities have been anything but hot. In July, commodities suffered their worst monthly decline since May 2012, as the widely watched commodities index, the S&P GSCI, erased nearly all of its gains on the year with a 5.3 percent drop.

The big drags on the index were energy and agriculture, which each responded to specific drivers on the supply side of the equation, according to Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices.

In the energy markets, Libya resumed exporting crude, which sent prices across the energy spectrum lower on the increase in supply. Meanwhile, agricultural commodities dropped nearly 9 percent, hitting the lowest level in four years as ideal weather conditions improved the supply outlook.

The strengthening U.S. dollar probably did not help matters, either. The U.S. Dollar Index, which compares the dollar to a basket of other currencies, rose 2 percent in July. As the dollar increases in value, commodities typically lose value. But that said, not all commodities were in decline—industrial metals like nickel and zinc had a good month, due to rising demand from China.
And despite the slide, Gunzberg said that there aren’t many reasons to expect that the weakness will continue.

“The important thing is that inventories didn’t build up all of a sudden,” Gunzberg told CNBC.com. “It’s more of a temporary drop from a good crop and what’s happening right now with energy.”

via CNBC

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