Currently we are experiencing shifts in the curves that are not big enough to overcome price changes. For example, the S&P GSCI Energy is in backwardation but is has a negative total return for the month of -1.2%. Also the S&P GSCI Copper is in backwardation for the 5th month straight but its March total return was -5.3%. It is hard to be a big copper bear with persistent backwardation like that unless a big supply comes to market. On the flip side, the S&P GSCI Agriculture & Livestock is up 6.4% in March but is still showing slight contango. The lean hogs, up 19.0% in March, had the fattest gain for the month, but is in contango (reflecting abundance and high storage costs), giving up 7.8% for a total return of 11.2%.
Earlier in the month, someone asked me if I had a food fetish after I had posted about coffee, cocoa, pork, cattle and corn. Given the S&P GSCI has 24 commodities and 10 are food related (if you don’t count edible gold leaf confections), I answered maybe a half of a food fetish, but that the weather is causing all sorts of problems in the supply chain for food commodities, spiking prices across the S&P GSCI Agriculture & Livestock. The weather is also putting some of these commodities into backwardation earlier than normal, which might be even more profitable for an index investor.
This article was written by Jodie Gunzberg, Global Head of Commodities, S&P Dow Jones Indices.
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