The one sector that is picking up volatility is agriculture. Extreme weather from El Nino may be the biggest driving force in the solid gains for every single one of the eight commodities in the sector in June. The grains were up 20.0% in June, its fourth best month in history (since July 1982) and best June since 1988. Even with lesser performance of only 3.1% in June, agriculture posted its biggest monthly gain in three years with its sixth best month in history.
Going into the summer there is generally an increase in demand for gasoline to support more driving; however, the bad news for consumers is that gas prices rise much quicker with oil prices than they fall when oil falls. Cheaper natural gas and livestock are other summertime favorites that may help consumers maintain demand for gasoline through the driving season. However, livestock is now showing seasonal shortages (is the only sector in backwardation) so the prices may start to rise – and at an accelerated pace from the increasing prices of grains used to feed the livestock.
This article was written by Jodie Gunzberg, global head of commodities, S&P Down Jones Indices.
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