Q1 Commodity Wrap-Up

April 05, 2011

We take a closer look at the quarter's best- and worst-performing commodities.


Between unrest in the Middle East and the natural disasters striking Japan, 2011's first quarter has been an eventful one. Unsurprisingly, it was also a pretty good one for commodities. The iShares S&P GSCI Commodity-Indexed ETF (NYSEArca: GSG), which provides a broad snapshot of how the sector as a whole performed, was up 11.41 percent for the first three months of the year.

But not every commodity has outperformed since January 1; in fact, many individual sectors have sunk to surprising lows. So what hard assets were Q1's big winners—and losers?


Agricultural Commodities

Best performers: Lean Hogs 17.52%, Live Cattle 12.65%, Corn 10.21%

Worst performer: Wheat -3.9%


Ags: 2011 YTD


Despite its overall rise, the agricultural complex was hard hit this quarter by the earthquake and tsunami striking Sendai, Japan. Lean hogs especially dragged lower, as Japan is the largest importer of U.S. pork, and imports approximately a quarter of U.S. lean hogs.

Japan is also the world's largest purchaser of corn, its third-largest soybean buyer and its fifth-largest wheat buyer. So needless to say, worries mounted that sustained decreased demand would push prices lower, leading many traders to get out when they could. At the time, Alan Brugler, president of Brugler Marketing & Management, said, "Increasing levels of radiation have people dumping positions in stocks and commodities and piling assets into cash. There's increased risk aversion until the situation stabilizes in Japan."

But demand—and prices—quickly bounced back, even as Japan continues to deal with the ramifications of the emergency. Concern about contaminated domestic foodstuffs has led to increased Japanese demand for imported goods that may not be readily available. Smithfield Foods Inc. CFO Bo Manly said, "More Japanese demand for chilled fresh pork over frozen products signals the country may have little meat available at the retail level."

Meanwhile, corn costs to livestock producers rose 94 percent in the past year due to tight corn supply, making farmers reluctant to expand their herds. We now have a situation where smaller herds must meet higher demand—both internationally and domestically speaking, as the U.S. economy recovers and we head into the summer barbecuing season. Therefore, analysts expect meat prices to remain at their current levels for a while.

Wheat was the agricultural sector's worst performer, with prices dropping 3.9 percent during the first quarter of the year. Blame it on good wheat-growing weather worldwide, as well as international crops expected to have reasonable yields. Of course, this all could change should a period of drought or prolonged rains hit the major growing areas. But for now, prices remain down.

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