Bloomberg News

Commodities Post First Drop in 5 Years as Corn to Gold Tumble

December 31, 2013

Corn is Transferred to a Grain Cart during Harvest near Malden

Corn led the retreat with a 39 percent plunge. Photographer: Daniel Acker/Bloomberg

Commodities posted the first annual drop in five years as supply exceeded demand for corn to sugar to nickel and investors lost faith in precious metals as a store of value amid signs that economies are improving.

The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 0.6 percent to settle at 632.29 at 4 p.m. New York time, capping a 2.2 percent decline this year. Corn led the retreat with a 40 percent plunge, followed by silver and gold. Commodity-fund investments fell by a record $88 billion to $332 billion in the 11 months ended Nov. 30, Barclays Plc estimates.

As prices that more than doubled in the past decade spurred miners and farmers to boost production at time when China’s economic growth slowed, Citigroup Inc. said the “super cycle” of gains has ended. Copper to wheat to cocoa entered bear markets this year as investors shifted money to equities. Gold and silver posted the biggest declines since 1981 as an economic rebound prompted the Federal Reserve to cut stimulus.

“Perceptions of improving supply and supply overhangs pressured commodities,” said Jeremy Baker, a senior commodity strategist who helps oversee about $600 million at Harcourt Investment Consulting AG in Zurich. “There was concern about China’s growth.”

The 2013 decline in the GSCI gauge compares with a 20 percent gain for the MSCI All-Country World Index of equities and a 3.5 percent increase for the Bloomberg U.S. Dollar Index, a measure against 10 major currencies. The Bloomberg U.S. Treasury Bond Index dropped 3.1 percent.

Corn Crop

Corn posted the biggest slump in a half century as the U.S. harvest, the world’s biggest, climbed to a record 355.3 million metric tons, rebounding 30 percent from the prior season when crops were hurt by the most-severe drought since the 1930s, according to the U.S. Department of Agriculture.

The International Sugar Organization says that global output will exceed demand by 4.73 million tons in the 2013-14 season that started in October in most countries, the fourth straight surplus.

The London Metal’s Exchange six main products declined this year. Nickel, which had the biggest drop at 19 percent, had a surplus of 149,000 tons, Barclays estimates.

Zinc fell 1.2 percent this year, the smallest decline among the base metals.

Economic expansion in China, the biggest user of everything from copper to soybeans, slowed every year since 2011. Economists surveyed by Bloomberg News expect growth of 7.5 percent in 2014, down from 7.6 percent this year and the least since 1990. The International Monetary Fund estimated in October that emerging markets will expand 4.5 percent this year, down from a projection of 5.6 percent made a year earlier.

Economic Growth

“The biggest factor has been emerging-market growth, and that it has been weaker than expected has weighed on commodities,” said Nic Johnson, who helps manage $30 billion of commodity assets at Pacific Investment Management Co. in Newport Beach, California. “Developed-market growth will support prices of some commodities.”

Global economic growth will accelerate to 3.6 percent in 2014, from 2.9 percent this year, according to the IMF. Christine Lagarde, managing director for the fund, said Dec. 22 that the group is raising its outlook for the U.S. economy. The Fed cut on Dec. 18 the pace of its monthly bond purchases to $75 billion from $85 billion.

Gold marked its first annual drop in 13 years with a 28 percent slide and silver slumped 36 percent as central bank stimulus measures failed to boost inflation. U.S. consumer prices were unchanged in November after a 0.1 percent drop the prior month, according to Dec. 17 data from the Labor Department.

Gold for immediate delivery settled today at $1,205.65 an ounce today, down from a record $1,921.15 in September 2011.

Bloomberg Survey

Analysts, traders and investors surveyed by Bloomberg this month predicted metals and crop prices will rebound next year. Copper will rise to as high as $7,836 a ton in 2014, from $7,360 now, the median estimate showed. Platinum will reach $1,650 an ounce, compared with $1,371 now and corn will increase to $5.225 a bushel from $4.22 today.

“Gold has had a horrible year, and there are still no reasons for the story to change,” said Donald Selkin, who helps manage about $3 billion as the New York-based chief market strategist at National Securities Corp. “Economies are doing better, and interest rates are going higher. I think industrial metals will do better as sections of the world are improving.”

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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