Bloomberg Commodity Index (BCOM) Tables & Charts – September 2016 Edition Commodities the Top Asset Class in September - Led by Base Metals, Commodities Beat Most Assets in September - The potential end of “pump at will” leads energy to be most significant major sector gainer - A copper rebound follows nickel and zinc boosting industrial metals - Sugar sweetens the Ags as grains buck harvest pressure to recover from 10-year lows - Metals reflect a potential inflection point in downtrend Mike McGlone – BI Senior Analyst; Commodities Led by Base Metals, Commodities Beat Most Assets in Sept. Performance: September +3.1%, 3Q -3.9%,YTD +8.8% (returns are total return (TR) unless noted) Industrial metals and soft commodities, notably sugar, led September's broader rally. On the month, the Bloomberg Commodity Index gain of 3.1% lessened the 3Q decline to 3.9%. Up 8.9% in 2016, BCOM's total return is over 100 bps above the S&P 500's. The spot BCOM, up 16.5%, is on pace for the best annual increase since 2010. Looking back, the one-year roll yield remained high near minus 11%, but is on the road to recovery. Energy commodities top the leaderboard of commodity futures curves shifting away from contango, a good indication that high negative roll yields should be declining. For comparison, the BCOM roll yield was minus 22% in the aftermath of the financial crisis at the end of 2009. Soft Commodities Steal the Show MACRO OUTLOOK Commodities Move Step Ahead of Major Asset Classes in September. Range-bound bond yields and the flat U.S. dollar had little sway over commodities in 3Q, but 4Q could fuel macro recovery. Bonds remain the best performer among the major asset classes, based on a 17% gain in 2016 in the Bloomberg Barclays US Treasury 20+ Year Index. The 1.36% U.S. 10-year yield on July 8 was the lowest in history, but well above negative yields in Europe and Japan. Historic levels of negative interest rates should lay a good foundation for hard assets, as would some inflation. Asset Class Performance: Commodities Prevail The 2016 trend of rallying commodities and declining bond yields appears unsustainable. Inflation is traditionally a notable support for commodities, which may have reached an inflection point in 2016 on the back of multiyear declines. CURVES & FLOWS High Negative Commodity Roll Yields on Path to Recovery. Futures curves are shifting back from the steep contangos of 2015 and early 2016, notably in energy. It is a good indication that expensive roll yields should diminish. The energy sector roll yield of minus 26% has been a primary drag on broad index returns; two years ago it was positive 2%. Brent crude's roll yield near minus 18% is on the back of a one-year futures curve that averaged over 13% in contango over that period. At the end of Sept., the one-year brent curve declined to near 9% contango. The featured chart (next page) depicts the lagging measure of roll yields and forward-looking indication from the one-year futures curve. Brent spent most of 2012-14 in backwardation (when futures prices further out are lower), which resulted in a positive roll yield. The recent Market Commentary 1 Energy 2 Metals 3 Ags & Livestock 5 Performance 8 Attribution & Weights 11 Volatility 13 Correlation 17 Commitment of Traders 20 Inventories & Sales 23 Term Structures 27 Research Dashboards 29 Cheat Sheet 30 1
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Performance Attribution & Weights 1 Commodities the Top ... · Commodities the Top Asset Class in September ... Energy commodities top the leaderboard of commodity ... Brent crude's
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Bloomberg Commodity Index (BCOM) Tables & Charts – September 2016 Edition
Commodities the Top Asset Class in September
- Led by Base Metals, Commodities Beat Most Assets in September
- The potential end of “pump at will” leads energy to be most significant major sector gainer
- A copper rebound follows nickel and zinc boosting industrial metals
- Sugar sweetens the Ags as grains buck harvest pressure to recover from 10-year lows
- Metals reflect a potential inflection point in downtrend
Mike McGlone – BI Senior Analyst; Commodities
Led by Base Metals, Commodities Beat Most Assets in Sept. Performance: September +3.1%, 3Q -3.9%,YTD +8.8% (returns are total return (TR) unless noted)
Industrial metals and soft commodities, notably sugar, led September's broader rally. On the month, the Bloomberg Commodity Index gain of 3.1% lessened the 3Q decline to 3.9%. Up 8.9% in 2016, BCOM's total return is over 100 bps above the S&P 500's. The spot BCOM, up 16.5%, is on pace for the best annual increase since 2010. Looking back, the one-year roll yield remained high near minus 11%, but is on the road to recovery.
Energy commodities top the leaderboard of commodity futures curves shifting away from contango, a good indication that high negative roll yields should be declining. For comparison, the BCOM roll yield was minus 22% in the aftermath of the financial crisis at the end of 2009.
Soft Commodities Steal the Show
MACRO OUTLOOK
Commodities Move Step Ahead of Major Asset Classes in September. Range-bound bond yields and the flat U.S. dollar had little sway over commodities in 3Q, but 4Q could fuel macro recovery. Bonds remain the best performer among the major asset classes, based on a 17% gain in 2016 in the Bloomberg Barclays US Treasury
20+ Year Index. The 1.36% U.S. 10-year yield on July 8 was the lowest in history, but well above negative yields in Europe and Japan. Historic levels of negative interest rates should lay a good foundation for hard assets, as would some inflation.
Asset Class Performance: Commodities Prevail
The 2016 trend of rallying commodities and declining bond yields appears unsustainable. Inflation is traditionally a notable support for commodities, which may have reached an inflection point in 2016 on the back of multiyear declines.
CURVES & FLOWS
High Negative Commodity Roll Yields on Path to Recovery. Futures curves are shifting back from the steep contangos of 2015 and early 2016, notably in energy. It is a good indication that expensive roll yields should diminish. The energy sector roll yield of minus 26% has been a primary drag on broad index returns; two years ago it was positive 2%. Brent crude's roll yield near minus 18% is on the back of a one-year futures curve that averaged over 13% in contango over that period. At the end of Sept., the one-year brent curve declined to near 9% contango.
The featured chart (next page) depicts the lagging measure of roll yields and forward-looking indication from the one-year futures curve. Brent spent most of 2012-14 in backwardation (when futures prices further out are lower), which resulted in a positive roll yield. The recent
Bloomberg Commodity Index (BCOM) Tables & Charts – September 2016 Edition
trend is toward backwardation.
Brent Crude Roll Yield and One-Year Futures Curve
ATTRIBUTION
Energy Surpasses Precious Metals as Largest Return Catalyst. The energy sector surpassed precious metals in September as the largest contributor to the Bloomberg Commodity Index, accounting for two-fifths of its 8.9% return in 2016. Brent crude (140 bps) was the largest energy contributor. Precious metals accounted for 280 bps, led by gold (150 bps), the single-most significant commodity contributor. Agriculture was good for just over 200 bps, led by soft commodities (160 bps), namely sugar (100 bps).
BCOM 2016 Performance Through September
Note, PORT data for the BCOM is a rough approximation
Base metals' 150-bp contribution accounted for the remainder of positive index returns in 2016. Livestock was the only detractor, subtracting a percentage point from BCOM total returns after a 22% 2016 decline in the Bloomberg Livestock Subindex.
Energy (Index weight: 29.3% of BCOM.
Performance: September +4.2%, 3Q -3.7%, YTD +5.1%) *Note index weights are the YTD average
Energy Leads Major Sector Gainers in September
PERFORMANCE DRIVERS
Energy Best Major Sector in September as Roll Yields
Show Improvement. Flattening energy futures curves
are showing a shift in the rapidly increasing supply trend. An indication from OPEC that the "pump at will" trend has ended appeared to fit the bill, boosting the Bloomberg Energy subindex to tie the Ags as the month's best-performing major sector with a gain of 4.2%. In 3Q, the energy sector declined 3.7%, reducing the year-to-date gain to 5.1%, but the spot index ended 3Q with an increase of almost 27%. Negative roll yields have been quite expensive, but are improving.
At the end of 3Q, energy commodity futures curves led the trend away from contango as crude oil remained locked within the $40-$50 a barrel range. Unleaded gas was the top performer. Looking ahead, the U.S. dollar may be an energy price driver when it finally breaks out of its range.
Unleaded Gas Leads Energy Gains, September & 3Q
Unleaded Gas Leads Energy Recovery, Range-Bound Until It Isn't. U.S. East Coast supply disruptions sparked unleaded gasoline to be the best performing energy commodity in September with a gain of 10.7%, as measured by the Bloomberg Unleaded Gas subindex. In 3Q, unleaded was the only gainer, with a 3.9% increase, as crude oil remained locked within the $40-$50 a barrel range. For astute traders focused on that range, energy markets appear to have been lucrative in 3Q, notably for those biased to shorting. The Bloomberg Energy subindex declined 3.7% in 3Q.
On a spot change basis, the energy index fell less than 1%. Annualized, the gross energy sector roll yield in 3Q
Bloomberg Commodity Index (BCOM) Tables & Charts – September 2016 Edition
was close to minus 14%, better than the one-year measure of minus 26%. Long consolidation periods often lead to extended breakouts as some range traders eventually get caught wrong-footed.
ENERGY - CURVES & FLOWS
Contango This: Energy Commodities Lead the Charge Back. Indicating rebalancing in a well-supplied market, energy commodities top the leader board of markets shifting away from contango in 2016. Brent crude ended 3Q near 9% in contango on a one-year curve measure, compared with 22% at the end of 2015. Heating season is here, with heating oil prices about the same as a year ago, near $1.50 a gallon, yet the one-year future curve has shifted to a 6% contango compared with 10% at the end of 3Q15. Contango occurs when further-out prices are higher.
Energy Commodities Lead Drive Away From Contango
Measured on a percentage basis of the spread between the first futures contract minus the one-year out, divided by the first.
The shifting of futures curves from contango is an indication of tightening supply-demand conditions. The Bloomberg Heating Oil subindex neared the end of 3Q with a one-year decline near 16%, indicating a gross roll yield near minus 16% -- high but improving, as evidenced by flattening futures curves.
ENERGY – OUTLOOK When the U.S. dollar breaks out of its consolidation range, it could fuel crude to move the other way. Plunging crude oil prices in 2014-15 coincided with the dollar's rally on the back of Fed tightening expectations. Optimistic projections of a normal tightening cycle have met new-world reality in 2016: the 4% decline this year in the Bloomberg Dollar Spot index has coincided with a 30% increase in spot crude oil. The monthly crude oil to dollar beta in 2016 has been close to minus 2.
Strong Inverse Relationship - Dollar and Crude
Supply-demand forces are primary drivers of oil prices, but in the post-crisis world, crude's correlation to changes in the value of the dollar has increased. In the 10 years prior to 2008, the crude- dollar correlation was minus 0.1. Since 2008, it's almost minus 0.6 (monthly vs. U.S. dollar index).
Metals
Industrial (Index weight: 14.7% of BCOM.
Performance: September +5.2%, 3Q +4.1, YTD +13.0%)
Precious (Index weight: 14.7% of BCOM.
Performance: September +1.1%, 3Q +0.2,YTD +27.4%)
Copper Rebound Boosts Industrial Metals in September
PERFORMANCE DRIVERS
Precious Metals Pass Baton to Industrials in September, 3Q. There are indications of green shoots in the global economy. Precious metals are up slightly in September and 3Q, yet the month's star has been the Bloomberg Industrial Metals Subindex, which sprinted 5.2% higher and hit the plus column for 3Q. For the year, this index is up 13% vs. 27.4% in the Bloomberg Precious Metals Subindex. Nickel and zinc shined in September and 3Q, but the recovery in 2016's laggard -- copper -- appears potentially more significant.
Metals were little influenced by the consolidating U.S. dollar in 3Q and September. Strong vehicle sales in China and signs of increasing housing demand supported
Bloomberg Commodity Index (BCOM) Tables & Charts – September 2016 Edition
industrial metals. Precious metals ended 3Q with record ETF inflows as open interest set new highs, then tapered.
The Hardest of Liquid Alternative Assets Show Solid Returns. Nickel and zinc were the best-performing metals in 3Q, each up over 11% as measured by the Bloomberg Nickel and Zinc Subindexes. Increasing prices were due mostly to supply disruptions, mine closures and Chinese demand. Yet, the most significant story may be reversion from the past few years of sharp declines. On a two-year basis, zinc is the only all industrial metal that did not track lower in 3Q. Nickel's was sharpest, at minus 37% and aluminum at minus 22%. Copper has been a key laggard, down about 28%.
September Bolstered 2016 Metals Gain
The Bloomberg Copper Subindex rose 6.4% in September, its best month since February 2015, but is off 7% on a one-year basis. Sustained recovery in the industrial metals sector is unlikely without copper, the most widely traded and highest weight among industrial metals in the BCOM, averaging 6.2% in 2016.
METALS - CURVES & FLOWS
Record Interest in Precious Metals: ETF Flows and Open Interest. Precious metals ETF inflows were near $6.8 billion in 3Q. It was the third successive quarter of net inflows, totaling almost $31 billion -- the greatest three-quarter sum in history. The prior record was $19.4 billion in the first three quarters of 2009. Gold heads the 2016 commodity futures leaderboard in percentage open interest (OI) changes, up near 40%. Gold and silver futures OI extended new records in 3Q, but pulled back as the markets consolidated.
Precious Metals ETF Inflows Reach New Record
Gold and silver futures curves have shifted steeper into contango despite a lower expectation of tightening in 2016. This anomaly is rare, absent higher base interest rates. The gross roll yield for the Bloomberg Industrial Metals Subindex ended September near minus 2.3%, about half the cost of storage.
METALS - OUTLOOK
Metals Reflect Potential Inflection Point in Downtrend. The precious and industrial metals downtrend appears to have shifted on a dime, coinciding with the Fed tightening and 2015 year end. Under pressure in the run-up to tightening, the aftermath of the "buy the rumor, sell the fact" in the value of the U.S. dollar has benefited metals, notably precious. Sustainability will be the key. Resuming the downtrend would probably take more of the same from the past few years and the Fed focusing on tightening in a global deflationary environment.
Apparent Shift in Bear Metal Trends
Historic levels of negative interest rates should be a good foundation for hard assets like metals, as would some inflation, traditionally a notable support for precious metals. Metals may have reached a potential inflection point in 2016 on the back of multiyear declines.
Bloomberg Commodity Index (BCOM) Tables & Charts – September 2016 Edition
Zinc, Sugar and Silver via for YTD gold in September
CRR <GO>
Agriculture (Index weight: 26.8% of BCOM.
Performance: September +4.2%, 3Q -8.1%, YTD +4.3)
Grains (Index Weight: 19.9% of BCOM. Performance:
September +4.0%, 3Q -13.6%, YTD -7.2%)
Softs (Weight: 6.9% of BCOM. Performance:
September +7.7%, 3Q +6.9%, YTD +27.5%)
Agriculture Bucks Harvest Pressure Trend in September
PERFORMANCE DRIVERS
Corn and Wheat Rebound From Decade Lows as Sugar Takes the Gold. Agriculture may have finally reached bottom as wheat and corn recovered from 10-year lows in September. Record production trends in the grains are becoming extended and offset by surging demand, notably on the back of multiyear price declines. Despite the beginning of harvest, corn rebounded from the end-of-August 10-year low at $3 a bushel. The Bloomberg Agriculture Subindex tied energy as the major sector performer in September, with a gain of 4.2% which lessened the 3Q decline to 8.1%.
Supported by the first gain in the Bloomberg Grain Subindex since May, ags were led by the softs in September, notably by spiking sugar prices. The September 7.7% increase in the Bloomberg Softs Subindex pushed it to a 27.5% gain in 2016, slightly overtaking precious metals as the best segment performer this year.
Sugar Leads September Ag Gains
Sugar Sweetens the Bloomberg Softs Subindex to Lead 2016 Gainers. Recovery from steep declines of the past few years is a key driver of the sugar recovery in 2016. Still on a tear in September, the Bloomberg Sugar Subindex jumped 11.3% on the month, for a 44.7% gain year-to-date. Sugar ended the month as the best performing commodity in the Bloomberg Commodity Index on a month-to-date, one-year and two-year basis. The Bloomberg Zinc Subindex sprinted past sugar on the last session of Sept. to take the YTD prize with a 46.3% gain. Adverse weather in Brazil, the world’s largest sugar producer, sparked a rapid 50% retracement of the 2011-15 sugar high-to-low range of 35.3-10.4 cents a pound.
September boosted the softs to be sweeter than precious metals in 2016. At the end of Sept., the Bloomberg Softs Subindex inched past the Bloomberg Precious Metals Subindex with a 2016 gain of 27.5%. The Bloomberg Coffee and Cotton Subindices ended Sept. with 2016 gains of 11.4% and 7.3%.
Grain Prices Rebound From Decade Lows -- 'Not as Good as 2014. In a rare performance, corn futures rallied in September. Open fields for the beginning of harvest (not too wet), and an escalating trade war with China failed to pressure the Bloomberg Corn Subindex, up 6.8% on the month. "Not as good as 2014" has been cited by producers regarding corn yields, but bean production is strong. Preliminary soybean yields support the USDA's record 50.6 bushels-an-acre 2016 estimate. The Bloomberg Soybean Subindex was up 1.2% for the month.
Bloomberg Commodity Index (BCOM) Tables & Charts – September 2016 Edition
Monthly Heat Map of BCOM Grain Index Returns
China's imposition of an import duty on U.S. Dried Distillers' Grains, a byproduct of ethanol production and protein source for animal feed, is a pressure factor on the price of grains, of which the U.S. is the world's largest exporter. Soybean meal was the only September decliner, losing 2.3%.
AGS - CURVES & FLOWS
Big Open Interest Jump in Cotton, Long Liquidation in Soybeans. Despite subdued range-bound trading, cotton futures open interest leaped to the highest level since 2008 in September. The last time cotton open interest had a similar increase was during the sharp rally in 2010. Elevated net long positions indicate a play for higher cotton prices. On the open interest decliner board, soybeans were the leading loser. Long liquidation is the indication in beans, as open interest plunged 17% in 3Q to the lowest level since January 2015 on the back of declining prices.
Cotton Open Interest Leaps to 8-Year High
Soybeans coincidentally declined about 19% in 3Q. The last time soybean open interest declined a greater percent in a single quarter coincidental with declining prices was 4Q12, when soybean open interest and prices fell 25% and 11% in that drought year.
AGS – OUTLOOK
If Soybeans Hold Line at Nine, the Agriculture Bottom May Be In. Continued recovery in soybeans should provide some pull-along support for corn and wheat prices near decade lows. Soybeans have been the only positive performer among the grains in 2016 since they popped above $9 a bushel in March on weaker-than-expected South American production and spiking demand. If beans drop back below $9, it could drag the entire segment lower. Soybean prices have consolidated recently near $9.5, the 50-week moving average and approximate cost of production.
Soybeans Teeter Above $9, near Production Cost
Soybeans are the most widely traded agriculture commodity and thus have the highest weight among agriculture in the Bloomberg Commodity Index. Sugar is the top-performing commodity, but may be getting a bit extended, as it's retraced 50% of the 2011-15 plunge and net long positions are at new records.
Bloomberg Commodity Index (BCOM) Tables & Charts – September 2016 Edition
BCOM Individual Commodities Open Interest - Sorted by YTD change
Annualized Roll Yields - BCOM Sectors and Individual Commodities
Measured on a gross roll yield basis; the 251 business day difference
between the total return and spot change.
BCOM Broad Indices Total Returns
Open Interest quarterly changes
Contangop (-), Backwardation (+)
Measured via the one-year futures spread as a percent of the first contract price. Negative means the one-year out future is higher (contango). Positive means the one-year out future is lower (backwardation.
Bloomberg US Treasury Bond Index BUSY 3.42% 3.72% 3.85% 3.87% 3.91%Bloomberg USD IG Corporate Bond Index BUSC 4.09% 4.05% 3.72% 3.91% 4.07%Bloomberg USD HY Corporate Bond Index BUHY 3.11% 2.83% 4.69% 3.60% 3.40%
Bloomberg U.S. Dollar Spot Index BBDXY 6.95% 6.44% 6.95% 6.27% 6.29% 7.16%
BLOOMBERG INTELLIGENCE: COMMODITY DASHBOARDS BI <GO> * Click hyperlinks to open in Bloomberg
Crude Oil Production: BI OILS <GO> Natural Gas Production: BI NGAS <GO>
Precious Metal Mining: BI PMET <GO> Agricultural Chemicals: BI AGCH <GO>
Copper: BI COPP <GO> Aluminum: BI ALUM <GO>
BI provides analysis on several key drivers of BCOM performance; industrial and precious metals mining, oil and natural gas production, and agricultural chemicals. The dashboards include key macro data libraries and interactive charting and commentary from analysts with an average of seventeen years of experience.
COMMODITY CHEAT SHEET FOR THE BLOOMBERG PROFESSIONAL® SERVICE
* Click hyperlinks to open in Bloomberg
Broad Commodities EnergyTop commodity news CTOP Top energy news ETOPGlobal commodity prices GLCO Top oil news OTOP Commodity playbook CPLY Crude Oil Production Dashboard BI OILSCommitments of traders report COT First Word oil NI BFWOIL Calendar of commodity events ECO17 News on oil inventories TNI OIL INV Commodity arbitrage calculator CARC Oil Buyer's Guide newsletter NI OBGBRIEFCommodity fundamental data explorer FDM Pipes & Wires newsletter NI PAWSBRIEFCommodity futures overview CMBQ Oil market analysis BOILSecurity finder SECF Nat gas spot prices BGASCommodity data contributors & broker CDAT Forward European utility markets EUMContract table menu CTM News on oil markets NI OILMARKET Seasonality chart SEAG News on OPEC NI OPEC Commodity curve analysis CCRV OPEC production and prices OPECCommodity fair values CFVL Oil markets menu OIL Commodity price forecasts CPFC Crude stored in tankers NOONCommitments of Traders Report COT Refinery outages REFOCommodity maps BMAP Oil’s decline EXT5 Commodity options monitor OMON Oil versus inflation expectations SWIFCommodities charts COSYCommodity Investors menu CMNV MetalsUS exchange traded product fund flows ETF Top metal news METT
Precious metal dashboard BI PMETGBase metals dashboard BI BMET
Commodity Indices Metals prices and data MINE Index description BCOM Index DES Precious metals prices and rates MTL Index constituent weights BCOM Index MEMB Metals Bulletin MB Listed index futures BCOM Index CT COMEX inventories COMX Option volatility surface BCOM Index OVDV LME monitor LME Seasonality chart BCOMNG Index SEAG LME implied volatilities LMIV Commodity index futures movers FMV LME warehouse inventories LMEI Commodity index ranked returns CRR
AgricultureWeather Top agriculture news YTOP Global weather database WETR Agriculture calendar AGRI US snow monitor SNOW Agriculture spot prices AGGPEU weather & utility models EUMM Agriculture supply & demand AGSD
Crop calendar CCAL
BCOM QUICK FACTS Index Methodology
Weighting Bias 2/3 market liquidity and 1/3 world production No. of Commodities 20 Re-balancing Frequency Annual Roll Schedule Monthly (5 day roll) Caps/Limits Single commodity: max 15%
Single commodity and its derivatives: max 25%Related commodity groups: max 33%
First Value Date 30 December 1990
The data provided in this report can be easily accessed on the Bloomberg Professional® service along with numerous news and analytical tools to help you stay on top of the commodity markets.