In grains, the most actively-traded agricultural futures markets, prices sagged amid growing global production and sliding U.S. exports.
Front-month corn futures in Chicago settled at $6.42 ½ a bushel on Dec. 28, up about 2.1 percent from the close of 2010 but down 20 percent from a record $7.99 ¾ in June. Soybean futures were $11.98 ¼ a bushel, down 14 percent this year, and wheat futures were $6.51 ¼ a bushel, down 18 percent (futures traders can also profit from declining prices by selling markets short).
Grain market weakness contributed to a slump in the Dow Jones/UBS Commodity Index, which was down almost 13 percent on the year after a 17-percent rally in 2010. Cotton, sugar and natural-gas prices were also down sharply, though oil was up about 9 percent. The index tracks prices for nearly two-dozen top commodity categories.
Commodity slump drags down other investments
Europe’s financial crisis and broader global economic malaise played a large role in weaker prices this year, fueling perceptions that demand for raw materials will erode and prompting speculators to slash bullish commodity bets, said Adam Patti, chief executive of IndexIQ, a Rye Brook, N.Y.-based investment company.
This year’s commodity slump extended beyond the futures markets into other investment products, including the IQ Global Agribusiness Small Cap exchange-traded fund started by IndexIQ earlier this year.
The ETF, which holds shares of top pork producer Smithfield Foods, Inc., as well as smaller dairy, fertilizer and machinery companies in various parts of the world, is down 14 percent since its launch in March.
Still, Patti is “very bullish” on agriculture longer-term, saying he expects rising incomes will continue to boost global demand for “more complex proteins” such as beef and pork, bolstering returns for companies in food-related industries. There are also “systemic” supply constraints because of a finite amount of farmland, he said.
The sell-off “let some of the air out of the commodity bubble, which is a good thing,” Patti said in an interview earlier this month. “But I don’t think the fundamentals have changed.”
“Market sentiment has just moved away from commodities generally, which makes this a great entry point” for investors, Patti continued. “Prices have pulled back, but there’s a longer-term growth story here. For an investor with a medium- to long-term horizon, this is a great place to be.”
In trading Dec. 28, December live cattle futures settled at $1.231 a pound, up from $1.079 at the end of 2010 for the front-month contract. February lean hog futures settled at 85.55 cents a pound, compared with 79.75 cents at the end of 2010.