Rising supplies were the big price drivers for the majority of commodities in May, sending a key index for the group lower for a third month in a row.
The S&P GSCI Total Return index SPGSCITR, -1.31% tallied a decline of 0.2% month to date as of May 30. It lost 2.1% in April and 3.9% in March. Year to date, the index has lost 7.3%.
Among the 24 commodities tracked in the index, cocoa, lean hogs and unleaded gasoline led the gains for the month, while sugar, lead and natural gas were the biggest decliners.
“It is interesting that no single sector is consistently driving performance, which means the supply side” has more influence than the “global aggregate demand,” Jodie Gunzberg, managing director of product management at S&P Dow Jones Indices, told MarketWatch.
“This is important, not only in the inventory rebalancing, but since it is the factor that drives low correlation in [within] commodities and also between commodities and other asset classes,” she said. Notably, the stock-commodity correlation, represented by the S&P 500 SPX, -0.05% versus S&P GSCI, has fallen from 0.5 to 0.04 this month.
That makes commodities “strong diversifiers again,” said Gunzberg.
As for the index’s components, West Texas Intermediate oil SPGSCLTR, -2.70% CLN7, -2.68% was down by less than 0.1% for the month as of Wednesday’s close, but saw sizable losses on the final day of May. Gold SPGSGCTR, +0.77% GCQ7, +0.44% meanwhile, was down 0.4% month to date as of Wednesday, but edged up on the final day of May.
Based on the S&P GSCI Total Return single commodity indexes, cocoa SPGSCCTR, +0.54% was up 10.7% as of May 30. “Unrest on the Ivory Coast shut down cocoa production” and the country, which is the largest cocoa producer in the world, “sold forward” much of its 2017-2018 crop, said Gunzberg. Cocoa CCN7, +0.25% was among the worst-performing assets last year, losing nearly 34%.
Lean hogs SPGSLHTR, +2.50% LHN7, +2.53% have climbed by 9.4% for the month, with pork demand getting a boost from grilling in warmer weather, and as a substitute for beef in relation to the chicken-beef trade deal with China, she said.
Gasoline RBN7, -1.69% has gained 4.8%, buoyed by a typical seasonal increase as the market switches to more expensive summer-grade gasoline, said Gunzberg.
Meanwhile, sugar SPGSSBTR, -1.00% SBN7, -1.07% and lead have each fallen by roughly 6.8%, ranking as the steepest pullback. The sugar industry cranked out higher production because of favorable weather. Further, concerns emerged for an inventory buildup in Mexico from a lack of exports to the U.S., said Gunzberg. Lead experienced a buildup of inventories and a drop in steel demand.
Each of the 24 commodities tracked by S&P GSCI has been driven by “something in its own supply/demand model—mostly unrelated to one another,” Gunzberg said. “For now, it seems the supply side is more potent than macro forces like GDP growth, the dollar, interest rates or inflation.“