2005 Commodity Futures Recap
Now that we’ve begun a new year, it’s interesting to look back and reflect on the action in our commodity markets in 2005. While the stock market was largely range-bound in a sideways channel for much of the past years, many commodities rallied strongly. The Dow Jones-AIG Index of 20 commodities ended up at 171.15, up 17.5%, or 25.54 points. Another broad-based measure, the Reuters / Jefferies CRB Index, climbed 16.9%, or 47.93 points, to finish very near a record, at 331.83. Here are a few of the highlights from 2005:
Energy
Crude oil continued to be bellwether for the broader commodities market, helped throughout the year by tight global output and refining capacity, combined with voracious demand for energy among Asia’s growing economies, the U.S., and other heavily industrialized countries.
Beginning in late August, Hurricane Katrina and other storms damaged refineries, drills and pipelines along the Gulf Coast, pushing prices to records of more than $70 a barrel.
In the fourth quarter, rising inventories and relatively warm winter weather is much of the U.S. helped push prices lower, erasing some of the earlier grains. Still, crude-oil futures finished the year at $61.04 a barrel, up 40.5%, or $17.59 at the New York Mercantile Exchange.
Other energy products followed crude oil’s lead. Heating oil futures, for instance, soared 40.5%, or 49.83 cents, to $1.7280 a gallon. The prices of gasoline futures contracts -- a measure of wholesale prices, not including taxes and other markups -- surged 57.1%, or 62.13 cents, to end at $1.71 a gallon.
Natural-gas futures rose even more markedly, jumping 82.6%, or $5.076, to $11.225 a million British thermal units. In Katrina’s aftermath, traders worried about winter shortages of the fuel, and their buying pushed the price records around $15 a million BTUs.
Those worries have since subsided to some degree, but analysts say natural gas remains subject to unique circumstances, since it can be transported only via pipelines to and from fixed delivery points. By contrast, liquid fuels can be transported via tankers or trucks wherever they are needed, from wherever they can be obtained at the lowest cost.
Some markets watchers, including outgoing Federal Reserve Chairman Alan Greenspan, have advocated building more facilities to import liquefied natural gas, thus opening the market to freer competition from overseas suppliers who might push prices lower. Such projects remain a matter of debate among opponents concerned about potential environmental harm or terrorist attacks on such terminals.
Metals
Perhaps the commodity most notable for bucking its usual relationship with the dollar in 2005 was gold, which surged to more than $500 a troy ounce for the first time since 1987. The yellow metal usually is considered a safe haven investment and is a widely accepted store of value when people lose faith in paper money, so it tends to move in the opposite direction from the dollar.
For 2005, gold futures at the New York Mercantile Exchange’s COMEX division rose 18.2%, or $79.60, to finish at $517.10 a troy ounce.
Analysts say a few factors helped the metal rise despite last year’s strengthening dollar, including strong physical demand for jewelry (particularly in parts of Asia, where a growing middle class with disposable income is increasingly able to afford more than simply basic necessities) and other, industrial uses of the metal.
Many analysts say the late-year rally was helped by expectations that the Federal Reserve soon will cease its pattern of interest-rate increases, which effectively take dollars out of circulation and drive up their value. In trader parlance, the gold market already has “priced in” the idea that the dollar will cease to enjoy such support sometime in early 2006.
Other precious metals followed gold’s advance. Silver futures climbed 29.6%, or $2.013, to $8.82 a troy ounce. Platinum contracts advanced 12.7%, or $109.30, to end at $973 a troy ounce on the COMEX.
Industrial-metal prices also were strong, led by the bellwether copper contracts, which leapt 45.4%, or 67.45 cents, to $2.1615 a pound. Palladium, which is the component of the emissions-reducing car parts known as catalytic converters, rose 41.2%, or 41.2%, or $76.25, to end at $261.50 a troy ounce at COMEX.
Agriculture
Grain prices rebounded to some extent, after laggard performances in 2004, though compared with the metals and energies, gains were muted. Speculators have bid prices higher lately, expecting heavy buying in the new year from commodity funds that eventually will have to unwind heavily bearish short positions.
At the Chicago Board of Trade, soybean futures finished at $6.020 a bushel, up 54.25 cents, or 9.9%. Wheat contracts rose 10.3%, or 31.75 cents, to $3.3925 a bushel. Corn futures got into the act as well, rising 5.4%, or 11 cents, to $2.1575 a bushel.
Livestock prices were mixed at the Chicago Mercantile Exchange. Strong beef demand pushed live-cattle futures up 2.9%, or 2.6 cents, to 92.45 cents a pound, while a glut of animals weighed down pork prices -- live-hog futures fell 14.6%, or 11.125 cents, to 65.275 cents a pound. Pork bellies, the part of a slaughtered hog from which bacon is made, fell 12.8%, or 12.1 cents, to 82.15 cents per pound.
Also at the CME, lumber futures, somewhat surprisingly, given the strong U.S. housing market over the course of 2005, were essentially flat, ending at $359 per 1,000 square board feet, up $2.60, or 0.7%.
Tropical Commodities
For a second straight year, storm damage to Florida’s orange crop pushed up prices of juice futures. In 2004, a succession of storms crisscrossed the Sunshine State, but this past year, it took just one well-placed storm, Hurricane Wilma, to drive orange juice futures higher. Contracts on frozen Orange juice soared nearly 45.4%, or 39.1 cents, to $1.252 a pound at the New York Board of Trade. Mark your calendars, and remember that this could be a market worth watching in the second half of 2006.
Other commodities, known as “tropical softs” or “food and fiber,” were boosted by strong demand and, in some cases, poor growing weather. Sugar soared 62.4%, or 5.64 cents, to 14.68 cents a pound. Cotton climbed 21%, or 9.42 cents, to 54.19 cents a pound at NYBOT.
Cocoa futures were an exception to the trend, falling 2.8%, or $43, at $1,504 a metric ton, a unit equal to 2,204.6 pounds. Coffee contracts rose 3.2%, or 3.35 cents, to $1.071 a pound. Some analysts are forecasting a coffee-supply shortfall relative to demand in 2006, a scenario that potentially could lead to higher prices.
Energy
Crude oil continued to be bellwether for the broader commodities market, helped throughout the year by tight global output and refining capacity, combined with voracious demand for energy among Asia’s growing economies, the U.S., and other heavily industrialized countries.
Beginning in late August, Hurricane Katrina and other storms damaged refineries, drills and pipelines along the Gulf Coast, pushing prices to records of more than $70 a barrel.
In the fourth quarter, rising inventories and relatively warm winter weather is much of the U.S. helped push prices lower, erasing some of the earlier grains. Still, crude-oil futures finished the year at $61.04 a barrel, up 40.5%, or $17.59 at the New York Mercantile Exchange.
Other energy products followed crude oil’s lead. Heating oil futures, for instance, soared 40.5%, or 49.83 cents, to $1.7280 a gallon. The prices of gasoline futures contracts -- a measure of wholesale prices, not including taxes and other markups -- surged 57.1%, or 62.13 cents, to end at $1.71 a gallon.
Natural-gas futures rose even more markedly, jumping 82.6%, or $5.076, to $11.225 a million British thermal units. In Katrina’s aftermath, traders worried about winter shortages of the fuel, and their buying pushed the price records around $15 a million BTUs.
Those worries have since subsided to some degree, but analysts say natural gas remains subject to unique circumstances, since it can be transported only via pipelines to and from fixed delivery points. By contrast, liquid fuels can be transported via tankers or trucks wherever they are needed, from wherever they can be obtained at the lowest cost.
Some markets watchers, including outgoing Federal Reserve Chairman Alan Greenspan, have advocated building more facilities to import liquefied natural gas, thus opening the market to freer competition from overseas suppliers who might push prices lower. Such projects remain a matter of debate among opponents concerned about potential environmental harm or terrorist attacks on such terminals.
Metals
Perhaps the commodity most notable for bucking its usual relationship with the dollar in 2005 was gold, which surged to more than $500 a troy ounce for the first time since 1987. The yellow metal usually is considered a safe haven investment and is a widely accepted store of value when people lose faith in paper money, so it tends to move in the opposite direction from the dollar.
For 2005, gold futures at the New York Mercantile Exchange’s COMEX division rose 18.2%, or $79.60, to finish at $517.10 a troy ounce.
Analysts say a few factors helped the metal rise despite last year’s strengthening dollar, including strong physical demand for jewelry (particularly in parts of Asia, where a growing middle class with disposable income is increasingly able to afford more than simply basic necessities) and other, industrial uses of the metal.
Many analysts say the late-year rally was helped by expectations that the Federal Reserve soon will cease its pattern of interest-rate increases, which effectively take dollars out of circulation and drive up their value. In trader parlance, the gold market already has “priced in” the idea that the dollar will cease to enjoy such support sometime in early 2006.
Other precious metals followed gold’s advance. Silver futures climbed 29.6%, or $2.013, to $8.82 a troy ounce. Platinum contracts advanced 12.7%, or $109.30, to end at $973 a troy ounce on the COMEX.
Industrial-metal prices also were strong, led by the bellwether copper contracts, which leapt 45.4%, or 67.45 cents, to $2.1615 a pound. Palladium, which is the component of the emissions-reducing car parts known as catalytic converters, rose 41.2%, or 41.2%, or $76.25, to end at $261.50 a troy ounce at COMEX.
Agriculture
Grain prices rebounded to some extent, after laggard performances in 2004, though compared with the metals and energies, gains were muted. Speculators have bid prices higher lately, expecting heavy buying in the new year from commodity funds that eventually will have to unwind heavily bearish short positions.
At the Chicago Board of Trade, soybean futures finished at $6.020 a bushel, up 54.25 cents, or 9.9%. Wheat contracts rose 10.3%, or 31.75 cents, to $3.3925 a bushel. Corn futures got into the act as well, rising 5.4%, or 11 cents, to $2.1575 a bushel.
Livestock prices were mixed at the Chicago Mercantile Exchange. Strong beef demand pushed live-cattle futures up 2.9%, or 2.6 cents, to 92.45 cents a pound, while a glut of animals weighed down pork prices -- live-hog futures fell 14.6%, or 11.125 cents, to 65.275 cents a pound. Pork bellies, the part of a slaughtered hog from which bacon is made, fell 12.8%, or 12.1 cents, to 82.15 cents per pound.
Also at the CME, lumber futures, somewhat surprisingly, given the strong U.S. housing market over the course of 2005, were essentially flat, ending at $359 per 1,000 square board feet, up $2.60, or 0.7%.
Tropical Commodities
For a second straight year, storm damage to Florida’s orange crop pushed up prices of juice futures. In 2004, a succession of storms crisscrossed the Sunshine State, but this past year, it took just one well-placed storm, Hurricane Wilma, to drive orange juice futures higher. Contracts on frozen Orange juice soared nearly 45.4%, or 39.1 cents, to $1.252 a pound at the New York Board of Trade. Mark your calendars, and remember that this could be a market worth watching in the second half of 2006.
Other commodities, known as “tropical softs” or “food and fiber,” were boosted by strong demand and, in some cases, poor growing weather. Sugar soared 62.4%, or 5.64 cents, to 14.68 cents a pound. Cotton climbed 21%, or 9.42 cents, to 54.19 cents a pound at NYBOT.
Cocoa futures were an exception to the trend, falling 2.8%, or $43, at $1,504 a metric ton, a unit equal to 2,204.6 pounds. Coffee contracts rose 3.2%, or 3.35 cents, to $1.071 a pound. Some analysts are forecasting a coffee-supply shortfall relative to demand in 2006, a scenario that potentially could lead to higher prices.
posted by XPRESSTRADE, LLC at 1/05/2006 01:48:00 PM
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