Cotton, Silver steal the commodiites show in Q1, 2011

It has been a busy week and the first quarter of 2011 is “in the books.” Let’s look at the commodity futures markets sector by sector:
Precious Metals:
The big winner in this sector was the silver market, posting gains over 22% for the quarter. This market was up a whopping 82% in 2010. Silver looks great here — the sky seems to be the limit! Expect big volatility and price moves during the second quarter. Silver actually made a low of $26.40 on January 28th. It has since rallied 43.5% – now that’s volatility!
The gold market was up just over 1% in the first quarter. Slow and steady seems to be the course for gold these days. We had a ferocious bout of selling to start 2011 with $100 knocked off the price. But the yellow metal came right back to close up on the quarter. A weaker dollar and geopolitical events will underpin gold and perhaps we will see the strong trend resume that caused gold prices to appreciate by almost 30% in 2010.
Platinum and Palladium did not move much. Platinum was flat, and palladium was down about 4%. Look for these markets to respond to ever increasing automobile demand in China, which could help the metals “catch a bid” for the balance of the year.
Energy:
Turmoil in the Middle East, a devastating earthquake, tsunami and nuclear disaster in Japan and the ever-present global thirst for energy caused energy to be the best performing commodity sector in the first quarter of 2011. Oil prices rose more than 16% while gasoline and heating oil prices were up 26% and 22%, respectively. Brent North Sea crude settled at close to an $11 premium to WTI on continued European fears of supply disruptions through the Suez Canal. This premium was only $1.50 when 2011 started.
Natural Gas, the “ugly stepsister” of the energy complex, closed the quarter basically unchanged at the $4.40 level. Nat Gas was one of the few commodities that were down in 2010 falling almost 23% for the year. Despite a storage build of 12 bcf versus a consensus estimate of a build of 10 bcf, natural gas prices rebounded after hitting a low of around $4.20 this morning after the release of the EIA weekly storage data. Although supplies remain bountiful look for natural gas to stage a surprise rally in the coming months based on increased usage and interest due to the fear of nuclear reactors in the wake of Japan. A spark that could get Nat Gas going is the continued short interest in futures contracts by producers and speculators.
Grains:
Grain markets wound up with mixed results for the first quarter. Wheat was down 4% while corn was up 10% on the active months. Soybeans are up 1% thus far in 2011. These markets had spectacular rallies in 2010 – they were up between 33-50% between them. Look for the bull market to kick into high gear with the release of the USDA report today. After the report, corn was up the 30 cent limit with wheat rising by over 35 cents and soybeans up by 38 cents a bushel. More acreage has been planted due growing Asian demand and this should foster higher prices well into 2012. The most bullish aspect of the report was the current levels of stockpiles. Corn and soybean stocks came in below the low end range of expectations. The demand is there, any supply problems with the plantings could cause a parabolic move in the grains!
Soft Commodities:
Cotton, a market with rising demand from Asia and problematic supplies, was the big winner in the commodity arena posting gains of 38% for the first quarter. This is after coming off 2010, a year that saw cotton prices skyrocket by 90%! This illiquid market has rallied by more than 400% since 2008. Crop substitution resulting in lower plantings coupled with Asian demand for the commodity should keep the bid in this very volatile market for the foreseeable future.
Cocoa prices were down just under 3% for the quarter although the market saw some dramatic volatility. Cocoa traded in a $1000 per ton range during Q1 with a bountiful harvest from Africa offset by violence and political upheaval in the Ivory Coast, the #1 exporter of Cocoa beans. Look for volatility to continue with some potentially very large and influential hedge fund positions in this commodity.

Sugar prices slumped by over 15% since the start of the year. Sugar fundamentals remain fairly strong with Brazil, the largest producer, using its sugar crop to produce ethanol in light of higher oil prices. The sugar market is starting to look a lot like it did last year when it dropped by 57% during the period from February 1st through May 3rd, 2010. Currently the market looks heavy — we may see continued weakness into May. Will we see a repeat of last year’s incredible move that started on May 3rd? Sugar took off from 13 cents and rallied 177.5% in 8 months! Time will tell but one thing is for sure, sugar will continue to be one of the most volatile commodities traded.
Coffee prices rose by almost 10% so far in 2011. The rust fungus on the leaf of the Columbian coffee crop reduces bean yields. This coupled with steady demand for coffee beans helped to support prices. The market looks a little toppy on the charts but coffee is well entrenched in the bull market for all commodities.
Frozen OJ prices were down over 5%. With the end of an overall mild winter in Florida, prices have been stable.
Meats:
Live cattle and lean hog prices had an amazing quarter rallying about 12% a piece! They are coming off a great 2010 where cattle prices were up over 25% and hog prices rose over 40%. The continuation of this trend is fundamentally due to changing dietary trends in Asia. Chinese middle class consumers are enjoying more and more animal proteins. This is putting upward pressure on meat prices and is also very supportive of grain prices as these animals eat lots of grains, particularly corn and soybean meal. Look for volatility in this sector but it should be supported as we are fast approaching grilling season in the U.S. – the period between Memorial Day and Labor Day.
Base Metals:
Copper had a quiet quarter down roughly 3% on the active month. Coming off 2010, where prices rallied by over 32%, it is possible that copper can pull back a bit. The market will be underpinned by Chinese demand that is always evident on dips. There will also be demand for the red metal to rebuild Japan in the aftermath of the earthquake and tsunami earlier this month.
The other base metals (Aluminum, Nickel, Zinc, Lead and Tin) are all participants in the commodity bull market. All of these metals have been in uptrends. Watch aluminum prices as rebuilding Japan may cause some physical demand that was unanticipated just a month ago!
Other markets:
During the first quarter, the U.S. dollar index slipped by just over 4%. The lower dollar has been supportive of higher commodity prices. Given the effects of QE2 and the possibility of QE3 coupled with huge US deficit spending and 3 wars to fund, it is hard to see the U.S. dollar exploding to the upside at this juncture. That said, the euro seems to have problems of its own as does the Japanese yen. The Canadian and Australian dollars are strong as they are basically commodity based currencies. The C$ was up almost 2.5% and the A$ was up 1% for the quarter.
The U.S. benchmark 30-year bonds was down just over 1.5% while the Dow Jones was up over 6%.
Final Comments:
The first quarter saw a continuation of strong commodity prices across all sectors. These bull markets can be very volatile so expect some big moves during the second quarter and the balance of 2011. Remember — big volatility always equals big opportunities. Stay tuned… Happy trade hunting!

(Source: http://www.commodityonline.com/news/Cotton-Silver-steal-the-commodiites-show-in-Q1-2011-37845-2-1.html)