Commodities Corner: Commodities didn’t perform as badly as you may have thought in April

Commodities ended the month on Thursday with a mixed performance, even as April 2020 made history as the month that prices for West Texas Intermediate crude futures traded below zero for the first time ever.

“The loss of demand as the global economy sheltered in place to combat the COVID-19 pandemic generally crushed most commodities,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. “Exceptions could be found in safe-haven assets like gold and silver as investors ‘sheltered’ from market volatility fears.”

“The broad complex continues to suffer from abundant supplies with improvement requiring a return of global economic activity,” he told MarketWatch.

The Bloomberg Commodity Index XX:BCOM, which tracks 23 commodities, with gold the heaviest-weighted, closed at 60.90 Thursday, down about 1.6% for the month, according to Dow Jones Market Data. It posted a fourth straight monthly decline. On March 18, it closed at 59.48, the lowest point based on records dating back to January 1991.

The S&P GSCI index XX:SPGSCI, which tracks 24 commodities across five sectors, with energy its largest weighting, closed at 257.04 on Thursday, up roughly 0.6% for the month. Its close on April 21 at 228.24 was the lowest since Sept. 26, 2003.

Efforts to minimize the spread of the coronavirus pandemic led to the shutdown of global economies, squashing demand for oil and upending supply chains for the agricultural industry, but also providing some support for haven gold.

The month of April showed some “bright spots” compared with the first quarter of the year, said Jeff Klearman, portfolio manager at exchange-traded fund issuer GraniteShares. “While steeply falling crude oil prices continued to hurt performance overall, increasing base and precious metals prices helped.”

U.S. benchmark crude-oil futures settled in negative territory on April 20, with the now-defunct May West Texas Intermediate crude contract settling at negative-$37.63 a barrel, as traders exited long positions ahead of the contract's expiration at the end of the next trading day, so they wouldn’t have to take delivery of crude amid a backdrop of shrinking storage space.

On Thursday, the June WTI contract US:CLM20 settled at $18.84, down 8% for the month based on the front-month contract finish on March 31, according to Dow Jones Market Data.

“Negative oil prices make sense in a market plagued by tremendous oversupply and dearth of storage capacity,” said Klearman. “The steep contango in the front-months of the WTI crude-oil futures reflects this, but also reflects the market’s view it will eventually end. Until demand recovers, though, it is possible [that falls below zero dollars) could happen again.” Contango refers to the situation where prices for WTI crude for future delivery trade well above the spot market.

Read:Oil market in ‘super contango’ underlines storage fears as coronavirus destroys crude demand

In contrast, front-month gasoline futures US:RBK20 US:RBM20 scored a monthly climb of nearly 22%. Haworth attributed the climb to “seasonal factors” as the market moves toward the summer driving season.

Still, at the U.S. retail level, gasoline prices dropped to more-than-10-year lows in some states during the month of April amid travel restrictions related to COVID-19.

Meanwhile, gold, which is often viewed as an investment haven from riskier assets, saw its June contract US:GCM20 finish Thursday at $1,694.20 an ounce, up 6.1% for the month of April, according to Dow Jones Market Data.

Read about why gold may soon soar to record prices

Gold, silver and platinum moved higher for the month “on unprecedented accommodative central bank policy and investor demand for haven investments,” said Klearman. Silver and platinum also climbed with base-metal prices, he added.

Copper futures US:HGN20 rose 5.2% in April, based on the most-active contract.

The bounce in copper prices “reflect the earlier re-opening of the economy in China,” said Haworth. “This is not yet an all-clear, but China as well as Korea and Taiwan appear to be past the worst economic impacts from the COVID-19 pandemic.” Prices, however, remain well below the low end of the 2019 trading range, he said.

Among food-related commodities, livestock prices, including lean hogs US:LHM20 and feeder cattle US:FCQ20, declined. The market was “affected by concerns over meat-processing plants shutting down due to employee concerns related to the coronavirus,” said Klearman.

Read:Meat shortage looms as coronavirus shuts packing plants, leaving farmers with tough choices

Also see:Farmers find ways to cope with milk prices down nearly 40% this year

Futures prices for wheat US:WN20, corn US:CN20 and soybeans US:SN20 also fell in April, with prices for corn down more than 6% and wheat down nearly 8%, based on the most-active contracts, according to FactSet data.

Wheat prices “moved lower over reduced China-export demand, continued strong Russia exports and better growing weather in Russia and [the] Black Sea area,” said Klearman.

Looking ahead, it’s “reasonable to expect commodity prices to recoup some of their losses due to coronavirus-related demand destruction once the crisis is behind us,” he said. “Both the unprecedented global central bank accommodative policies and government fiscal stimulus packages may also work to spur economic growth as well as inflation — both of which can push commodity prices higher.”

In the meantime, as U.S. states “embark on re-opening their economies,” which could take a couple of months, the commodities market may be “entering its transition period,” said Haworth.

“The push and pull of ample supplies and modest demand are likely to remain in force for the next quarter or so,” he said. The pandemic has “certainly damaged some key producers and there is likely to be consolidation of supplies as the industry...works through a restructuring to recapitalize.”

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