With the severe droughts experienced all over the US this summer, you can look for a rebound in the commodities markets. It’s been the worst drought in over 50 years and grain futures are surging. Growth in optimism in the US and stimulus from China will continue to drive demand.
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The Standard & Poors GSCI Spot Index, which includes 24 raw materials, saw its highest gain since May 3. The index has risen 20 percent since it closed at a low of 559 on June 21.
Half of US counties have been declared disaster areas, causing the Department of Agriculture to cut its corn harvest forecast in half. Grains have been isolated from the rest of the commodities sectors that have been affected by euro zone debt and macro headwinds.
Oilseeds and grains have performed best so far this year. The increase in prices sent food prices up 6.2% in July. The United Nations Food & Agriculture Organization index had slid for the previous three months.
Futures on natural gas have also risen as the hotter than usual summer heat has caused a boost in power plant use.
Twelve of the 24 commodities listed in the GSCI have fallen this year with coffee and cotton leading the declines. With interest rates low and fears of inflation rising, commodities might be appropriate for those clients wishing to hedge.