Commodities post first drop in five years

Commodities posted the first annual drop in five years as supply exceeded demand for corn to sugar to nickel and investors lost faith in precious metals as a store of value amid signs that economies are improving.

The Standard and Poor's GSCI Spot Index of 24 raw materials fell 0.6 percent to settle at 632.29, capping a 2.2 percent decline this year.

Corn led the retreat with a 40 percent plunge, followed by silver and gold. Commodity-fund investments fell by a record $88 billion to $332 billion in the 11 months ended November 30, Barclays Plc estimated.

As prices more than doubled in the past decade spurred miners and farmers to boost production at a time when China's economic growth slowed, Citigroup Inc. sources said the "super cycle" of gains has ended.

Copper to wheat to cocoa entered bear markets last year as investors shifted money to equities. Gold and silver posted the biggest declines since 1981 as an economic rebound prompted the Federal Reserve to cut stimulus.

"Perceptions of improving supply and supply overhangs pressured commodities," said a senior commodity strategist Jeremy Baker, who helps oversee about $600 million at Harcourt Investment Consulting AG in Zurich.

"There was concern about China's growth," he said.

The 2013 decline in the GSCI gauge compares with a 20 percent gain for the MSCI All-Country World Index of equities and a 3.5 percent increase for the Bloomberg US Dollar Index, a measure against 10 major currencies.

The Bloomberg US Treasury Bond Index dropped 3.1 percent.

Corn posted the biggest slump in a half century as the US harvest, the world's biggest, climbed to a record 355.3 million metric tons, rebounding 30 percent from the corresponding season when crops were hurt by the most-severe drought since the 1930s, according to the US Department of Agriculture.

International Sugar Organisation sources said that global output will exceed demand by 4.73 million tons in the 2013-14 season that started in October 2013 in most countries, the fourth straight surplus.

The London Metal's Exchange six main products declined this year. Nickel, which had the biggest drop at 19 percent, had a surplus of 149,000 tons, Barclays estimated.

Zinc fell 1.2 percent last year, the smallest decline among the base metals. Economic expansion in China, the biggest user of everything from copper to soybeans, slowed every year since 2011. Economists surveyed by Bloomberg News expect growth of 7.5 percent this year, down from 7.6 percent last year and the least since 1990.

The International Monetary Fund estimated in October that emerging markets will expand 4.5 percent in 1023, down from a projection of 5.6 percent made a year earlier.

"The biggest factor has been emerging-market growth, and that it has been weaker than expected has weighed on commodities," said Nic Johnson, who helps manage $30 billion of commodity assets at Pacific Investment Management Co. in Newport Beach, California.

"Developed-market growth will support prices of some commodities," he said.

Global economic growth will accelerate to 3.6 percent in 2014, from 2.9 percent this year, according to the IMF. Managing Director for the fund, Christine Lagarde said recently that the group is raising its outlook for the US economy. December 18 the Fed cut on the pace of its monthly bond purchases to $75 billion from $85 billion.

Gold marked its first annual drop in 13 years with a 28 percent slide and silver slumped 36 percent as Central Bank stimulus measures failed to boost inflation. US consumer prices were unchanged in November after a 0.1 percent drop the previous month, according to December 17 data from the Labour Department.

Gold was down from a record $1,921.15 in September 2011.

Analysts, traders and investors surveyed by Bloomberg in December 2013 predicted metals and crop prices will rebound this year. Copper will rise to as high as $7,836 a ton, the median estimate showed.

Platinum will reach $1,650 an ounce, compared with $1,371 now and corn will increase to $5.225 a bushel from $4.22 today.

"Gold had a horrible year, and there are still no reasons for the story to change," said Donald Selkin, who helps manage about $3 billion as the New York-based chief market strategist at National Securities Corp.

"Economies are doing better, and interest rates are going higher. I think industrial metals will do better as sections of the world are improving," he said.

Bloomberg