COMMODITY SNAPSHOTS

Quarter 2, Apr- Jun 2010

Summary of key factors characterising, and influencing, the seven reference markets

Eur-$ 1.38

1.36

1.34
Key Events 1.32




Market Price
1.30
 Standard & Poor's downgraded Greece's debt to junk

status & newsfeed showed images of thousands of Greek 1.28 
protesters taking to the streets against a tough austerity 1.26


package. As Europe's escalating debt crisis unfolded 1.24 
investors scrambled for safety and dumped the risky euro. 1.22
 Speculation that the European Central Bank might 1.20
intervene to stem the fall in the euro helped the single
1.18
currency pull back from a four-year low against the dollar. April - June 2010
There was also large buying from hedge funds, which
were taking advantage of the extreme short euro positioning in the market.
 Weaker-than-expected US employment data was released amid concerns that Hungary’s economy may be in a perilous condition. As investors
clamoured for havens, the dollar climbed nearly two cents versus the euro, to stand at $1.1967, a fresh four-year low for the single currency.
Underlying Drivers & Trends
• The ongoing eurozone financial crisis has been the key driver of the Euro-$ rate this quarter. Despite robust export demand and
strong manufacturing and employment data from the region concerns about the eurozone's fiscal position continued to undermine
the single currency. Significant financial support from France, Germany and the International Monetary Fund failed to stem anxiety
that Greece could become the first eurozone country to default on its debt repayments and could not prevent the single currency
falling further. Germany’s temporary ban on some investment vehicles was ill-received by the currency markets, although a
Spanish bond issue has aided the euro more recently.
• This dismal situation in the eurozone has masked the weak economic data coming out of the US where slower-than-forecast job
creation and economic growth would ordinarily have been enough to send the dollar down. This quarter, however, haven status of
the dollar has driven demand.
Overview and Outlook
 Many investors are expecting the euro to continue its fall, believing that the rates of economic growth forecast for the region are
insufficient to address the crises in public sector indebtedness. The future of the single currency has been questioned and with
northern and southern member states in different financial positions the stage looks set for further turmoil.

S&P 500 1250

1200
Key Events 



Market Price

1150
 The S&P 500 index broke through a key 1,200 level
for the first time since September 2008, as positive
earnings results gave support to the bulls. Retail sales

1100

reports were up, and with little inflationary pressure,
giving rise to the outlook that the consumer cycle has
1050
turned the corner and the economy is making the
transition to a sustainable recovery.
 The European debt crisis Hit Wall St and risk appetite 1000
April - June 2010
collapsed. Concerns that Greece may be unable to
meet its national debt repayments sent the S&P 500 down a huge 8.6 per cent at one point during the day’s trading.
 Disappointing US job creation shook confidence in the economic recovery and the S&P 500 fell 3.4 per cent as investors sought
to further de-risk.
Underlying Drivers & Trends
• Despite a positive start the S&P 500 has put in its worst quarterly performance since the third quarter of 2008. During the period
US private sector job growth remained sluggish and consumer confidence was also lower than anticipated. There were signs that
the US housing market was beginning to stabilise but the overall sentiment is that of unfulfilled economic expectations.
• Global factors have impacted on the index’s performance, namely the continuing national debt crisis in parts of the eurozone which
has manifested in risk aversion at each subsequent turn of events. The fate of multinational oil corporation BP has also weighed on
investor sentiment, as has data indicating a slow-down in China’s manufacturing levels.
Overview and Outlook
 The end of June shows the S&P 500 at its lowest point of 2010 and there is currently a degree of anxiety and fear in the equity markets. The
recent sharp downward moves are seen by some analysts as merely reflecting a correction within the recovery trade that has lasted more
than a year, and investors believe that a double-dip recession can be avoided. Expect to see modest gains during the remainder of 2010.
Oil 91

86
Key Events



 The price of West Texas Intermediate crude oil lost



Market Price
81

some $11 US dollars per barrel across the week’s

trading. The slump to its lowest levels in three months 
76
was driven by worries that the phenomenal growth in

China’s demand for raw materials will slow as 
71
government tightens monetary policy. Crude was also
under pressure due to Europe's growing debt crisis as
investors were keen to exit commodities in favour of 66
April - June 2010
haven alternatives like gold and the US dollar.
 Inventories at Cushing, Oklahoma, the delivery point
of the crude contracts, hit a record high and the oil price plunged.
 Oil prices jumped in reaction to predictions of an active forthcoming hurricane season, with 10 hurricanes expected.
 The International Energy Agency released its annual medium-term outlook report which stated that oil markets are set to remain
oversupplied until 2015. Crude prices duly reacted with losses.

Underlying Drivers & Trends

• Positive sentiment around the US economy gave support to the oil price at the beginning of this second quarter, but
subsequently anxiety over domestic and overseas demand in the short-term has grown and support has withdrawn.
• Another key driver has been the unusually high level of inventories of crude in the US which has allowed the price of
crude to sink to lows for 2010, despite the Gulf of Mexico oil spill and other more minor halts in production.

Overview and Outlook

 The International Energy Agency forecasts rises in global crude consumption to 91.9million barrels per
day by 2015, but it also projects global supplies in five years' time to 96.5million barrels, leaving ample
amounts of spare capacity. However, much of the expected supply growth is from offshore deepwater
projects, and is, therefore, likely to be subject to more stringent safety regulations post the Deepwater
Horizon disaster in the Gulf of Mexico, leading to higher costs and time-delays in these new supplies
coming on-stream. Opec, the oil cartel, have reported high but declining space capacity which may
lead to more sensitive markets ahead. However, the fundamentals of the oil market do not appear to
look tight into the medium-term.

Gold 1280

1260



Key Events 1240

1220

 Higher than normal demand for gold, particularly
Market Price

1200
from German and Swiss investors, buoyed up the
1180
price of the precious metal by more than 3.5 per
cent over just three trading days. The spike appears 1160

to reflect anxiety about the possible inflationary 1140

impact of the European Central Bank’s decision to
1120
increase the money supply by buying up eurozone
government bonds to aid the Greek debt crisis. 1100
April - June 2010
 Gold prices hit a record high above $1,260 a troy
ounce, once again driven by bullish beliefs that this
commodity’s price will rise further in future, based on future inflationary expectations for the eurozone.

Underlying Drivers & Trends

• The price of gold has surged 14 per cent this year mainly driven by haven demand for the metal against a back-drop
of eurozone sovereign risk and potential inflation in the medium- to long-term, when financial bail-outs ultimately
translate into upwards price pressure. The bullish sentiment on gold continues to attract investment demand as well,
however, jewellery demand, is still declining, driven out by historically high gold prices.

Overview and Outlook

 It is likely that any further concerns about sovereign debt or the sustainability of the global recovery will
lead to greater interest in gold as an investment. Some analysts forecast between $1,300-$1,500 per
troy ounce during the back half of 2010, but now that austerity measures are firmly in place in Europe
gold may lack the strength to remain there for any long time, particularly with jewellery demand so
weak. This market seems out of balance with its fundamentals: the lack of real jewellery demand
combined with gold mine production increasing by 7 per cent should in theory lead to there being little
support for gold. We can expect market correction but that is likely to be some long way ahead.

CFPFUNDS
COMMODITY
HORIZONS
Copper 380

360

Key Events

340 

 The price of copper fell to a ten-week low on news

Market Price

that Chinese monetary authorities had tightened their 320


policy stance, raising fears of slower growth to come 
and of reduced demand for raw materials in their 300

economy.
 Copper enjoyed an upswing, like many markets, as 280

the massive emergency funding facility agreed by the

European Union and the International Monetary Fund 260
April - June 2010
calmed fears over the eurozone debt crisis.
 Unexpectedly weak US employment data combined
with concerns over eurozone debt problems
potentially spreading to Hungary led to risk averse behaviour, and copper fell for six
successive trading days to a new low, dropping more than ten per cent in price.

Underlying Drivers & Trends

• The two-year highs that copper experienced in mid-April gave way for a number of reasons.
Fears that the debt crisis in parts of Europe will dampen demand has taken its toll; China’s
monetary tightening and its decision to run down copper stocks rather than buy from international
markets have also taken away support. Overall, copper and other base metals used in
construction are currently deemed too risky for mainstream investors and have been hit especially
hard by the market correction seen since April.

Overview and Outlook

 Copper prices are likely to remain volatile until traders and investors know the answer to the
double-dip recession question. Analysts believe, however, that the recent price declines have
been led by sentiment rather than market fundamentals and there are bullish expectations of
greater support over the next twelve months as economic growth rates slowly improve and the
Chinese come back to the market place.

Coffee 180

170



Key Events

160 
Market Price

 Investors were surprised by a six day rally in the

Arabica coffee market where the commodity enjoyed 150

a gain of almost 20 per cent due to a large deficit of

high quality coffee beans from Colombia and Central 140

American countries. The frenzy began in the Robusta

trade, a less fine coffee, which is facing shortages 130

this season and has recently attracted the attention

of commercial investors. 120
April - June 2010
 The price of Arabica reached a twelve-year high of
$1.68 a pound, a further reflection of dwindling coffee
inventories, prices also bolstered by investors buying in to a rising market.

Underlying Drivers & Trends

• The main driver of this Arabica coffee market has been the climatic issues affecting production in various parts of
the world: South American countries have faced the disruption of weather patterns caused by ‘El Niño’ and Vietnam
has also faced difficulties, revising its crop estimate downwards this year, and as a result coffee stocks are at their
lowest since 2002. Coffee consumption, the driver of demand, is growing on average at 2.26% per year so a
fundamental tightening has occurred in this market allowing prices to make a breakthrough.

Overview and Outlook

 High coffee prices are likely to continue in the short-term until more is known about the actual
performance of the 2010-11 harvest. The United States Department of Agriculture (USDA) are
forecasting world coffee production up by 11% next year to a record high 139.7 million bags and
ending stocks up from 31.3 to 36.3 million bags, or 27% of annual use. Many are expecting there
to be coffee in abundance and therefore view the market as vulnerable to a large sell off, however,
the ‘La Niña’ phenomenon in South America may bring serious risk of abnormal cooling in
temperatures this winter, bringing frosts and then droughts, thus affecting the bonus yield next
year. Uncertainty abounds.

CFP FUNDS
COMMODITY
HORIZONS
Rice 1350

1300


1250
Key Events 
1200

 Commodities markets were shaken by Thailand’s

Market Price

1150 
unrest, on fears that supplies of raw materials
1100
including rice could be disrupted, resulting in a
limited recovery in the rice price. 1050

 Downward price movements reflect that there is 1000

currently little movement in the rice trade. This harvest
950
is already under contract and traders, detecting
softness in market, are buying hand to mouth, 900
April - June 2010
deferring large orders until the fall, when large supplies
of the new crop will have reached the market.

Underlying Drivers & Trends

• Since the beginning of the year, the price of rice has plunged more than 19 per cent on the Chicago
Board of Trade. The main reasons for this are favourable weather in the US which has created high
levels of rough rice stocks, up nearly twenty per cent on a year ago, and the economic crisis which
has led to slightly lower consumption demand. The USDA has also predicted that world rice
production in 2010-11 will increase to a record level, bringing with it growing rice stocks, and the
expectation of this bumper harvest next year has put further downward pressure on price.

Overview and Outlook

 Monsoon conditions affecting next year’s harvest are expected to be positive, potentially leading to
record crops in countries such as India, Thailand and Vietnam. However, rising worldwide population
and income is expected to increase consumption of rice next year and beyond, thus reducing the
gap somewhat between demand and supply. Unless unexpected weather events significantly affect
global rice production there seems little reason to expect price rises in this market.

CFP FUNDS

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