Thursday, October 6, 2011

Barclays Capital on Commodities: It's a Beauty Contest (the loser is a cow)

A nice catch at FT Alphaville:
...So, how will different commodities fare in possibly imminent crisis? BarCap suggests a ‘beauty contest’ type analysis, arguing that traders are more likely to reach for these in times of trouble, rather than more elusive detailed fundamental data.

So BarCap put together a ranking based on six factors: price sensitivity to economic cycles; recent price movements; support from emerging markets; inventory support; cost support to prices; and vulnerability to speculative selling. And the results are here (click to expand):

In the 2008-09 crisis however, energy and industrial metals fell most, with average declines of 50 per cent and 35 per cent, respectively, while soft commodities (-2 per cent), livestock (-12 per cent) and grains (-14 per cent) markets were much less dramatically affected.

The evidence also suggests that price performance during the previous crisis was related to price behaviour in the prior period. In general, those commodities in which prices had adjusted lower in the run up to the Lehman’s bankruptcy fell less after it, although there were some exceptions....MUCH MORE
See also:
Spitballing a Peak in the Commodity Cycle