Commodities Watch: Goldman Sachs Cashes Out; Oil Prices Could Slow Global Economy or Lead to Demand Destruction or Both (GS, CORN, BAL, GLD, SLV, CVX, XOM, COP, USO)

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Today’s commodities news leads off with report that Goldman Sachs Group Inc. (NYSE: GS) and its leading commodities strategist are recommending that investors abandon long positions in copper and platinum even as the bank closes out its highly profitable trade in a basket of commodities, known as CCCP, that includes crude oil, copper, cotton, soybeans, and platinum.

With the exception of cocoa, which has gained about 1.5%, and wool, which has remained flat, most commodities has lost ground today. Corn prices are down to around $7.61/bushel, a loss of -2.5%. Wheat prices are down nearly -5%, to around $7.91 on the Chicago Board of Trade. Soybeans are down nearly -3%, to $13.42/bushel. The Teucrium Corn Fund (NYSE: CORN) is off about -3%, to $44.99, in its 52-week range of $23.79-$48.77.

Cotton has fallen nearly -3%, to $1.85/pound, and the iPath DJ-UBS Cotton Total Return Sub-Index ETN (NYSE: BAL) is off around -2.75%, to $102.75, in a 52-week range of $35.64-$117.33.

The Financial Times Alphaville blog cites the Goldman report as saying that the risk-reward is no longer there.  The report does say that while the basket “still has upside potential,” now that it has returned 25% against a 28% target since the position was opened in December this could be the right time to get out.

The continuing drought in the US southwest has more than 60% of the wheat fields in Texas and Oklahoma in poor to very poor condition. The lack of rainfall is forecast to last another three months in Texas and at least one month in Oklahoma.

Gold and silver prices have also fallen today, with gold at $1,454/ounce and silver at $40.12/ounce. The SPDR Gold Shares ETF (NYSE: GLD) is down about -1%, to $141.44, in a 52-week range of $110.54-$143.84, and the iShares Silver Trust (NYSE: SLV) is down about -0.5%, to $38.99, in a 52-week range of $16.73-$40.33.

The drop could be partly attributable to the falling price of crude, which indicates that fears of inflation could be easing. Oil prices have begun to have an impact on global economic growth and there are indications that oil consumption is falling in the wake of the high prices.

Goldman’s report on commodities also warns against holding long positions on oil: “Not only are there now nascent signs of oil demand destruction in the United States (see April 5 Energy Weekly), but also record speculative length in the oil market, elections in Nigeria and a potential cease-fire in Libya that [have] begun to offset some of the upside risk owing to contagion, leaving price risk more neutral at current levels.”

Big oil companies are also getting beaten down today, even though Chevron Corp. (NYSE: CVX) said its January and February results indicate an 11% gain in the price it gets per barrel of crude. Chevron shares are down nearly -3%, at $104.79, in a 52-week range of $66.83-$109.94. Shares of Exxon Mobil Corp. (NYSE: XOM) are also down about -2%, to $83.33, in a 52-week range of $55.94-$88.23. ConocoPhillips Corp. (NYSE: COP) have dropped about -3% today, to $77.70, in a 52-week range of $48.06-$81.80.

WTI crude oil has fallen below $106/barrel and Brent crude is below $121/barrel. The United States Oil Fund (NYSE: USO) is off nearly -3%, to $42.48, in a 52-week range of $30.93-$45.20.

Paul Ausick

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