Bloomberg Commodity Index (BCOM) Tables & Charts October 2016 Edition

Cheap Food Supplants the Strengthening Dollar

- Recovering agriculture prices offset pressure from the strong U.S. dollar

- Despite the record North American harvest, soybeans and corn lead the Ags higher

- Crude oil attempts to sustain above $50 per barrel again, but gets spooked by Halloween

- Industrial metals remain resilient, but the strong dollar pressures precious

- Recent stock market records, higher commodities and bond yields indicate Fed tightening go

Mike McGlone BI Senior Analyst; Commodities

Commodities Buck the Strong Dollar Supported by a Harvest Rally in Oct. Performance: October -0.5%, YTD +8.3%. Spot +17.6%. (returns are total return (TR) unless noted)

Showing recovery resilience on the back of recent multi-year lows in edible commodities, the Bloomberg Commodity TR Index (BCOM) declined 0.5% in October and the spot index gained 0.8%, despite a 2.2% increase in the Bloomberg Dollar Spot index. With just two months remaining in 2016, the 8.3% year-to-date gain in the BCOM TR puts it on track for an annual increase following five successive declines - a record in the history since 1991. Commodity market rebalancing following multiyear declines gained some votes in October.

Energy was an early leader in the month as crude oil rose above $50 per barrel, but livestock and grains stole the show despite the record North American harvest as oil pulled back. Weak precious metals prices on the back of the strong dollar were also a drag on broad index gains.

Commodities Show Strength Despite Dollar Rally

Edible Commodities Lead October Gainers

MACRO OUTLOOK

Setting up For Tightening -- Dollar Rises, Stocks, Bonds Decline. Bucking the strong dollar, most commodities were resilient in October as bonds headed the other way, providing a potential signal to the Fed for further tightening. Bloomberg Intelligence expects a 25bps hike at the December meeting. If commodities continue the 2016 trend higher, the bond market is likely to be a primary victim. October was a clear step in that direction, as the Bloomberg Barclays U.S. Treasury 20+ Year Index dropped nearly 5%. The year may mark the lowest yields in history. Weaker commodities are likely necessary for bond prices to recover.

Dollar Strength -- Paramount in October

Increasing commodities, the strong stock market and higher bond yields are a good "go" combination for tightening by the Federal Reserve. The BCOM spot index is on pace for an annual increase near 22% this year, which would be the best since 2010, when it rose 26%.

Market Commentary 1 Energy 2 Metals 4 Agriculture 5 BI COMD - Data 7 Performance 9 Attribution & Weights 12Volatility 13Correlation 16Commitment of Traders 21Inventories & Sales 24Term Structures 28Research Dashboards 30Cheat Sheet 32

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Bloomberg Commodity Index (BCOM) Tables & Charts October 2016 Edition

SECTOR PERFORMANCE

Agriculture, Livestock Giddy-Up to Lead Commodities in Oct. Strong rallies in soybean and corn prices countered intuitively, coinciding with the peak of the record harvest, as the most significant drivers of broad index returns in October. Short covering was evident as markets appeared well prepared for the supply glut. Potentially overweight with combined record long positions in brent and WTI crude oil, energy gave up earlier-in-the-month gains, declining over 3% on the last day as markets backed away from $50-a-barrel crude. Precious metals were also a drag due to the strong dollar.

Recovery from multi-years lows supported the Bloomberg Livestock Index to be the best performing minor sector index with a 5.3% gain. Unlike other commodities, the livestock sector roll yield was positive 3% at the end of October. Livestock typically has among the most expensive roll costs.

CURVES & FLOWS

Commodities Buck the Strong Dollar in October Commodities showed divergent strength in October. The Bloomberg Commodity Spot Index gained 0.8%, despite a corresponding increase of 2.2% in the Bloomberg Dollar Spot index. When the dollar has rallied 2% or more in a single month since January 2005, the BCOM has declined by just over 2x the dollar's percentage gain (a negative beta near 2). Commodities have rallied recently on the back of the strong agriculture and livestock sectors, which track many commodities just recovering from multiyear lows.

The outcome of the recent coincident commodity and dollar strength may have strong investment implications. If the commodity rally fails, similar to the trend of the past few years, expectations for inflation, global growth and Fed tightening are also likely to subside.

ATTRIBUTION

BCOM 2016 Performance Through October

Note, PORT data for the BCOM is a rough approximation

Leading 2016 Commodity Returns, Agriculture Surpasses Energy. Strong gains in agriculture commodities boosted its contribution to the Bloomberg Commodity Index in 2016 to near 300 bps (of the total near 830), topping the 230 bps from the energy sector. Soybeans moved to the largest single contributor, among all commodities accounting for 110 bps of total index returns. The soybean complex, including meal and oil accounted for 210 bps of returns. Brent crude (100 bps) declined to the third largest single commodity contributor, behind soybeans and gold. Livestock remained the primary detractor from total returns, -90 bps.

Energy (Index weight: 30% of BCOM.Performance: October -2.7%, YTD +2.3%. Spot +27.6%) *Note index weights are the YTD average

October Welcomed Crude Oil Back Above $50 For Awhile

PERFORMANCE DRIVERS

$50 Welcomes Back WTI With Flattening Curves and Record Longs. Continued inklings from OPEC of the end of "drill-at-will" boosted the Bloomberg Energy Subindex to the highest level since November 2015 early in October. By the end of the month, the realities of the global glut and producers' need for revenue, along with the longest period in the $50 a barrel handle for WTI crude oil since July 2015, brought out the responsive sellers. The Bloomberg Energy Subindex ended October with a monthly decline of 2.7%, dropping 3.2% on the last day of the month which lessened the 2016 increase to 2.3%. The 2016 spot gain was 27.6%.

Natural Gas The Lone October Energy Gainer

The 2.2% monthly increase in the Bloomberg Dollar Spot Index weighed on energy prices by the end of October. Energy futures curves moved little in the month, but remained on the top of the shift-away-from-contango leader board in 2016, indicating potential improvement in the high negative roll yield near 27%.

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Bloomberg Commodity Index (BCOM) Tables & Charts October 2016 Edition

Diesel Leading 2016 Energy Gainers Seen as Fed Tightening Fodder. Energy declines in October were led by the 4.2% decline in the Bloomberg Brent Crude Subindex, but were evenly distributed with few outliers. The beginning of the Northern Hemisphere heating season kept heating oil atop of the energy leader board with a spot price change near 36% in 2016 at the end of October. Synonymous with diesel, which has a direct correlation with the trucking industry and thus, organic economic growth, heating oil/diesel leading energy gainers can be considered Fed tightening fodder. The Bloomberg Heating Oil Subindex ended the year through October wit