Looking to make money in commodity markets in the fourth quarter? Buy coffee and natural gas.
Those two components of the Reuters-Jefferies CRB index, on a historical basis at least, have shown the strongest average returns in the fourth quarter since 1999, according to Reuters calculations.
Since 1999 coffee prices have risen an average of 17 per cent in the fourth quarter, while natural gas tends to rise 9.9 per cent.
On the downside, crude oil , copper and heating oil drag prices lower and, despite 16 of the 19 components of the CRB rising, the index as a whole typically loses 1.7 pct in the fourth quarter.
"Drawing conclusions from this kind of data has its risks, especially with energy, as it is particularly sensitive to geopolitical events which can distort any quarter," said Mark Pervan, senior commodities analyst at ANZ.
"But there are certainly some seasonal trends. On the energy side, the U.S. winter is peak demand for heating oil and natural gas, but the impact of weather on gas demand tends to be more immediately felt and therefore, on price."
A seasonal pattern is fairly apparent in some charts. In the case of coffee, seven of the past 10 fourth quarters have seen gains, while crude oil has seen six falls and four gains.
Toby Hassall, an analyst at Commodity Warrants Australia, said crude's tendency to fourth quarter weakness resulted from consumers drawing down stocks they had built ahead of the northern hemisphere winter.
He added that consumers also tended to sell down inventory at the end of the year to avoid taxes in some countries and from carrying high levels of stocks through to a new financial year.
In the case of agricultural products, seasonal scarcity and oversupply and the vagaries of harvest and weather influence prices.
"If you are looking at coffee, it is pretty clear that you have got that seasonal influence coming in on the demand side as you move into the northern hemisphere winter period, so that is a positive seasonal factor," he said.
Base metals were another area that showed seasonal patterns and the fourth quarter is seen as a weaker period for copper, although the trend in nickel, up 5.4 per cent in the period on average, is towards higher prices.
"European stainless steel mills tend to restock in the fourth quarter and that will sway supply and prices," Mr. Pervan said.
He added that strength in gold , up 5.1 pct on average in the fourth quarter was unsurprising, given the wedding season in India and Christmas gift demand. Additional factors are the United States graduation season in the first quarter and the summer wedding season in the West.
- Coffee NYM JUL1 (Arabica)$1.22+0.01(+1.20%)
- Henry Hub Natural Gas Front Month Futures$2.14+0.06(+2.98%)
- Crude Oil Front Month Futures$45.99-0.04(-0.09%)
- Copper High Grade Front Month Futures$2.27+0.05(+2.23%)
- Heating Oil Front Month Futures$1.38-0.03(-1.83%)
- Gold Front Month Futures$1.29K+28.20(+2.23%)
- Updated April 29 4:01 PM CDT. Delayed by at least 15 minutes.