Cotton topped the list of best-performing commodities in August as speculators piled into a market they saw as oversold, while corn and silver emerged as the next-biggest gainers and natural gas the main loser. Cotton finished the month up nearly 10 percent, and corn rose about 8 percent as unfavourable weather reinforced supply concerns. Silver gained about 8 percent as an alternative play to gold.
Natural gas lost 22 percent, its biggest drop in two years, as strong US production added to already high stockpiles of the fuel. The Reuters-Jefferies CRB index of 19 commodities shed almost 4 percent as crude oil - its main component - fell with natural gas. Analysts said energy prices were also weighed down by concerns that the US economy, the world's largest, was lagging expectations.
Oil fell 9 percent - its largest loss in three months - as US economic data failed to inspire investors. Markets will watch August job numbers due on Friday for a clearer indication of whether the economy is improving. "The (oil) market is cautious ahead of the big jobs number on Friday," Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago, said.
Cotton's benchmark December contract in New York settled down 0.23 cent on Tuesday at 86.20 cents a lb. For the month, it was up 7.44 cents, or 9.45 percent. Cotton seldom leads gains in commodities, which are usually dominated by oil, metals or grains. It hit two-year highs for two days in a row on speculative fund buying evident through most of August after touching five-month lows in July.
Analysts said speculators began buying cotton this month on the view that the fiber had been oversold, though some believed it had now risen too much and was due for a correction. "It's extraordinarily frothy in cotton," said Sharon Johnson, cotton expert for First Capitol Group in Atlanta. But there are also investors who think the rally may not yet be over because open interest remains below March 2008 levels, when prices last extended beyond $1 per lb.
Open interest in cotton in March 2008 exceeded 300,000 lots. Total open interest in cotton stood at 216,862 lots as of August 27, from 215,723 lots previously, the exchange said. Corn matched the 14-month highs of the previous session and its gains in August were the second largest in 10 months. US corn's front-month contract, September, finished down 1 cent at $4.24-1/2 per bushel. For the month, it was up 31.75 cents, or 8 percent.
Grain futures have roared higher this summer as a drought in the Black Sea region, too much rain in Canada and a mix of unfavourable weather in the 27-country European Union have forced downgrades of 2010 crop forecasts. US corn also had support from disappointing yields in early-harvested fields in the United States that gave momentum to speculation that production estimates will fall.
In natural gas, the front-month October contract rose 0.4 cent on the day to settle at $3.816 per mmBtu. But for August, the contract lost more than $1 as high supplies and the coming end of summer put the gas market on the defensive.
Although hotter weather this week from Texas to New York triggered some physical buying of natural gas, few traders expect much upside from the market unless a Gulf of Mexico storm disrupts production. With summer winding down, analysts said gas storage levels were comfortable with production remaining at its highest in nearly 40 years.
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