The weekly returns of select commodities, a set of agricultural, metals and energy products based on their spot prices are calculated to look at the performance of commodities as an investment alternative. There are a number of factors that affect the returns of the commodities which not only emanate from the domestic front but also reflect the global demand-supply equations.
While it is true that the returns delivered in the past are not a reflection or indication of the returns that would accrue in the future, it is nevertheless interesting to compare the same and analyze these differences.
Returns
Turmeric, the golden spice and Red Chilli, the colourful pungent spice brought 5.5 percent returns in the week ending on 20th November. Except coriander, all spices witnessed a rise in price by the end of the week. Pepper traded at `22,006 in the spot market of Kochi on the last trading day of the week. The production next year according to the International Pepper Community (IPC) projections is at 3,09,952 tonnes as against 3,16,380 tonnes estimated for 2010.
According to the Solvent Extractors’ Association of India, import of vegetable oil during oil year 2009-10 (Nov.’09 to Oct.’10) increased by 7% to 92.4 lakh tons from 86.6 lakh tons for the same period of last year. The total import of vegetable oils i.e. edible oil, non-edible oil and vanaspati for the year 2009-10(Nov.’09 to Oct,’10) is a record import since import opened in 1994 and reported at 92.4 lakh tons valued at Rs.38,000 crores.
The main reasons for increase in import of vegetable oil noted by the Association include: increase in per capita consumption of edible oils with rise in income and notable increase in institutional consumption; high price elasticity; zero import duty on crude edible oil and very nominal duty on refined palmolein have favoured the import; govt. schemes like mid-day meals, subsidized oil and NRGEA also boosted the demand for edible oils; depreciation of Dollar v/s. Rupee has made import more attractive; disparity in domestic seed crushing leading to poor capacity utilization and accumulation of stock in the beginning of the season; the profit margin of oilseeds processors deteriorated severely in new season and many plants were operating at much lower capacity to minimize the losses, resulted in to higher import during first quarter of the oil year.
Crude oil prices moved southward by the end of the week closing at ` 3715 per barrel. China increased bank reserve requirements to fight high inflation. Copper ended down this week, the steps by China to slow its excessive growth rate and lingering debt troubles in Ireland stoked investor concerns about demand for industrial metals.
Methodology
Weekly return for each commodity is calculated as ln (price on w/price on w-1) where w is the weekend day and w-1 is the weekend day of previous week.
