Following the close of 2024, the S&P GSCI continued its strong performance into the new year, ending January 2025 up 3.3%. As we move deeper into Q1, we dig into the reasons behind the S&P GSCI’s leaders and laggards in 2024 and the seasonality inherent to commodity futures performance.
In 2024, the top three performers were cocoa, coffee and gold, up 341%, 87% and 27%, respectively. Cocoa futures’ outstanding performance, driven by a perfect storm of poor weather and black pod disease, exceeded even bitcoin, up 122%, and the S&P 500^®
, up 25% for 2024. Despite this, the world’s top cocoa-growing countries are scaling back cocoa production due to farmers’ inability to fully reap the benefits of global price increases. Further depressed supply, as farmers shift their focus to more profitable crops, could lead to a continued cocoa rally well into 2025 and beyond. Coffee faces a similar future, with persistent drought conditions in Brazil.Meanwhile, gold, up 27% in 2024, has proven to be the best-performing asset in the 21^st century, with an annualized return of 8.5%, compared to the S&P 500 annualized return of 7.7%. Gold continued to reign as a favorite for investors seeking safety during economic and political uncertainty.After Trump was elected in November, concern over wide-reaching tariffs has pushed gold traders to fly gold from London to New York. Fearing potential gold liquidity shortages in London, the primary spot market for gold, traders are driving gold futures prices to a premium. The friction inherent in the market for physical gold, including the difference in gold bar size for settlement in New York and London, indicate the premium in the futures market is not likely to be eliminated through arbitrage. The S&P GSCI Gold reflects this premium. Alternatively, the S&P GSCI Gold Covered Call offers a view into a strategy that could allow for income to be generated from an otherwise “unproductive” asset.
Looking ahead to Q1 2025, seasonal impacts and demand imbalances on certain commodities, such as heating fuels and agricultural goods, continue to draw attention. According to the U.S. Census, about 47% of U.S. households heat their homes with gas.¹ Given the polar vortex sweeping through the U.S., heating oil futures prices are being bid up. In January 2025, the S&P GSCI Heating Oil TR was up 4.9%.Strong winds and an increasing number of storms mean severe temperatures may hit areas in the U.S. South that are ill-equipped to handle extreme weather. Local supply shortages from supply chain disruptions, aging infrastructure or lack of sufficient inventory can all increase spot prices and spur commodity traders to hedge against them.Livestock, particularly live cattle, also typically perform well during the winter months, as heartier meals and traditional holiday fare become popular. The S&P GSCI Live Cattle TR was up 5.2% in January 2025. Freezing temperatures in the Midwest and Central Plains have kept cows lean; meanwhile, the USDA has unexpectedly continued its suspension of live cattle imports from Mexico due to parasites. Despite this strain on supply, consumers have responded to increased prices with only modest levels of substitution. Per capita beef consumption in Q1 2025 is expected to maintain its level at 14.9 pounds per year, according to the USDA.²While the S&P GSCI measures the performance of the world’s largest commodities, roll yield dynamics can have a significant impact on returns. This is particularly important for commodities that exhibit seasonal performance trends. The S&P GSCI holds the front month contract and rolls into the next month’s contract upon expiry. When the next month’s contract price exceeds that of the front month contract—a situation known as contango—this results in negative roll yield (buying high and selling low). The S&P GSCI Dynamic Roll takes a different approach, rolling into contracts along the futures curve based on implied roll yield. Variants of the S&P GSCI Dynamic Roll include the S&P GSCI Dynamic Roll Equal Weight Select, which equally weights the most liquid 14 commodities of the S&P GSCI, and the S&P GSCI Dynamic Roll Risk Weight Index, which applies a risk parity concept to each commodity sector. Exhibit 4 shows how these indices compared over the past 20 years, including some periods of back-tested performance. ¹ United States Census Bureau. “Why We Ask Questions About Home Heating Fuel.” Accessed January 2025.² Knight, Russell, Hannah Taylor, William Hahn, Adriana Valcu-Lisman, Angel Terán, Mildred Haley, Grace Grossen and Brian Bourquard. “Livestock, Dairy, and Poultry Outlook: January 2025.” USDA. Jan. 16, 2025.More By This Author:Do Active Funds Outperform In Less-Efficient Markets?
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