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Livestock leads commodities in September as China buoys demand, gold retreats

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Livestock leads commodities in September as China buoys demand, gold retreats

Livestock futures rallied in September as expectations that China would ramp up U.S. pork purchases amid a deadly pig disease buoyed lean hogs demand, while a de-escalation in trade war rhetoric and mixed signals from the Federal Reserve softened appetite for precious metals.

The livestock subindex led the S&P GSCI index of 24 commodities with an 11.8% monthly increase, that reduced year-to-date losses to 1.9%. September's gains were driven by a 14.3% jump in lean hogs and an 11.5% rise in live cattle.

China said in September that it will exempt certain U.S. agricultural products, including pork and soybeans, from additional import tariffs ahead of high-level trade talks with U.S. officials in October. Additionally, reports emerged that China was looking to increase purchases of U.S. pork amid an outbreak of African swine flu, a deadly pig disease that has raised pork prices in the Asian country by more than 70% so far this year.

"Prices for summer [2020] hogs are nearly where they traded last summer when cash prices were 30 dollars higher than they are today. The board has priced a lot of this in, now we wait to see if we actually get a deal signed," said John Payne, senior futures and options broker at Daniels Trading. "China has had tariffs on U.S. pork going back to 2015, there is an expectation those will go away with a deal."

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Optimism that planned trade talks would go ahead in October and some dissent from Fed members about the need for further rate cuts crimped demand for safe haven assets such as gold. After gaining 6.9% in August, the precious metals subindex was the only loser in September among the commodity complex, with a 4.0% monthly decline, trimming this year's gains to 14.4%.

"Early September agreement for further trade talks in October led to some risk-off sentiment," said Matthew Piggott, head of metals and mining research at S&P Global Market Intelligence.

"Expectations for a rate cut at the Fed meeting mid-month were already baked into the price, and perhaps the markets thought that the rate cut didn't go deep enough... Gold has already dropped below the 50-day moving average, which is bearish for the coming weeks if it doesn't rebound and hold above $1,500 per ounce."

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The petroleum subindex was flat despite a rally in crude prices in mid-September following drone attacks on Saudi Arabia's processing plants. The event, said to be the oil sector's "biggest outage in world history," nearly halved the kingdom's oil production and knocked off approximately 5% of global oil supply.

But the spike in oil prices was tempered by reports that Saudi Arabia had managed to quickly restore much of the production lost in the attacks, easing fears of a crude shortage, Fiona Boal, head of commodities and real assets at S&P Dow Jones Indices, wrote in a research note. "Most global economic indicators point to a worldwide slowdown in economic growth, led by business investment and manufacturing, which does not augur well for oil demand."

The broad S&P GSCI index gained 1.7% in September, taking its year-to-date advance to 7.8%. That compares with an 18.7% gain for the S&P 500 index of shares this year through September.

S&P Dow Jones Indices and S&P Global Market Intelligence are owned by S&P Global Inc.