At a time when U.S. equities are trading near a record and the dollar is having its best start in three years, commodities will finish this quarter little changed from where they were at the end of 2012.

The Standard & Poor’s GSCI gauge of 24 raw materials will be at 644 at the end of June, 1.7 percent lower than now, according to the median of nine investor and analyst predictions compiled by Bloomberg. The index rose 1.3 percent this year, the worst start since 2010. Arabica coffee, silver and nickel will gain as cotton, crude and natural gas fall, analyst forecasts show. Investors had $132 billion tracking commodity indexes in February, Barclays Plc estimates.

Supplies of everything from copper to sugar to oil are now catching up with or exceeding demand after the S&P GSCI’s almost fourfold advance since the end of 2001 spurred new mines, wells and crop acreage. While the International Monetary Fund expects global economic growth to accelerate to 3.5 percent this year, from 3.2 percent in 2012, the Washington-based group cut its estimate three times since July. The 17-nation euro area already tumbled back into its second recession in three years.

“No one is really concerned we’re going to have any shortages,” said Bart Melek, head of commodity strategy at TD Securities Inc., the Toronto-based company ranked by Bloomberg as the most accurate forecaster on Brent oil and third-best in industrial metals over the past two years. “The big complaint is the inventories are probably a bit too high. It’s difficult for us, given the supply configurations across the commodity spectrum, to say that we’re going to see a lot of upside.”

Bull Market

The S&P GSCI beat the MSCI All-Country World Index of equities, the U.S. Dollar Index and the Bank of America Merrill Lynch Global Broad Market Index of bonds in six of the past 11 years. Commodities entered a bull market in August as the worst U.S. drought since the 1930s drove crop prices to records and oil rallied. The gauge retreated about 4 percent since then and ended 2012 at 646.58.

Nine of the 24 items in the S&P GSCI are in bear markets, having declined at least 20 percent from their recent highs. They account for less than 17 percent of the index weightings, with New York oil, gasoil and heating oil still in bull markets.

Dow Record

The Dow Jones Industrial Average reached a record yesterday and the S&P 500 climbed to its all-time closing high last week. The Dollar Index, which tracks the currency against six trading partners, advanced 3.7 percent since the start of January. The S&P GSCI is trading 27 percent below the peak it reached in July 2008.

Commodities revenue at the 10 largest banks fell 24 percent to $6 billion last year, the first drop since at least 2008, according to Coalition, an analytics company. Goldman Sachs Group Inc. ranked first in 2012, followed by JPMorgan Chase & Co. and Morgan Stanley, the London-based group estimates.

Smaller price swings may be curbing profit. The 100-day measure of volatility in the S&P GSCI dropped to 11.5 on March 18, the lowest since 1996, data compiled by Bloomberg show.

The commodities supercycle, or longer-than-average period of rising prices, is over, Citigroup Inc. said in a November report. China, the biggest user of everything from copper to cotton to coal, is slowing and years of higher prices encouraged more supply, the bank said. The retreat in raw materials in February reinforced that view, Ed Morse, the global head of commodities research in New York, said in an e-mail March 25.

Commodity Assets

Commodity assets under management fell 3 percent to $410 billion this year, now about 9 percent below the record $451 billion reached in April 2011, according to Barclays. Hedge funds and other large speculators were their least bullish on commodities in four years by mid-March and are betting on lower prices for everything from hogs to copper to wheat, U.S. Commodity Futures Trading Commission data show.

Trading one commodity against another or wagers across different delivery dates for the same raw material are the best options in the next several months, said Jason Lejonvarn, a commodities strategist at Hermes Investment Management Ltd., which oversees $2.3 billion of raw-material assets.

The economic outlook is too weak for all commodities to rise together, and a stronger dollar combined with accelerating supply will curb gains for copper and oil, Barclays said in a March 21 report. It recommended betting against U.S. natural gas and selling industrial metals should prices rally. Investors can still profit from individual commodities, a strategy that probably will beat indexes this year, the bank said. Hedge funds increased net-longs across 18 commodities by 10 percent in the week ended March 26, CFTC data show.

TVs, Batteries

Silver will average $31.95 an ounce in the second quarter, or 14 percent more than now, according to the median of 20 analyst estimates compiled by Bloomberg. Silver benefits from both investor demand as well as economic growth, because 53 percent of the precious metal is used in everything from televisions to batteries.

Platinum will average $1,700 an ounce, a gain of 6.9 percent, the median of 17 forecasts shows. Holdings in exchange- traded funds backed by the metal reached a record last week, according to data compiled by Bloomberg. Barclays expects output to drop to a 13-year low as mines in South Africa close.

Arabica will average $1.57 a pound, 14 percent more than now, based on the median of six estimates. Coffee roasters are adding more of the beans to their blends at the expense of the robusta variety after prices fell 42 percent since January 2012. Nickel will average $18,000 a metric ton, or 9.4 percent more than now, the median of 22 estimates shows.

Cotton Surplus

Investors may also profit by betting on declines. Cotton will average 76 cents a pound in the quarter, or 13 percent less than now, according to seven predictions. Supply will outpace demand by 1.73 million tons in the 12 months starting Aug. 1, 51 percent more than previously estimated, Cotlook Ltd., the Birkenhead, England-based research company, said March 25.

Gluts are building in other commodities as well. Copper stockpiles tracked by bourses in London, New York and Shanghai are at the highest in more than nine years, data compiled by Bloomberg show. Increased mine output means supply will outpace demand for the first time in four years in 2013, Deutsche Bank AG estimates. Barclays is predicting excess production in copper, zinc, lead, aluminum and nickel this year.

Corn and wheat will return to surpluses as U.S. production recovers after last year’s drought and higher prices spur farmers to boost acreage, Rabobank estimates. Supplies of soybeans, coffee, sugar and palm oil will also outpace consumption, the bank says. The S&P GSCI Agriculture Index of eight commodities retreated 21 percent since July.

WTI Record

Oil demand will expand by about 900,000 barrels a day this year as output gains 2.1 million barrels a day, Stockholm-based Nordea Bank AB predicts. Supply lagged behind consumption by the smallest amount in five years in 2012, the International Energy Agency estimates. West Texas Intermediate, the U.S. benchmark, is trading 34 percent below the record $147.27 set in 2008.

WTI will average $94 in the second quarter, or 3.2 percent less than now, the median of 35 estimates shows. U.S. natural gas is expected to average $3.45 per million British thermal units, from $4.026 now, based on 20 predictions.

“It’s really hard to be excited to see what’s going to drive the market up from here,” said Lejonvarn of Hermes. “Commodities will be roughly flat for the year. We’re still waiting for that growth phase to take off. You’re at a point when you’re waiting for recovery to be demand-led.”

Source: Bloomberg