- Barclays Capital suggests risks of a global recession are increasing
- In such an environment commodities deliver variable performance
- Cattle, hogs, gasoil and wheat most at risk in current environment
- Platinum, cotton, lead, carbon and cocoa among the better placed commodities

By Chris Shaw

In the view of Barclays Capital, the failure of European politicians to deal with debt issues in the region means another financial crisis has become more likely than it appeared even a few weeks ago. This suggests the risks of a global recession are increasing.

In the previous financial crisis that began in 2008 all commodity markets suffered but there was a wide range of performance between different markets and sectors. As examples, Barclays notes precious metals gained during the GFC and livestock and agricultural markets lost little in relative terms. In contrast, the base metals and energy markets saw the biggest falls in prices.

Looking at the current situation, Barclays has attempted to assess the apparent degree of vulnerability of the various commodity markets using currently available market data. This includes recent price movements, how linked the commodity is to economic cycles, the proximity of the commodity price to cost floors, the level of leverage to emerging market demand and the degree of speculative overhang in the individual markets.

This analysis leads Barclays to suggest the commodities most exposed to a recession are feeder cattle, lean hogs, gasoil, live cattle and KBOT wheat. Prices for all of these commodities have yet to fall as far as other markets, speculative positions remain relatively high and these markets typically have a fairly strong link to the economic cycle.

The better placed commodities in the view of Barclays are platinum, cotton, lead, carbon and cocoa. These commodities have in general already seen large price falls and have relative low levels of linkage to the global economic cycle. They also enjoy good support from emerging markets.