February represented the eighth straight month of losses in the Commodities space, however the pace of decline seems to have slowed dramatically. Coupled with potential unexpected inflation, some predict commodities could be poised for a turnaround.

Despite a continuation of lower prices across the Commodities markets during February (the Dow Jones AIG Commodity Index finished down 4.43%), the pace of decline seems to have slowed considerably. Andrew Karsh, Co-Lead Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, said, "Commodities had their least negative month since the start of the recent fall in July 2008. This flattening of downward price momentum even amid worsening economic news, combined with the ongoing cuts in production and infrastructure investment, reinforces our view that a bottoming in the cycle is near. Taking into account the ever increasing value of announced global stimulus spending, the growing potential for unexpected inflation could lead to a significant rebound in commodity prices."

"We have seen significant interest from clients in using commodities to hedge against inflation", Co-Lead Portfolio Manager, Christopher Burton, added. "Institutional investors recognize that amid reduced liquidity in many alternative investments, the commodity futures markets have remained liquid with transparent pricing. While Treasury Inflation Protected Securities (TIPS) also offer investors inflation protection, the duration component of these securities may hurt these investors if there is a selloff in US government bonds."

Overall, commodities prices fell sharply mid-month but recovered at month end. Several commodities posted healthy returns for the month, including Sugar, which was February’s strongest performer, gaining 5.95% on news of India’s decline in production as well as increased demand from ethanol manufacturers. Silver continued a four month positive streak, gaining 4.11% on investor demand based on its perceived safety. Cotton suffered the most, falling 14.24% on fears of declining global demand as well as pressure from a strengthening US dollar.