Armajaro Commodities Fund was up nearly 2 percent in June but is still down under 1 percent on the year, according to an investor letter reviewed by ValueWalk.

Copper Metals

Armajaro made its money in precious metals and corn while wheat, a correlated crop, led to losses along with tin, which is exposed to economic strength.

Metals price drops on unusual foreign exchange financing activity

Some unusual activity in the financing of currency trading related to copper and aluminum led to a temporary drop in prices, the fund letter notes. While copper prices moved steadily higher last month after initially declining in light of reports of warehousing fraud at Qingdao port in China, the real news was in a foreign exchange financing deal. Here an onshore trading company allegedly pledged copper and aluminum multiple times with various banks to gain access to cheap FX funding.  This resulted in a sharp (and artificial) fall in prices as participants feared inventories would flood the market. However, prices recovered mid-month as the lowest combined exchange inventories since October 2008, a weaker US dollar and short covering buttressed prices higher, the letter noted.

Geopolitical tensions affecting precious metals’ prices

Escalating geopolitical tensions, particularly in Iraq, alongside a weaker US dollar was the reason for gold’s move higher last month, the letter said. While the June FOMC did not contain major surprises, the general tone was more dovish than expected which in turn weakened the US dollar and boosting gold prices. But it was primarily Iraq that was the catalyst for gold’s rapid assent above $1,300. This spurred safe haven buying with the move higher exacerbated by elevated short positioning in the market, who were squeezed as the market moved higher, forcing many to abandon their short exposure.

Commodity price changes

Soybean and corn prices capitulated at month end, with bulls throwing in the towel, following the USDA’s June Quarterly Stocks and Plantings report. Soybean prospective plantings were the major shock, printing a record large acreage and substantially above consensus, driving prices lower. But it wasn’t just the beans. Projected corn supply also exceeded consensus expectations suggesting the underlying weakness of domestic feed demand. The report was very bearish new crop prices, meanwhile, favorable growing conditions continue in the US which should weigh on prices further, the report noted.