Commodities Outlook:
The Battle Between Deflation & Reflation
May 2009
Michael Lewis, Managing Director, Global Head of Commodities Research
michael.lewis@db.com; London (44) 20 7545 2166
Sector
3M View
Energy
Industrial
Metals
Precious
Metals
Agriculture
Agriculture
Comment
Energy
We believe OPEC production cuts and a less hostile economic environment have established
a strong floor to crude oil prices. However, we remain concerned towards the ability of the
global economy and specifically the US and China to find a self-sustaining recovery. As a
result, we expect OPEC will need to take further action to defend oil prices into the second
half of the year. Indeed history would suggest it can take up to 12 months from the start of an
OPEC production cutting cycle to stabilise oil prices. If this is repeated in this cycle then it
would imply oil prices stabilising in the fourth quarter of this year.
Industrial Metals
We expect the negative implications on economic output from the deepening financial crisis
will drive metal prices lower. After a rebound in Chinese economic activity in the first half of
this year, we believe the sector is still vulnerable in the short term to measures to curb
Chinese loan growth and a slowdown in fixed asset investment growth. However, we believe
fundamentals will start to improve as global equity markets recover, US growth turns positive
and as the market prepares for the start of a new Fed tightening cycle. Moreover, production
cuts, most notably in zinc and nickel, provide upside price spike risk in these markets when
demand eventually recovers, in our view. For time being, we believe copper has overplayed
the reflation theme. Not until US GDP hits rock bottom and US industrial production growth
starts to turn high will we expect the industrial metals complex to start to out-perform the
precious metals complex. We expect this to occur from the fourth quarter of 2009.
Precious Metals
We believe the rapid decline in real interest rates is providing a more supportive backdrop to
gold prices into 2009. We believe further advances in the gold price will require additional US
dollar weakness. One scenario could be another relapse in global equity markets, which
prompts the US Federal Reserve to adopt additional quantitative easing steps. However, as
risk aversion moderates and in the absence of further US dollar weakness we believe gold
prices are still trading rich relative to EURUSD.
Agriculture
Like many commodity sectors, agricultural returns have suffered one of their deepest
corrections in over 30 years during 2008. As a result, agricultural prices are trading at a
significant discount to their long run historical averages in real terms. Even so fundamentals in
some markets still remain tight and we would therefore view some upside potential in this
sector during 2009 if fundamentals do not slacken from here. However, we expect weak oil
prices will constrain price advances in this sector during this year, with any rallies likely driven
by adverse supply shocks.
2
The Re-Pricing Of Commodities: Index, Price, Spread & Vol
#1 Commodity Indices
#2 Baltic Dry Index
Down 70% from the peak
80
12000
100
Nov-74
80
Oct-80
#3 Nickel-To-Gold Ratio
Down 85% from the peak
Ratio at 26 year low
10000
60
8000
Oct-90
60
Oct-97
40
1980-1982
recession
40
6000
2000-2001
recession
1990-1992
recession
4000
20
Nov-00
S&PGSCI peak = 100
2000
20
0
4
8
12
16
20
24
28
32
36
40
Jul-08
Number of weeks after S&PGSCI peaked
0
1985
1988
#4 Platinum-To-Gold Ratio
1994
1997
2000
2003
2006
2009
0
1973
1977
#5 Crude Oil Contango
1.9
Implied roll return hits -70%
10
70
5
60
1985
1989
1993
1997
2001
2005
6M implied vol
50
Nickel
-5
Copper
40
-10
1.3
Super
contango
-20
1.0
-25
1980
1984
1988
1992
1996
2000
2004
2008
Source for all charts: DB Global Markets Research, Bloomberg
Gold
30
-15
0.7
1976
2009
WTI
0
1.6
1981
#6 Commodity Volatility
80
15
Ratio hits 15 year low
2.2
1991
20
10
1M vs. 12M WTI time spread
-30
1999
2001
2003
2005
2007
2009
0
2003
2004
2005
2006
2007
2008
2009
5
The New World Order For Commodities


The emergence of China and India as new super-commodity consumers.
–
Urbanisation
–
Rising living standards
Underinvestment in productive capacity.
–

The depreciation of the US dollar.
–

Low oil prices & political instability
The increasing frequency of extreme weather events.
–

Current account & budget deficits
Elevated levels of geopolitical risk.
–

Tightening credit conditions
Global warming
The migration of new risk capital into the commodity complex.
–
The search for yield, diversification and inflation protection.
6
Reflation Watch: S&P500
Equity Markets Recover Several Months Before The Recession Ends
220
Index
Index
220
200
200
180
180
160
160
140
140
120
120
100
-300 -250 -200 -150 -100
-50
0
50
100
150
200
250
100
300
Number of days before/after S&P500 troughs
Recession
Current episode (assumes 9-Mar-09 as S&P500 trough)
Average of S&P 500 around US recessions since 1948
Source: DB Global Markets Research, NBER, Bloomberg
Outlook


Since 1948, the S&P500 has tended to turn higher six months before the US recession ends.
If sustained, the rally in the S&P500 today would, in our view, suggest that equity markets are calling for the US to
leave recession from September 2009. We believe this is too optimistic and consequently view equity market rallies
during the second quarter as based on shaky foundations.
7
Positioning For Reflation
Turning Points In US Economic & Financial Indicators Around US Recessions
Outlook




The last row of the table above examines at what point during 2009 the various economic indicators will turn assuming
the US recession ends in December 2009.
In April, the US recession entered its 17th month. As a result, it surpasses in length the 1973-75 and 1981-82
downturns and represents the most durable downturn since the Great Depression.
Since we expect US GDP growth to resume only in January 2010, the length of this recession will be on a par with the
15 economic downturns that occurred between 1857 and 1919.
We find that the index of US leading indicators and the S&P500 have been the most forward looking indicators in
predicting an end to a US recession turning between five to six months before the economy moves out of recession.
8
Global Oil Demand Under Attack
IEA Estimates For Global Oil Demand
Estimates For Global Oil Demand By Agency
88.5
Forecast global oil demand by year
88.0
mmb/d
2008
2009
3.5
mmb/d
IEA
87.5
OPEC
87.0
EIA
2.5
Actual
86.5
1.5
2007
86.0
85.5
0.5
2006
85.0
-0.5
84.5
84.0
Forecasts at start of years 2001-08 vs actual outcome
-1.5
Current forecasts
for 2009
83.5
83.0
Jul-05
DB
-2.5
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
2001
2002
2003
2004
2005
2006
2007
2008
2009e
Month IEA forecast w as made
Source: IEA
Source: IEA, EIA/DOE, OPEC, DB Global Markets Research
Outlook


Since 2005, official forecasts for global oil demand have been too optimistic.
We estimate that global oil demand growth is equivalent to world GDP growth less 2%. Since we expect global GDP to contract by
1.9% this year it implies global oil demand could fall by almost 3%. Hence downside risks to global oil demand persist in our view.
12
Oil Prices & OPEC Action
OPEC Quota Reductions & The Oil Price
WTI oil price=100 in the day before quota reduction
150
Mar-93
Apr-98
Jul-98
Apr-99
Feb-01
Apr-01
Sep-01
Jan-02
Nov-03
Apr-04
Nov-06
Feb-07
140
130
120
110
100
1998
90
80
2001
70
60
-14
-7
0
7
14
21
28
35
42
49
56
63
70
Number of trading days before and after OPEC quota reduction
Source: DB Global Markets Research, OPEC, Bloomberg
Outlook

OPEC has a good track record in defending oil prices. However, their success evaporates when global growth is under
attack as occurred in 1998 and 2001. This year is proving to be no different as OPEC struggle to cut production as fast as
world growth is slowing.
13
Oil Prices & OPEC Production Cuts
OPEC Quota Cuts & Crude Oil Prices
Source: OPEC, DB Global Markets Research, Bloomberg
Outlook



OPEC production cuts in 1998 and 2001 totaled 4.5 and 5.0mmb/d respectively. The quota reduction cycle lasted for 12
months and oil prices did not stabilise until just after the last cut in quotas.
If this is repeated today it would imply production cuts continue until September 2009 and that oil prices will stabilise in the
fourth quarter of this year.
However, oil prices can recover rapidly in the early stages of an economic upturn. For example, in 1999 and 2002, oil prices
rallied between 35-80% within six months of the last production cut.
14
Oil Production Declines Naturally Over Time
Global Oil Production Forecasts
m b/d
95
Onstream
Reserves grow th
Under developm ent
Probable
Other discoveries
Yet-to-find
Non-OPEC Decline Rates 2000-2008
UK
US Offshor e
90
Au strali a
Nor way
85
Non -OPEC aver ag e
M idd le East
80
Africa
75
Other Asi a
Can ad a
70
US Onshor e
Lati n America
65
Chin a
60
2008
FSU
2009
2010
2011
2012
2013
2014
2015
0%
Source: Wood Mackenzie, DB Global Markets Research
5%
10%
15%
20%
25%
Source: Wood Mackenzie, DB Global Markets Research
Outlook

Wood Mackenzie’s estimates that in the absence of new investment, the global oil production base will decline from 86mmb/d

to 75mb/d by 2015 as a result of accelerating depletion rates particularly outside OPEC.
Indeed, given that in recent year’s industry production in mature OECD markets has increasingly been dominated by smaller
E&P companies, many of whom are now suffering from a lack of liquidity given the credit crisis, it would seem reasonable to
assume that decline rates in mature oil producing regions are almost certain to accelerate.
16
Distortions In The Gold Market
Gold Decouples From USD…
…A Flatter Forward Curve…
…And Higher Volatility
11-Jun-2008
Gold trades rich
relative to the USD
Line of best fit
17-Apr-2009
Source for all charts: DB Global Markets Research
Outlook

Price: The first chart measures how far the gold price has moved away from its estimated fair value in US dollars. We measure the
divergence of the gold price from fair value by tracking the residual error derived from the EURUSD to gold price regression model. At
the beginning of this year the gold price had rallied to excessively rich levels of valuation on an FX basis.

Curve: The gold forward curve is normally in contango. However, over the last few months the forward curve has flattened
significantly such that the implied roll return has been virtually eliminated.

Volatility: Gold implied volatility has risen significantly over the past year such that it is trading close to levels prevailing in the
industrial metals’ market.
18
Gold, EURUSD & The Role Of Exchange Traded Funds
Gold Price & SPDR ETF Flows
1200
1100
EURUSD & The Gold Price
Total gold held in SPDR ETF (tonnes, lhs)
1100
Gold price (USD/oz, rhs)
1000
Gold trades rich
relative to the USD
1000
900
900
800
800
700
600
700
500
600
400
300
Jul-06
500
Dec-06
May-07
Oct-07
Mar-08
Source: Reuters, DB Global Markets Research
Aug-08
Jan-09
Source: DB Global Markets Research
Outlook



We believe physically backed ETFs have been the principle culprit in introducing distortions to the gold market. Inflows into gold
ETFs have allowed the gold price to remain at lofty levels that appear unjustified considering the strength in the US dollar.
The flattening in the gold forward curve not only reflects a collapse in global interest rates, but, also the shortage of physical
inventory brought about by the surge in ETF inflows. We believe this is also having an impact on boosting gold implied vol.
Relative to the US dollar, gold prices are still trading at rich levels of valuation.
19
US Dollar Bubbles Compared
1985 & 2000 US Dollar Bubbles
US dollar
weakness could
reappear over the
next two years.
200
USDDEM : October 1978
& June 1995 rebased to 100
1985 & 2000 US
dollar bubbles burst
180
160
140
USD hits rock
bottom in
September 2011
120
100
Oct 1978-1997
80
Jun 1995-Current
60
0
24
48
72
96
120
144
168
192
216
M onths after trough
Source: Bloomberg, DB Global Markets Research
Outlook

The upswing and subsequent downswing in the US dollar between 1995 and today bears a striking
resemblance to the 1978-1995 US dollar cycle. If history repeats itself then it implies the US dollar could face
another down-leg and hitting a new all time low in September 2011.
21
The FAI Cycle In China
China’s Investment Economy
45
China’s Export & FAI Cycles During The 1990s
Investment as a percent of GDP (2008)
40%
40
35%
35
30%
30
25%
FAI slowdown
occurs 12M later
Export
slowdown
20%
25
15%
20
10%
15
5%
10
0%
Source: CEIC, DB Global Markets Research
s
ili p
pi
ne
Export (4mma, yoy%)
FAI (4mma, yoy%)
-15%
Jun- 96 Nov-96 Apr-97 Sep-97 Feb-98
Jul-98
Dec-98 May- 99 Oct-99
Ph
Ta
iw
an
sia
al
ay
M
ne
si
a
do
In
Ko
In
C
re
a
0
di
a
-5%
-10%
hi
na
5
Source: CEIC, DB Global Markets Research
Outlook

Investment represents more than 40% of total GDP in China. This is almost double the ratio in other parts of the region. As a

result, a slowdown in FAI will have a disproportionate effect on the Chinese economy, in our view.
Historically a 1 percentage point deceleration in US-EU GDP growth leads to a 6-8 percentage point deceleration in Chinese
export growth. Since we expect G7 GDP growth to slow by approximately 4% in 2009 and Chinese export growth was just over
9% last year, it would theoretically imply Chinese export growth could drop by as much as 20%.

Since the fixed asset investment cycle lags the export cycle by around nine months and the FAI sector is three times larger than
the Chinese export sector, we believe this exposes the Chinese economy to another growth recession at the end of this year.
23
China & The Threat Of Softer Metals Demand Ahead
Fiscal Stimulus Affects 16% Of Total FAI
Others
20%
Property
developers 16%
Economi c
housing 1%
Other utilities
5%
Power grids
Other
2%
infrastructure
3%
Rural & other
housing 7%
A gr iculture
2%
Mining
4%
Source: CEIC, DB Global Markets Research
300
2009 im port s
130
250
2003-2008 average m ont hly
im ports
120
200
110
150
100
100
90
50
Road & water
transport 6%
Railway 2%
Chinese Copper Imports By Month
Manufacturing
32%
0
80
Jan
Feb
Mar
A pr
May
Ju n
Jul
Aug
Sep
Oct
Nov
Dec
Source: CEIC, Reuters, DB Global Markets Research
Outlook

At the end of last year, the Chinese government implemented a RMB4tn fiscal stimulus plan. The stimulus package is focused on

the railways, roads, waterways, power grids, agriculture and public housing sectors and accounts for 16% of total FAI.
While we see FAI growth rising from 16% to 33% in those sectors targeted to receive government support, we believe this will not
be sufficient to offset the marked slowdown occurring in FAI in the manufacturing and mining sectors, which constitute more than
one third of total FAI.

So far this year, the copper price has ignored the deterioration in global economic growth and moved solely on strategic buying in
China, in our view. For example, Chinese copper imports have surged since the end of last year. However, we expect Chinese
copper imports to collapse into the summer in response to a seasonal slowdown in demand.
24
Fed Tightening & Industrial Metals
Industrial Metals Prices & Fed Tightening
240
220
200
Journal of Commerce Metals Index
Scale of Fed tightening in
the first 18 months of the cycle:
1987: 225bp
1994: 275bp
1999: 175bp
2004: 325bp
2004 cycle
180
160
1987 cycle
Fed tightening
begins
140
1994 cycle
120
100
1999 cycle
80
-18 -15 -12 -9
-6
-3 0
3
6
9 12 15 18 21 24 27 30 33 36 39
Months before/after first tightening move
Source: DB Global Markets Research, Bloomberg
Outlook

Historically the time to buy industrial metals has been 3-6 months before the start of a new Fed tightening cycle.
25
Fed Tightening & Industrial Metals
The Winners & Losers During The Early Phases Of A New Fed Tightening Cycle
% change in price in the 12 months after the first
tightening move by the US Federal Reserve
140
120
1987
1994
1999
2004
100
80
58%
60
Average price rise
in the last four
tightening cycles
42%
30%
40
5%
20
14%
0
-4%
-20
-40
Nickel
Copper
Aluminium
Lead
Zinc
Tin
Source: DB Global Markets Research, Bloomberg
Outlook

In the early phases of a new Fed tightening cycle, nickel and copper prices have historically been the strongest performers in
terms of spot price appreciation
26
Global Agricultural Production
The World’s Top Agricultural Producers
Agricultural production in 2008-09 (million tonnes)
500
US & World Exports For Agriculture
Sugar
Soybean
Data for 2008-09
Rice
Wheat
400
Corn
Rest of world exports (million tonnes)
140
21%
US exports (million tonnes)
120
100
300
58%
80
43%
US share of
world exports
200
60
100
1%
40
10%
20
Source: USDA
ne
U
kr
ai
a
a
C
an
ad
a
In
do
ne
si
a
en
tin
Ar
g
R
us
si
zi
l
Br
a
a
In
di
-2
7
EU
na
C
hi
U
S
0
0
Wheat
Corn
Soybeans
Sugar
Cotton
Source: USDA
Outlook



We believe fundamentals in the agricultural sector remain relatively strong.
We find that agricultural prices have been able to rally even during economic downturns. However, price rallies have tended to
occur in response to a decline in planting acreage and/or droughts.
We believe lower corn plantings will provide support to corn prices this year. However, our relatively downbeat outlook for oil
prices this year removes an important ingredient to higher prices in certain parts of the agricultural complex.
27
Valuing Commodities In Real Terms
Tracking How Far Commodity Prices Are From Their Historical Averages
Expensive
66
49
12
16
16
Uranium
Copper
20
Silver
40
28
32
Lead
60
How far prices in real terms
are currently trading compared
to their average price since 1972
Crude oil
80
55
-16 -15 -15
-4
-2
-24 -24
-40
-60
-10
Nickel
-20
Soybeans
0
-43 -40
-34
Cheap
-54
Gold
Platinum
Cocoa
Zinc
Corn
Tin
Wheat
Palladium*
US natural gas*
Sugar
Aluminium
Coffee
Cotton
-80
Long run is from 1972 with the exception of platinum, palladium and US natural gas where data runs from
1976, 1988 and 1990 respectively.
Source: DB Global Markets Research, Bloomberg, Data as of April 20 2009
Outlook

We estimate that gold is the most richly priced commodity in the world since prices in real terms are trading at a
significant premium to their long run historical average.

We find that agriculture and certain parts of the metals complex are trading cheap when measured in real terms.
28
Global Grains Inventory Remain At Relatively Low Levels
Corn, Soybeans & Wheat Inventory-to-Consumption Ratio
Total available stocks
divided by daily consumption
180
Corn inventory-to-use ratio
Wheat inventory-to-use ratio
160
Soybean inventory-to-use ratio
140
Days of use
120
100
80
60
40
20
0
1965
1970
1975
1980
1985
1990
1995
2000
2005
Source: USDA
Outlook


Unlike the energy and metals complex, we have not seen a dramatic increasing in inventory building in the agricultural
complex.
Indeed global inventory-to-consumption ratios remain at relatively low levels. We believe the next major release will be the
USDA’s projections for global inventories to be published in May.
32
China’s Trade Position In Agriculture
Chinese Agricultural Imports Are Increasing
China's net trade balance in:
20000
10000
Soybeans
Corn
Wheat
Cotton
0
-10000
-20000
Rising net
imports
-30000
Tonnes (000s)
-40000
1960
1966
1972
1978
1984
1990
1996
2002
2008
Source: USDA, Global Markets Research
Outlook


China has become increasingly reliant on agricultural imports. The country may already be building strategic reserves in a
number of agricultural commodities, such as soybeans and rice.
Urbanisation and rising living standards are expected to intensify agricultural shortages over the medium term.
33
US Acreage & The Role Of Oil
US Planting Intentions
Net change in US crop acreage according
to the annual prospective plantings survey
800
700
10
Corn price (USc/bushel)
Change in acreage (million acres)
15
Crude Oil & Corn Prices
5
0
600
500
400
300
200
-5
Corn
Soybeans
Wheat
100
Cotton
Corn & wheat
acreage cut
-10
2002
Source: USDA
2003
2004
2005
2006
2007
2008
2009
Data from 2003-2009
0
0
20
40
60
80
100
Crude oil price (USD/barrel)
120
140
160
Source: Bloomberg
Outlook

The first chart tracks the net change in acreage for the four US major crops. Note these changes do not measure actual changes

in acreage but the intended changes in plantings declared by US farmers at the end of March for the next marketing year.
We find that many agricultural commodities have displayed a loose positive correlation with the oil prices, for example rubber,

palm oil, soybeans, corn and rapeseed.
Consequently, we believe a constraining factor for higher agricultural prices in 2009 could be the lacklustre outlook for crude oil
prices.
34
Commodities As An Asset Class & The DBLCI Family

Commodity indices are the most commonly used underlying for investments. Major
differences exist in terms of futures roll rules and sector allocations.

Once the investor has chosen a suitable commodity index, the exposure is obtained in the
form of a structured note, fund or swap/option.

Commodity returns are generated from spot price movements as well as from the futures
rolls (=roll yield). In backwardated markets investors generate a positive roll yield, in
contango markets investors incur negative roll returns

Deutsche Bank has created a series of award winning commodity indices:
Feb’03
Launch of the Deutsche Bank Liquid Commodity Index, DBLCI
Feb’03
Launch of the DBLCI-Mean Reversion Index, DBLCI-MR
May’06
Launch of the DBLCI-Optimum Yield Index, DBLCI-OY
Jan’07
Launch of the DBLCI-OY Broad Index
Jan’07
Launch of the DBLCI-OY Balanced Index
Jan’07
Launch of the DBLCI-MR ‘Plus’
Dec’07
Launch of the DB Commodity Harvest Index
Sep’08
Launch of the DBLCI-MR Enhanced
Sep’08
Launch of the DBLCI Long-Short Index
35
The Evolution Of Commodity Indices

The choice of commodity index needs to be aligned with the investment
objectives of the investors.
Beta Allocation Strategies
1991 - 2003
Enhanced Beta Allocation Strategies
2003 - 2007
DBLCI
- Fixed weight, fixed roll
index
- Invests in 6
commodities
DBLCI - MR
- Dynamic sector
weights
- Invests in 6
commodities
S&P GSCI
- Fixed weight, fixed roll
index
- Invests in 24
commodities
DBLCI - MR
‘Plus’
- Dynamic weight and
dynamic allocation
index
- Downside protection
DJ-AIGCI
- Fixed weight, fixed roll
index
- Invests in 19
commodities
DBLCI - OY
Balanced
- Fixed weight,
dynamic roll index
- Invests in 14
commodities
DB
Commodity
Booster Index
- Replicates
benchmark
commodity index
using Optimum Yield
Sector Focus:
DB Agriculture
Index
- Dynamic roll index
comprising 7
agriculture
commodities
Alpha Generation Strategies
2008
DB Commodity
Harvest Index
- Return from roll
yield
- Provides
exposure to
outperformance
of DB
Commodity
Booster Index
against the
benchmark S&P
GSCI SM
36
The Battle Between Spot & Roll
The Composition Of Returns In 2009
The Composition Of Returns In 2008
Spot return
10
Roll return
Excess return
0
30
Spot return
Roll return
Excess return
20
-10
10
-20
0
-30
-40
-10
-50
% returns
-20
Livestock
-30
-60
Energy
Precious
Metals
Industrial
Metals
Agriculture
% returns ytd
Energy
Precious
Metals
Industrial
Metals
Agriculture
Livestock
Source for all charts: DB Global Markets Research, Bloomberg (Data as of April 21, 2009)
Outlook


In contrast to 2008, when the lion’s share of commodity index returns’ weakness was attributable to lower spot prices, so far in
2009 contango forward curves and the implied roll return have become the Achilles heel to long only commodity index investors.
We find that while spot returns have been sufficiently large enough in the precious and industrial metals’ sectors to overwhelm the
negative roll return, this was not the case in the energy and livestock sectors, where negative roll returns have been significantly
larger than spot returns since the end of last year.
38
DB Commodity Harvest Index
Components of the S&PGSCI-LEI
Index Details
Investments via
swaps (ER +TR),
certificates, and
structured notes
and options
Summary
Components
Rebalancing
Currency
Rule based, non directional index that
seeks to generate stable alpha commodity
returns without taking direct exposure to
commodity spot prices. This strategy would
have generated impressive alpha returns
of approx. 5.5% per annum since 1997.
40%
S&P GSCI Light Energy Weighting
Natural Gas
35%
GasOil
Heating Oil
Cocoa
30%
RBOB Gas
Coffee
Sugar
DB Commodity Harvest Index takes a long
exposure to the DB Commodity Booster
Index – S&P GSCISM Light Energy and a
short exposure to the S&P GSCISM Light
Energy
25%
Brent
The long and short exposure is rebalanced
on a monthly basis to minimise the
exposure to commodity spot prices.
Further, the weight of each commodity in
the long exposure is re-set annually to
match the weight in the short exposure
10%
Available in USD, EUR and JPY
Cotton
Soybeans
20%
Zinc
15%
Corn
Nickel
Lead
Red Wheat
WTI
Copper
Lean Hogs
Silver
5%
Aluminum
Feeder Cattle
Wheat
Live Cattle
Gold
0%
Energy (39.4%)
Industrial Metals
(16.8%)
Precious Metals (5.1%)
Agriculture (30.8%)
Livestock (7.8%)
Source: Bloomberg
Outlook


The DB Commodities Harvest index not only has a zero correlation with other asset classes such as bonds
and equities, but, it also exhibits a negative correlation with the base index S&PGSCI Light Energy index.
Since the DB Commodity Harvest index is designed to be non-directional, the returns are largely independent
of spot price movements. This unique property has enabled the index to deliver strong positive returns during
downturns in commodity markets.
44
Commodity Index Scorecard
Alpha Strategies Continue To Perform
The DBLCI-OY & The DB Commodity Harvest
Total returns since the end of 2008 (%)
DB Commodity Harvest
15
10
6.0
DBLCI-OY
10
5
5
2.5
0
0
-2.0
-5
-1.5
-5
-10
-5.4
-6.4
-15
-10
-9.1
-10.6
-20
-12.0
-13.5
-15
S&P
GSCI
DBLCI
DBLCIMR
DBLCIOY
DJAIG
RJ/CRB
DBLCI- DBLCIDB
OY
MR Plus Harvest
Balanced
Index
DB
Harvest
10% TV
-25
Total returns (% mom)
-30
Jan-08
Source: DB Global Markets Research, Bloomberg (Data as of April 20, 2009)
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
Source: DB Global Markets Research
Outlook

The OY methodology enables Deutsche Bank to create non-directional, market neutral exposure to commodities. This is done by
combining the short exposure to a benchmark commodity index with an equivalent long exposure through replication of that index
using the OY methodology
–
DB Commodity Harvest Index is designed to provide market neutral stable returns at a low volatility
–
DB Commodity Harvest 10 Vol Index is designed to provide a target vol exposure to the DB Commodity Harvest
Index
43
Commodity Index Returns Scorecard
Comparative Performance Table
Total
Return*
Volatility**
Excess
Return*
Sharpe
Ratio #
maximum
8.64%
1.38%
Monthly drawdown ##
23.26%
5.14%
22.10%
-24.43%
25
24.35%
-1.92%
-7.90%
-27.14%
29
3.19%
16.69%
-0.18%
-1.06%
-21.15%
20
TM
9.55%
19.13%
6.01%
31.43%
-19.56%
21
TM
14.53%
10.06%
14.28%
13.43%
15.90%
11.78%
10.83%
6.51%
10.76%
80.68%
40.94%
91.36%
-8.73%
-21.83%
-15.12%
8
11
4
11.94%
10.65%
19.91%
16.08%
8.32%
7.08%
41.82%
44.03%
-22.75%
-22.06%
17
11
10.55%
20.49%
6.98%
34.07%
-24.43%
16
9.94%
2.75%
14.77%
16.81%
6.39%
-0.41%
43.24%
-2.44%
-20.08%
-15.15%
9
13
9.24%
3.52%
5.71%
162.43%
-3.18%
0
11.44%
7.71%
6.22%
5.37%
7.84%
4.23%
126.08%
78.81%
-6.52%
-9.19%
1
1
-0.04%
6.43%
21.44%
5.12%
-3.59%
2.88%
-16.76%
56.19%
-16.43%
-3.93%
20
0
no. of m onths < -5%
Beta allocation indices
DBLCI TM
S&P GSCI
DJ-AIGCI
TM
SM
Mean reversion based indices
DBLCI-MR
DBLCI-MR 'Plus'
DBLCI-MR TM 'Enhanced'
DB Commodity Trend
Optimum yield based indices
DBLCI-OY
DBLCI-OY Balanced
DB Commodity Booster Index - S&P GSCI
DB Commodity Booster Index - DJ-AIGCI
DB Agricultural Index
TM
SM
Market neutral alpha indices
DB Commodity Harvest Index
TM
DB Commodity Harvest Index - S&P GSCI
SM
DB Commodity Harvest Index - DJ-AIGCI
Spot neutrality means
significant drawdown events
are a rare occurrence for the
DB Commodity Harvest Index
Other asset classes
Equities (S&P 500)
Fixed Income (US Govt. All Total Return)
* annualised return based on total return and excess return
** annualised vol of the daily lognormal returns
# calculated as a quotient of excess return and the volatility
## based on total return
# calculated as a quotient of excess return and the volatility
## based on total return
Data from January 1998 to March 2009 ***
Data from January 1998 to March 2009 ***
***Data for DB Agricultural Index and DB Commodity Trend from January 1999
***Data for DB Agricultural Index and DB Commodity Trend from January 1999
Source: DB Global Markets Research, Bloomberg
46
Commodities Outlook: Key Themes
Commodities Indices


Contango will sustain headwinds for long only commodity indices.
We prefer bullish alpha plays such as the DB Commodities Harvest Index.
Energy

Oil prices to trade sideways. Price rallies to become more sustainable from 2010.
Industrial Metals


Industrial metals to outperform gold from the fourth quarter of the year.
We view fundamentals as strongest in copper and zinc, weakest in aluminium.
Precious Metals

Gold price rallies require another relapse in global equity markets & further USD weakness.
Agriculture



The sector is fundamentally cheap.
Oil price weakness is expected to limit price advances in the sector during 2009.
We expect rallies to be driven by supply side events related to weather or lower crop
plantings until demand recovers during 2010.
52
Deutsche Bank Commodities Research

Deutsche Bank Commodities Research compliment fundamental and financial analysis on the four broad commodity
sectors with the aim of delivery of directional, forward curve, volatility and relative value trade ideas. These trades
are then employed and executed as part of the team’s proprietary trading book.

If you would like to subscribe to more than 30 other commodity research products please contact your local DB
Sales person.
53
Appendix 1: Certification and Disclaimer
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead
analyst. In addition, the undersigned lead analyst has not and will not receive any compensation for
providing a specific recommendation or view in this report.
Michael Lewis
54
Appendix 1: Regulatory Disclosures
Country-Specific Disclosures
Australia: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian
Corporations Act.
EU countries: Disclosures relating to our obligations under MiFiD can be found at
http://globalmarkets.db.com/riskdisclosures.
Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc.
Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho)
No. 117. Member of associations: JSDA, The Financial Futures Association of Japan. Commissions and risks involved in
stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction
amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price
fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange
fluctuations.
New Zealand: This research is not intended for, and should not be given to, "members of the public" within the meaning of
the New Zealand Securities Market Act 1988.
Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any
appraisal or evaluation activity requiring a license in the Russian Federation.
55
Appendix 1: Disclaimer
Global Disclaimer
Investing in and/or trading commodities involves significant risk and may not be suitable for everyone. Participants in commodities transactions may incur risks
from several factors, including changes in supply and demand of the commodity that can lead to large fluctuations in price. The use of leverage magnifies this risk.
Readers must make their own investing and trading decisions using their own independent advisors as they believe necessary and based upon their specific
objectives and financial situation. Past performance is not necessarily indicative of future results. Deutsche Bank makes no representation as to the accuracy or
completeness of the information in this report. Deutsche Bank may buy or sell proprietary positions based on information contained in this report. Deutsche Bank
has no obligation to update, modify or amend this report or to otherwise notify a reader thereof. This report is provided for information purposes only. It is not to be
construed as an offer to buy or sell any financial instruments or to participate in any particular trading strategy.
Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor’s home jurisdiction . In the U.S. this
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without Deutsche Bank's prior written consent. Please cite source when quoting.
Copyright © 2009 Deutsche Bank AG
56