World Food Prices Climb for Second Month in September -FAO

The Rome-based Food and Agriculture Organization (FAO) also raised slightly its projection of global cereal production in 2021, to 2.800 billion tonnes from 2.788 billion tonnes estimated a month ago.

FAO’s food price index, which tracks international prices of the most globally traded food commodities, averaged 130.0 points last month compared with a revised 128.5 for August.

The August figure was previously given as 127.4.

On a year-on-year basis, prices were up 32.8% in September.

Agricultural commodity prices have risen steeply in the past year, fuelled by harvest setbacks and Chinese-fuelled demand.

For cereal production, FAO said its 2021 projection represented a record crop but was nonetheless below expected global demand, leading to a fall in forecast cereal stocks.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gus Trompiz;Editing by Elaine Hardcastle)

Commodity Markets Set for High Volatility, Says Louis Dreyfus

Prices of agricultural commodities have risen sharply, a trend contributing to increased first-half profits reported by LDC, but remain well below peaks seen a decade ago, Michael Gelchie said.

“Unlike in 2010-2011, we’re likely in store for a period of elevated volatility,” Gelchie told Reuters in a telephone interview.

Continued waves of COVID-19, shipping congestion and question marks over when the U.S. Federal Reserve will start tapering monetary support were all fuelling volatility, he said.

“We still haven’t necessarily seen a normalisation of the supply chain,” Gelchie said.

A broader surge in commodity and energy prices also reflected a shift towards a low-carbon economy, given that “the infrastructure to support that costs money,” he added.

LCD, one of the world’s larggest agricultural commodity merchants, earlier on Tuesday announced a sharp rise in first-half profit, supported by higher prices and strong demand for staple crops.

Gelchie declined to comment on the group’s prospects for the rest of the year, noting that prices remained high and crush margins for oilseeds strong.

The improved results further ease financial pressure on LDC after it completed this month the sale of a stake to Abu Dhabi holding firm ADQ, bringing in the first non-family shareholder in the agricultural commodity group’s 170-year history.

The deal with ADQ, which allowed LDC’s parent company to repay $1 billion borrowed from its operating group, would help LDC accelerate investments, Gelchie said, without giving details.

ADQ has secured four seats on an enlarged nine-member supervisory board headed by main shareholder Margarita Louis-Dreyfus.

The deal with LDC also involves a plan to supply food commodities to the United Arab Emirates.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gus Trompiz; editing by Barbara Lewis)

World Food Prices Jump in Aug, Cereal Harvest Outlook Cut – FAO

The Rome-based Food and Agriculture Organization (FAO) also said in a statement that worldwide cereal harvests would come in at nearly 2.788 billion tonnes in 2021, down on its previous estimate of 2.817 billion tonnes but still up on 2020 levels.

FAO’s food price index, which tracks international prices of the most globally traded food commodities, averaged 127.4 points last month compared with 123.5 in July.

The July figure was previously given as 123.0.

On a year-on-year basis, prices were up 32.9% in August.

FAO’s cereal price index was 3.4% higher in August from the previous month, with lower harvest expectations in several major exporting countries shunting up world wheat prices by 8.8% month-on-month, while barely surged 9.0%.

By contrast, maize and international rice prices declined.

FAO’s sugar index rose 9.6% percent from July, pushed up by concerns over frost damage to crops in Brazil, the world’s largest sugar exporter. Good production prospects in India and the European Union helped mitigate these concerns to a degree. Vegetable oil prices rose 6.7%, with palm oil prices hitting historic highs due to continued concerns over production levels and resulting inventory drawdowns in Malaysia. Quotations for rapeseed oil and sunflower oil also rose.

Meat prices edged up slightly in August, as strong purchases from China supported ovine and bovine meat prices and solid import demand from East Asia and the Middle East lifted poultry prices, FAO said.

The dairy price index edged slightly lower on the month.

FAO said the fall in its estimate for world cereal production this year was triggered by persistent drought conditions in several major producing countries.

Among the major cereals, the forecast for wheat production saw the biggest downward revision — down 15.2 million tonnes since July to 769.5 million tonnes — due mainly to adverse weather conditions in the United States, Canada, Kazakhstan and Russia.

The forecast for world cereal utilization in 2021/22 was cut by 1.7 million tonnes from July to 2.809 billion tonnes, still 1.4% higher than in 2020/21.

The estimate for world cereal stocks by the close of seasons in 2021/22 was lowered by 27.0 million tonnes since July to 809 million tonnes, pointing to a decline of 0.9% on stock levels registered at the start of the period, FAO said.

For a look at all of today’s economic events, check out our economic calendar.

(Editing by Crispian Balmer)

Gold Bought, Oil and Copper Sold on Virus Concerns

As a result the dollar strengthened, yields dropped while commodities traded lower, led by losses in energy and industrial metals while gold and most agriculture commodities saw net buying.

Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.

The summary below highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, August 17. A week where continued focus on the risk of an earlier than expected unwinding of the Fed’s massive stimulus program, helped support a renewed growth to value rotations in stocks, a stronger dollar and somewhat surprising, lower bond yields.

The latter potentially driven by emerging risk adversity caused by the continued spreading of the delta coronavirus variant as well as weaker input cost through lower commodity prices.

A relative small decline in the Bloomberg Commodity index driven by another decline in both energy and industrial was partly offset by continued buying of grains and softs, as well as renewed demand for gold.

Commodities

The Bloomberg Spot index traded lower in the week to August 17, albeit only by 0.4% with losses in energy and industrial metals being partly off-set by strength across the agriculture sector and renewed buying of gold. The rotation resulted in the combined long across 24 major commodity futures holding unchanged at 2.2 million lots with the biggest reductions hitting Brent crude oil, natural gas and copper while strong demand was seen in gold, corn and cocoa.

23olh_cot1

Energy

In response to continued Covid-19 demand worries, speculators cut their combined crude oil long in WTI and Brent by a total of 31.2k to 534k, a nine-month low. All energy contracts including natural gas saw net-selling.

Monday morning comment

Crude oil (OILUSOCT21 & OILUKOCT21)as well as most other commodities has started the week with gains in response to improved risk appetite, not least supported by a softer dollar. Last week’s slump, the worst in three years for oil, was driven by the delta variant, Chinese growth worries, and the prospect of reduced Federal Reserve stimulus.

While the virus remains a threat to the short-term demand outlook, despite signs of an improving situation in China, this week’s Jackson Hole summit may give the market some ideas about the timing of tapering (see below). Double bottoms have emerged in Brent at $64.50 and WTI at $62 while speculators cut bullish oil bets to a 9-month low in week to August 17.

Metals

The strong recovery that followed the August 9 flash crash helped drive a 52% increase in the speculative gold long to 77.6k lots while silver, troubled by its link to falling industrial metals, saw its net length slump to a 26-month low at just 9.7k lots. Copper’s worst slump in two months helped drive a second week of selling which saw the net long down 38% on the week to 20k lots. Platinum which recently had seen its discount to gold hit $800 from less than $500 last month saw a small amount of buying after speculators recently build the biggest net short in two years.

Monday morning comment

Gold has started the week relatively good shape after managing to shrug off last weeks dollar strength and renewed pick up in real yields. It however remains below the psychological important $1800 level, as the market adopts a wait-and-see approach as investors await Jackson Hole later this week for more insight into the Federal Reserve’s policy outlook. Silver (XAGUSD) has clawed back some of last weeks losses with the XAUXAG trading at 76.80 after hitting 77.75 a couple of trading sessions ago.

HG Copper (COPPERDEC21) continues to recover following last week’s slump on supportive signs from China where stock levels have fallen and local premiums above LME spot has risen in response to the government’s efforts to combat the recent virus outbreak. Also, the risk of strike related disruptions in Chile remains with a slew of mines undergoing contract renewal talks, with unions at two mines currently out on strike.

The sharp recovery from below $4/lb, now a double bottom,together with the long-term supportive outlook for copper has helped attract fresh buying and short covering. First level of resistance at $4.215 followed by $4.295.

Agriculture

Across-the-board buying of key crops helped lift the grains sector long by 45k lots to a ten-week high at 544k lots. The biggest exposure remains by far in corn followed by soybeans and increasingly now also wheat, with both Kansas and Chicago traded wheat seeing raised demand during the past few weeks. In softs, all contracts saw net buying led by sugar with the net long reaching a five-year high, and cotton which reached a three-year high at 82k lots. Cocoa flipped back to net long while coffee was bought despite trading lower on the week.

Forex

Speculators almost cut their recently established dollar in half during the week to August 17. The selling, however, was concentrated against the euro where an initial rejection at €1.17 and subsequent bounce to €1.18 helped drive a 70% increase ($3.5 billion equivalent) in the EUR net long to a five-week high at 57.6k lots. Longs that immediately got challenged by the renewed euro weakness towards the end of last week when general risk adversity helped strengthen the dollar back below €1.17.

With most of the other major currencies led by CHF, JPY and CAD seeing continued selling, the overall reduction in the net dollar long against ten IMM currency futures and the Dollar index was cut by $2.3 billion to $2.6 billion.

23olh_cot3

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

  • Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
  • Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
  • Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • They are likely to have tight stops and no underlying exposure that is being hedged
  • This makes them most reactive to changes in fundamental or technical price developments
  • It provides views about major trends but also helps to decipher when a reversal is looming

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

World Food Prices Fall in June for First Time in a Year – FAO

The Rome-based FAO also said in a statement that worldwide cereal harvests would come in at nearly 2.817 billion tonnes in 2021, slightly down on its previous estimate, but still on course to hit an annual record.

The Food and Agriculture Organization’s food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 124.6 points last month versus a revised 127.8 in May.

The May figure was previously given as 127.1.

On a year-on-year basis, prices were up 33.9% in June.

FAO’s vegetable oil price index plunged 9.8% in June, partly on the back of a fall in palm oil prices, which were hit by expectations of output gains in leading producers and a lack of fresh import demand. Soy and sunflower oil quotations also dropped.

The cereal price index dropped 2.6% in June month-on-month, but was still up 33.8% year-on-year. Maize prices fell 5.0%, partly because of higher-than-expected yields in Argentina and improved crop conditions in the United States.

International rice prices also fell in June, touching 15-month lows, as high freight costs and container shortages continued to limit export sales, FAO said.

Dairy prices dipped 1.0% on a monthly basis, with all components of the index easing. Butter recorded the largest drop, hit by a rapid decline in global import demand and a slight increase in inventories, especially in Europe.

The sugar index posted a 0.9% month-on-month gain, reaching its highest level since March 2017. FAO said uncertainties over the impact of unfavourable weather conditions on crop yields in Brazil, the world’s largest sugar exporter, pushed prices up.

The meat index rose 2.1% from May, with quotations for all meat types rising as increases in imports by some East Asian countries compensated for a slowdown in China’s meat purchases.

FAO said the slight fall in its estimate for world cereal production this year was principally triggered by a sharp cut to the Brazilian maize production forecast as prolonged periods of dry weather weighed on yield expectations.

Global wheat production prospects also retreated this month, as dry weather in the Near East hurt yield prospects there. By contrast, the forecast for global rice output in 2021 edged up.

The forecast for world cereal utilization in 2021/22 was cut by 15 million tonnes from the previous month to 2.810 billion tonnes, still 1.5% higher than in 2020/21.

World cereal stocks by the close of seasons in 2021/22 are now expected to rise above their opening levels for the first time since 2017/18. “Higher maize stocks foreseen in China account for the bulk of this month’s upward revision to world cereal inventories,” FAO said.

For a look at all of today’s economic events, check out our economic calendar.

(Editing by Crispian Balmer)

 

Commodity Weekly: Gold down, Oil up on Recovery Hopes

What is our trading focus?

  • OILUKJUL20 – Brent Crude Oil (July)
  • OILUSJUL20 – WTI Crude Oil (July)
  • GASOLINEUSJUN20 – RBOB Gasoline
  • NATGASUSJUN20 – Natural Gas
  • XAUUSD – Spot gold
  • XAGUSD – Spot silver
  • COPPERUSJUL20 – HG Copper
  • CCN0 – Cocoa (July)

The world, at least on paper, suddenly looked in a better place this past week with several pieces of Covid-19 related news spurring a recovery. Key commodities such as crude oil and gasoline found a bid following the recent collapse and mayhem while gold, the safe-haven metal, headed for its largest weekly decline in seven weeks.

Driving the change in sentiment was the first glimmer of light at the end of the very long coronavirus tunnel. This, after several European countries began preparations for partial re-openings together with the prospect or hope for a Covid-19 treatment drug emerging.

These developments did at least temporarily reduce to focus on the steep rise in global unemployment and collapsing consumer confidence. They also increase the talk in the market that a V-shaped recovery would begin to emerge, thereby reducing the fallout from what has become the worst collapse the world has seen since the Great Depression.

We view the road to recovery unfortunately as being anything but V-shaped. While the short-term technical outlook for gold has deteriorated, the long-term fundamentals have not. On that basis we remain positive about the medium to long-term outlook for gold but also accept that the current drivers are evenly matched in terms of head and tailwind. We see the current and future price development being impacted by these risks:

Upside:
Hedge against central monetization of the financial market;
Yield curve control to push real yields – a key driver for gold – lower;
A rising global savings glut at a time of very low and negative interest rates;
DM investment demand off-setting weak EM consumer demand (China and India);
Rising geo-political risks as the Covid-19 blame game begins (China vs rest of world).

Downside:
Easing lockdowns and a potential treatment drug;
V-shaped recovery hopes driving Wall Street further away from Main Street (rising unemployment and collapsing consumer confidence);
Plummeting jewelry demand in China and India;
Risk of central banks selling gold as budget deficits rise and currencies weaken.

Despite record-high demand for bullion-backed ETF’s, gold continues to find resistance ahead of $1750/oz. The lack of price momentum has already seen hedge funds begin to cut bullish gold bets. In the week to April 21, the net-long held by speculators dropped to a near ten-months low following a 37% reduction since February. Silver’s lack of performance, due to its industrial link, has led to an exodus from speculative investors. In the latest reporting week to April 21 the net long was cut to just 13,500 lots, down by 80% since the February peak.

Silver’s ratio to gold, which remains stuck at a multi-decade high above 110 ounces of silver to one ounce of gold, is likely to remain stuck with the short-term risk of moving even higher. This in response to weaker global growth as it reduces demand towards industrial applications. However, a renewed rally in gold together with the mentioned small net-long could provide some support from investors looking at its relative cheapness as an investment substitute to gold.

Hedge funds, or CTA’s as some are also called, execute their models often not based on fundamentals but rather on technical and price-based signals. They tend to increase position size once they have established a profitable position (buying into strength while selling into weakness) until a market reversal happens. While the gold market, in our opinion, is nowhere near a reversal, the current lack of momentum has driven long liquidation from this type of funds.

With this in mind we may see the short-term outlook being challenged with the risk of a deeper correction towards $1655/oz and perhaps even $1634/oz before the above-mentioned upside risks begin to reassert themselves again.

Crude oil spent the week trying to recover from the recent carnage which sent the now expired May WTI futures contract deep into negative territory. In order to avoid a repeat ahead of the July contract expiry on May 19, several changes have been introduced. The CME have raised the margin for holding a position while also capping limits on positions being held by futures tracking ETF’s. Major commodity funds, such as the S&P GSCI, have already rolled exposure further out the curve, while several banks and brokers have introduced ‘reduce only’ rules on positions being held by its customers in the June contract.

The two fundamental drivers behind the first weekly gain in a month were the prospect of a pickup in demand as countries begin to exit lockdowns and a rush from producers, both OPEC+ and others, to cut production in order to avoid forced shut-ins from lack of storage facilities.

If the world runs out of facilities to store unwanted crude oil, production needs to equal demand. That can only be achieved by a major cut in production, not necessarily from the high-cost producers, but primarily from those not having a buyer for their oil. Norwegian-based Rystad Energy in their latest report said they expect demand to drop by 28 million barrels per day this month; by 21 million next month; and by 16 million in June. Goldman Sachs in another report saw global storage facilities filling up within the next month.

While prices used to settle physical transactions remain weak, we have seen speculative demand drive futures prices higher this past week. The saga of the under pressure USO oil ETF has not gone away but having been forced by regulators to roll their exposure further out the curve, the systemic risk of the ETF failing has eased.

The lack of performance associated with this move away from the most volatile front month has finally, but unfortunately too late for many novice investors, begun to reduce demand. An example being a US-based trading platform which during the past month, when the ETF halved in value, saw the number of clients holding USO positions almost rise by a factor 10 before being cut by more than one-third in just one day on Thursday.

As mentioned, crude oil was heading for its first weekly gain in a month in response to production cuts being announced by others than just OPEC+ and on signs that the coronavirus-driven plunge in demand has started to bottom out. Resistance at $23.5/b on WTI and $28/b on Brent could, however, cap the upside for now. The short-term outlook remains challenging as storage tanks continue to fill. The race to avoid tank tops and with that the risk of forced shut-ins remains a key risk and the futures market could be at risk of rising to levels not yet supported by developments in the cash market.

Commodities on the move:

Natural gas futures rose to $2/MMBtu for the first time since February as the prospect of lower output from associated shale oil production helped lift the price. Bloomberg reported that gas production in lower 48 US states fell to 85.6 bcf/d to the lowest since July and down 10% from the record levels reached last December.

RBOB Gasoline jumped to a six-week high after the EIA reported a the first drop in stocks in five weeks and after US consumption recorded its third straight gain to 5.86 million barrels/day, still some 35% below the one-year average.

HG Copper traded lower on the week after once again finding resistance at $2.38/lb, the 618% retracement of the February to March sell-off. Ample stocks, the return of shut in production and the increased risk of a deep recession hurting demand the main focus and one that is likely to keep prices sideways to lower in over the coming weeks.

Livestock prices led by hogs rose sharply as a US meat crisis began to unfold. This after sixteen major poultry, pork and beef processing pants closed after they became Covid-19 hotbeds. Pork production has been the hardest hit with nearly half of all processing currently offline. After touching an 18-year low two weeks ago Lean hog futures have since jumped by 60%.

Cocoa continued to show signs of recovering after breaking back above $2400/MT. Risk to demand from the covid-19 outbreak sent prices tumbling by 25% before stabilizing and now moving higher. Apart from the improved technical outlook, bad weather and stay away workers worried about getting the virus could hurt production in West Africa, the top growing region.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.
This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empir

What are Contango And Backwardation?

Term structure, the forward curve, or time spreads are all synonymous and reflect the price differences for a commodity over time.

In some commodities, seasonality causes prices to reach lows at certain times of the year and peaks at others. Natural gas and heating oil often reach seasonal highs during the winter months, while gasoline, grains, lumber, and animal proteins can move towards highs as the spring and summer seasons approach.

Meanwhile, the price differential for various delivery dates can provide valuable information when it comes to the supply and demand fundamentals for all commodities. Contango and backwardation are two essential terms in a commodity trader’s vocabulary.

Contango is a sign of a balanced or glut market

Contango exists in a market when deferred prices are higher than prices for nearby delivery. A “positive carry” or “normal” market is synonymous with contango.

Source: NYMEX/RMB

The forward curve in the NYMEX WTI crude oil futures market highlights the contango in the energy commodity. In this example, the price of crude oil for delivery in June 2020 was at $28.82 per barrel and was at $36.10 per barrel for delivery one year later in June 2021. The contango in the oil market stood at $7.28 per barrel.

The contango is a sign of oversupply. However, it also reflects the market’s opinion that the current price level will lead to declining production and inventories and higher prices in the future.

Backwardation signals tightness

Backwardation is a market condition in which prices are lower for deferred delivery compared to nearby prices. Other terms of backwardation are “negative carry” or “premium” market.

Source: ICE/RMB

The term structure in the cocoa futures market that trades on the Intercontinental Exchange shows that cocoa beans for delivery in May 2020 were trading at $2305 per ton compared to a price of $2265 for delivery in May 2021. The backwardation of $40 per ton is a sign of nearby tightness where demand exceeds available supplies. At the same time, the lower deferred price assumes that cocoa producers will increase output to close the gap between demand and supplies in the future.

Watch the forward curve

A fundamental approach to analyzing commodity prices involves compiling data on supplies, demand, and inventories. The term structure in raw material markets can serve as a real-time indicator for supply and demand characteristics. When nearby supplies rise above demand, the forward curve tends to move into contango. When the demand outstrips supplies, backwardations occur.

Watching the movements in term structure can provide value clues when it comes to fundamental shifts in markets. Exchanges publish settlement prices for all contracts each business day. Keeping track of the changes over time can uncover changes that will impact prices.

In tight markets where backwardations develop or are widening, nearby prices tend to move to the upside. In contango markets, equilibrium can be a sign of price stability, while a widening contango often is a clue that prices will trend towards the downside.

The shape of the forward curve can move throughout the trading day. Any dramatic shifts tend to signal a sudden change in market fundamentals. For example, a weather event in an agricultural market that impacts production would likely cause tightening and a move towards backwardation. As concerns over nearby supplies rise, the curve often tightens.

Conversely, a demand shock that leads to growing inventories often leads to a loosening of the term structure where contango rises. Observing changes in a market’s forward curve and explaining the reasons can provide traders and investors with an edge when it comes to the path of least resistance of prices.

Are Cocoa Prices Going Higher?

If you are long a futures contract I would place the stop loss under yesterday’s low of 2594 as an exit strategy as the chart structure is outstanding at the current time, however for the bullish momentum to continue prices have to break November 18th high of 2694 in my opinion. Last Friday’s Commitment of Traders data (COT) showed that funds boosted their long cocoa positions by 15,528 contracts in the week ended Nov 19th to a 5-year high of 60,818 contracts which could provide fuel for long liquidation pressure.

Fundamentally speaking reduced output from Ghana, the world’s 2nd largest cocoa producer is supportive for cocoa prices after the Ghana Cocoa Board on Sep 13th cut its Ghana 2019/20 cocoa production estimate to a 3-year low of 800,000 MT from a previous estimate of 950,000 due to an outbreak of the swollen shoot cocoa disease that has affected about 16% of Ghana’s cocoa crop.

TREND: HIGHER

CHART STRUCTURE: EXCELLENT

VOLATILITY: AVERAGE

This article was written by Michael Seery (CTA—COMMODITY TRADING ADVISOR)  www.seeryfutures.com