Coffee demand up but not yet percolating at pre-pandemic levels -report

By Marcelo Teixeira

NEW YORK (Reuters) – Demand for coffee in non-producing countries showed a healthy recovery in the first quarter, although there are signs of possible slowdowns in demand in Russia and China for the coming quarters, analysts from Rabobank said in a report on Friday.

It said “coffee disappearance,” a term indicating the amount of coffee nonproducing countries are actually consuming and not packing for re-export, rose 6.9% in the first quarter compared to the same period a year earlier. The European Union plus United Kingdom area saw a larger increase, at 9%, while the United States jumped 4.6% and Japan, 5.1%.

Rabobank said the numbers are still not great compared to pre-pandemic levels. The result in the first quarter was only 0.6% higher than two years ago (Q1 2020).

The analysts said Russia’s war in Ukraine and Chinese Covid lockdowns could dent coffee demand in those countries. They also said high retail prices could hurt demand in Brazil, a top producing country which is also the second largest global coffee consumer after the United States.

Rabobank projects a 25% fall in Russian coffee demand, and a 50% fall in Ukraine’s coffee use.

The bank sees the global coffee supply balance shifting from a deficit of 5.1 million 60-kg bags in 2021/22 (Oct-Sept) to a surplus of 1.7 million bags in 2022/23.

It kept its estimate for Brazilian 2022 production at 64.5 million bags, in the top end of market estimates.

Brazil’s food supply agency Conab cut its crop view to only 53.4 million bags on Thursday.

Rabobank, however, cut its view for the Colombian crop to 11.8 million bags in 2021/22, but expects a recovery to 13.4 million bags in 2022/23.

(Reporting by Marcelo Teixeira; Editing by David Gregorio)

COT: China Growth Fears and Strong Dollar Drive Exodus From Metals

A week that saw a continued deterioration in the global growth outlook driven by extended China lockdowns, a stronger dollar and increasingly aggressive rate hike signals from members of the US Federal Reserve. The week highlighted how traders positioned themselves ahead of last Wednesday’s FOMC meeting. During the week US ten-year bond yields jumped 25 basis points while the dollar reached fresh cycle highs against most currencies. Commodities were mixed with gains in energy and softs being offset by losses across grains, livestock and metals.

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.

Commodities

The Bloomberg Commodity Spot index traded close to unchanged in the week to May 3 with a six percent gain in energy led by natural gas and diesel as well higher prices for cocoa and cotton in the softs sector, offsetting weakness in precious (-2.3%) and industrial metals (-5.2%), as well as grains (-2.8%).

Speculators and money managers responding to these price changes and the continued loss of momentum by cutting bullish bets across 24 major commodity futures by 7% to 1.85 million lots, a four month low.

Despite racing to a record high in recent weeks, the sector has increasingly become nervours about the global growth and demand look. In the short term due to Chinese lockdowns and longer term due to high inflation and tightening monetary conditions hurting demand. The drop in the total net long to a four months low also driven by elevated volatility forcing leveraged funds, targeting a certain level of volatiltiy to cut their exposure.

From a recent pre-war and pre-China lockdown peak on February 22 at 2.23 million lots, the energy sector exposure has been cut by 23%, metals are down 67% while the agriculture sector is up 2% led by softs.

Energy

Crude oil and refined product futures witnessed a small build in net longs held by funds while a 14% surge in natural gas helped trigger profit taking resulting in a 14% reduction in the net long held in four Henry Hub deliverable futures and swap contracts. Small buying of crude oil did not hide the fact momentum has slowed and traders have become more risk adverse given the number of multiple forces currently impacting the price of oil in both directions.

Latest: Crude oil (OILUKJUL22 & OILUSJUN22) trades steady near a one-month high with the general risk aversity from a stronger dollar, the economic damage from China lockdowns, inflation and monetary tightening being offset by continued supply concerns from Russia and other OPEC+ producers struggling to meet their production targets. G-7 leaders have joined the EU in making a commitment to phase out their dependency on Russian energy, including oil.

While the risk in our opinion remains skewed to the upside, the latest developments are likely to keep crude oil rangebound with focus instead on refined products where multi-year highs are already hurting demand. Monthly oil market reports from EIA Tuesday, followed by OPEC and IEA on Thursday.

Metals

Gold was sold for a third consecutive week with the net-long falling to a three-month low with rising yields and the stronger dollar driving a loss of momentum. The 17% reduction to 82.9k lots was driven by a combination of long liquidation and fresh short selling lifting the gross short to a seven-month high.

Copper has recently suffered from extended China lockdowns hurting the outlook for demand from the worlds top consumer, as well as short selling from macro-based funds using copper as a short play on China. Four weeks of net selling culminated last week with the position flipping to a net short of 8.8k lots for the first time in two years.

Latest: Gold remains at the mercy of a continued rise in US Treasury yields and the stronger dollar with inflation data this week from the U.S. and elsewhere potentially driving additional volatility across market. China and India, two major sources of demand for gold, both seeing their currencies weakening against the dollar, thereby potentially negatively impacting the short-term demand outlook.

Overall, however, compared with stocks and bonds, gold’s relative strength continues. As of last Friday, an investor based in dollars holding gold was +16% ahead relative to the S&P 500 and more than 26% versus TLT:arcx an ETF that tracks the performance of long-dated US government bonds.

In Europe, an investor based in euros has seen an XAUEUR position outperform the pan-European Stoxx50 index by more than 25% and 20% versus an ETF tracking European government bonds. Support at $1850 and $1830.

Agriculture

The grains sector saw selling across all of the six futures contracts led by a 50k lots reduction across the three soybean contracts. The overall 66k reduction was generally driven by a combination of longs being reduced and fresh short positions being added.

Overall the total net long across the sector and the Bloomberg Grains Spot index remains close to a multiyear high, a reflection of current adverse weather uncertainty across the world raising concerns about production levels, together with the risk of the Ukraine war preventing production and exports of key food commodities from wheat to sunflower oil.

Forex

Broad dollar strength and with that broad demand against its major peers accelerated ahead of last week’s FOMC meeting. As the Dollar index climbed to levels last seen in 2003, all of the nine IMM futures tracked in this saw net selling with the aggregate dollar long jumping by $6.3 billion or 41% to $21.8 billion. Selling was most noticeable in EUR were 28.6k lots of selling flipped the net back to a 6.4k lots net short.

This was followed by CAD (-11.9k) and JPY where 5.3k lots of selling took the net short to within 90% of the recent peak at -111.8k lots. Sterling meanwhile was sold for a ninth week, driving an increase in the net short to a 2-1/2-year high -73.8k lots.

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

WCU: Fuel Price Surge Lifts Inflation and Risks Killing Demand

Commodity Markets Monthly Fundamental Analysis

The commodity sector raked in another monthly gain in April with the Bloomberg Spot Index tracking 23 major commodity futures, rising for a fifth consecutive month, and in the process hitting a fresh record high. However, the gains were concentrated in the agriculture and energy sectors with precious and industrial metals suffering setbacks in response to extended Covid-19 lockdowns in China hurting growth and demand, and worries that a rapid succession of US rate hikes will hurt an already weakening economic outlook.

In addition to this, the dollar reached multi-year highs against several currencies, most notably a 20-year high against the Japanese yen and a five-year high against the euro.

China’s current situation has by a major investor in Hong Kong been described as the worst in 30 years with Beijing’s increasingly fraught zero-Covid policies slowing growth while raising discontent among the population. As a result, global supply chains are once again being challenged with congestions at Chinese ports building, while demand for key commodities from crude oil to industrial metals have seen a clear drop.

While being short on details, China’s Politburo responded on Friday to this growing unease by promising to boost economic stimulus to drive growth. Earlier this week, President Xi highlighted infrastructure as a big focus and if implemented it would become a key source of extra demand for industrial metals, hence our view that following the recent weakness a floor is not far away.

In my latest online seminar and, in a podcast on MACROVoices this past week, I highlighted the reasons why we see the commodity rally has further ground to cover, and why they may rise even if demand should slow down due to lower growth.

Crude oil

Crude oil continues to trade rangebound within a narrowing range, in Brent currently between $98 and $110 per barrel. It did, however, not prevent the cost of fuel products from surging higher. Diesel, the workhorse of the global economy, rallied strongly led by tightening supply in the New York area driving prices to historic highs.

The war in Ukraine, and subsequent sanctions against Russia, have upended global supply chains while at the same causing a significant amount of stress in the physical market, especially in Europe where Russia for years has been the most important supplier of fuel products.

To fill the void and to benefit from soaring prices, U.S. Gulf Coast refiners have been sending more cargoes to Europe and Latin America at the expense of the U.S. East Coast where stockpiles consequently have dropped to the lowest since 1996. With New York harbor serving as the delivery point for futures trading in the NY Harbor Ultra-Light Sulphur Diesel contract, the tightness there is having an outsized impact on visible prices.

These developments highlight the importance of focusing on the cost of fuel products, and not crude oil, when trying to determine the price levels where demand starts to be negatively impacted by higher prices. As a result, refineries are currently earning a lot of money with margins hitting record levels both in the U.S. and Europe. The charts below show the crack spreads, or the margin achieved by producing diesel from WTI in the U.S. and Brent in Europe.

With the war ongoing and the risk of additional sanctions or actions by Russia, the downside risk to crude oil remains, in our view, limited. In our recently published Quarterly Outlook, we highlighted the reasons why oil may trade within a $90 to $120 range this quarter and why structural issues, most importantly the continued level of underinvestment, will continue to support prices over the coming years.

With regards to the lack of investment currently creating concerns about future level of supply, we will be keeping a close eye on earnings next week from European oil majors such as Shell, Enel, BP and Equinor. Also, given the mentioned surge in refinery margins, the result from Valero.

Gold

Gold was heading for its first monthly loss in three months with an expected turbocharged tightening pace by the US Federal Reserve as well as the mentioned dollar strength being two major catalysts. Silver led the weakness falling to a 2-½-month low around $23 per ounce due to China-related weakness across the industrial metal sector.

As a result, the XAUXAG ratio broke above resistance at 80 ounces of silver to one ounce of gold. Renewed focus on Chinese stimulus initiatives, as mentioned above, would help create a floor under silver, thereby reducing its recent negative pull on gold.

Recently, I have been asked the question why gold is doing so poorly considering we are seeing inflation at the highest level in decades. To this my answer continues to be that gold is doing very well and in line with what a diversified investor would hope for.

We tend to focus primarily on gold traded in dollars, and XAUUSD as can be seen from the table below has ‘only’ returned around 5.5% so far this year. But if we add the performance of the S&P 500 Index and long maturity US bonds the picture looks a lot better. Gold in dollars has outperformed these two major investments sectors by +15% and +23% so far this year. Turning to gold traded in other currencies, the performance looks a great deal better due to the impact of the strong dollar.

Investors in Europe seeking shelter amid rising inflation and a sharp deterioration in the economic outlook have achieved 24% and +21% better returns in gold compared with the Euro Stoxx 50 benchmark and euro government bonds.

We maintain a positive outlook for gold driven by the need to diversify from volatile stocks and bonds, inflation becoming increasingly imbedded and ongoing geopolitical concerns. Having found support at $1875 this week, a weekly close above $1920 may see renewed upside driven by fresh momentum and technical buying.

Copper

Copper broke the uptrend from the 2020 low resulting in a drop to near a three-month low around $4.40 per pound, before sentiment received a boost from China’s pledge to maintain the 5.5% growth target, a level the Chinese economy is currently operating well below.

While the short-term outlook has worsened and inventories at exchange-monitored warehouses have risen during the past four weeks, the outlook in our opinion remains price supportive. The demand for action to isolate Russia through a reduction in dependency of its oil and gas is likely to accelerate the electrification of the world, something that requires an abundant amount of copper.

In addition, Chile, a supplier of 25% of the world’s copper, has seen production slow in recent months, and with an “anti-mining” sentiment emerging in the newly elected government, the prospect of maintaining or even increasing production seems challenged. In addition, Chile’s 13 years of drought and water shortages are having a major impact on the water-intensive process of producing copper.

Moreover, government legislation has been put forward to prioritize human consumption of water and if voted through it may delay investment decision but also force mining companies to invest in desalination facilities, thereby raising the cost of production further.

Agriculture

Soybean oil futures in Chicago reached a record high as Indonesia’s sweeping ban on palm oil exports and rationing of sunflower oil at supermarkets in Europe further stretches global supplies of edible oils. Export restrictions for palm oil used in everything from cooking to cosmetics and fuel will stay in place until domestic prices ease and given that Indonesia consumes only one-third of its production, we should expect exports to resume once inventories are rebuilt and prices stabilize.

The edible oils sector, which according to the UN’s food index has risen by 56% during the past year, is the hardest hit by weather woes and the war in Ukraine, the world’s biggest exporter of sunflower oil, and it is leading to food protectionism by producers which inadvertently may boost prices further.

Speculators have recently increased their exposure to U.S. crop futures to a record with slow planting progress and deteriorating crop conditions highlighting a challenged and price supportive situation. In their latest weekly update, released on Mondays, the US Department of Agriculture said corn planting had advanced by 3% to being 7% complete, the slowest pace in almost ten years and trailing last year’s pace of 17%.

Winter wheat rated good/excellent dropped 3% to 27% and was near the worst on record. The planting delays and conditions have been caused by the weather being too cold, too wet, or a combination of both. Big grain harvests in North America are needed this year after Russia’s invasion of Ukraine has reduced shipments out of the Black Sea, from where 25% of the global wheat export originates, while raising doubts about this year’s crop production in Ukraine.

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

COT: Spec Buying Pauses on China and Growth Concerns

A holiday shortened Easter week that saw stocks trade higher despite fresh warnings being signaled through rising bond yields and a stronger dollar. In the days that followed, tough talking by Fed officials helped send yields and the dollar even higher as the market started pricing in 250 bps of Fed hikes this year, potentially raising the risk of the FOMC delivering 75 bps hikes.

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.

Commodity markets

The Bloomberg Commodity Spot index reached a fresh record high during the reporting week with strength in energy, led by diesel and natural gas, and grains offsetting losses in precious metals and softs. Hedge funds potentially troubled by the prospect for rising yields and China lockdowns killing growth and with that demand held their net length close to unchanged with most of the buying concentrated in crops, resulting in a near record long across major six grains and oilseed contracts.

General comment from today’s Market Quick Take

Commodities across all sectors, led by metals are under pressure this Monday as the focus shifts from Russia sanctions-led supply angst to demand destruction due to already high prices, expectations for an aggressive US rate hike cycle killing growth, and not least continued lockdowns in China which have spread from Shanghai to Beijing.

The Bloomberg Commodity Spot index jumped an unprecedented 24.5% during the first quarter and after hitting a fresh record last week, the shift in focus may trigger an oversized correction. Positions held by investors and speculators are mostly geared towards higher prices, something we may not see until China gets on the other side of the outbreak and the impact of central bank rate hikes are being analyzed.

Agriculture

The risk of a global food crisis caused by weather worries and the risk of a sharp reduction in this year’s Ukraine production, helped underpin the grain and soybean sector. Overall the sector net long, which includes six crop futures, reached a ten year high at 819k lots with buying concentrated in soybean oil and corn. The bullish belief in higher prices can be seen in the long/short ratio with readings of 43 longs to 1 short in soybeans and 33 to 1 in corn highlighting a sector with literally no short positions left. A development, despite strong fundamental support, has left the sector exposed to a speculative sell out should the mentioned general commodity sector weakness continue.

Across-the-board reductions were seen in softs, most notably coffee where the net long at 29.6k lots stood at half the 60k lots record from mid-March. Four weeks of sugar buying paused with the net down 1% to 236k.

Energy

The combined net length in Brent (+27.3k lots) and WTI (-14.5k) crude oil rose by 12.8k lots to 414k lots, thereby highlighting a continued lack of interest in positioning for higher prices. The prospect for very tight market conditions due to sanctions on Russia and OPEC producers struggling to meet their production targets, have in recent weeks been offset by the release of oil from strategic reserves, prolonged lockdown in China and central banks stepping up efforts to lower inflation by killing demand through higher rates.

Despite falling domestic stocks of gasoline and especially diesel as well as robust exports, the WTI net long dropped to a two-year low at 240k lots, primarily driven by long liquidation.

Metals

Gold’s failed attempt in challenging $2000 and subsequent correction triggered another round of long liquidation from technical and momentum driven leveraged funds. The net long has cut by 19.7k lots to 125k, thereby surrendering most of the gains seen during the previous week. Small selling of silver as well as copper concluded a general negative week for the metals week.

Forex

Continued dollar strength in the holiday shortened Easter week to April 19 lifted the Bloomberg Dollar Index by 1% but failed to boost speculators overall appetite for dollars, with flows more about the crosses. Overall, the combined dollar long versus ten IMM currency futures and the Dollar index held steady near a five-week low at $14.5 billion. Selling of euro and Sterling being offset by demand for CHF, JPY and CAD while the net flow in AUD and was tiny.

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.

Start trading now

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

Starbucks eyes changes to mobile app, drive-thrus, taps ex-McDonald’s exec

By Hilary Russ

NEW YORK (Reuters) – Starbucks has hired a former McDonald’s executive to oversee technology as returning CEO Howard Schultz explores changes to the coffee chain’s drive-thru, mobile order-and-pay and other systems. Deb Hall Lefevre will become Starbuck’s chief technology officer on May 2, according to a spokesperson. She takes over for Hans Melotte, who served as interim CTO for five months. Changes are likely to include increasing personalization in the company’s mobile app for customers, as well as improvements to systems for employee training, scheduling and equipment maintenance to free up baristas to spend more time with customers, a Starbucks spokesperson said, adding Lefevre was not available to comment. Hiring a CTO with experience in restaurants and retail will ensure that digital transactions run smoothly, which became particularly important during the pandemic as more customers flocked to mobile apps and new payment systems, said Chas Hermann, a consultant and former vice president of marketing at Starbucks. Schultz “wants to have someone that can really run the engine in the car,” Hermann said. “But the driver in the seat will be Howard.” As he returns to the CEO role for the third time, Schultz is plotting a broader corporate overhaul that also includes improved employee benefits aimed at deflating a ballooning union organizing effort at hundreds of cafes, which has been driven in part by barista burnout from a deluge of mobile orders. Schultz already freed up potentially billions of dollars for investments by suspending share buybacks. When Starbucks reports earnings on May 3, investors will look to see if the company cuts its guidance and if price hikes have offset rising costs. The coffee chain missed sales and profit estimates last quarter and its stock has since fallen another 20% and is down nearly 33% for the year.

“We have to reimagine the customer experience….We have to reimagine mobile-order-and-pay, the drive-thru,” Schultz said in an April 11 video message to store managers and seen by Reuters. At McDonald’s Corp, Lefevre oversaw all aspects of technology for its roughly 14,000 U.S. restaurants – helping launch its first app, introducing kiosks where customers place their own orders, launching digital menu boards – before moving in 2017 to Alimentation Couche-Tard Inc, the global operator of Circle K and other convenience stores. Under her watch, Circle K launched trials of automated checkout systems at stores in Arizona – similar to Starbucks’ first cashier-less location that it opened with Amazon Go in New York City in November.

(Reporting by Hilary Russ; Editing by Vanessa O’Connell and Lisa Shumaker)

Commodity broker Marex may revisit IPO when markets stabilise

By Eric Onstad

LONDON (Reuters) -Commodity broker Marex, which withdrew an initial public offering (IPO) last year, is keen to list on the market and is awaiting calmer conditions before a possible relaunch, its chief executive said on Wednesday.

Marex posted record profits for 2021 on Wednesday, putting the London-based firm in a good position to potentially go back to the stock market, CEO Ian Lowitt said in an interview.

Marex, one of the world’s largest privately-owned commodities brokers, dropped a planned IPO last June due to difficult market conditions.

“We do believe that there is a real benefit of being a publicly-traded company,” Lowitt said, referring to the ability to use stock to pay for acquisitions and to reward staff.

“There will be a point of time when the markets are receptive to an offering like Marex and at that time we would look to take advantage of it, but at the moment these markets are pretty frozen.”

An alterative for Marex’s private equity owners would be to sell the firm, Lowitt added.

Marex posted a 31% jump in revenue last year, while adjusted operating profit before tax gained 29% to $79.6 million.

The broker said trading conditions were positive in the first quarter of 2022, which “has resulted in performance significantly ahead of the same period in both 2021 and 2020.”

Rising commodity prices have spurred investor interest in the sector, while rising interest rates are also positive for the firm, which usually holds about $5 billion of client funds, Lowitt said.

“A 100-basis-point move in interest rates adds probably $30 million to our profitability and that’s something that we anticipate for the second half of 2022 and into 2023, which wasn’t there last year.”

The commodities market had a strong run last year as economic growth recovered, investors looked for a hedge against rising inflation, and metals demand was expected to benefit from a green revolution.

Marex is majority owned by private equity firm JRJ Group and its partners Trilantic Capital Partners and BXR Group, which bought stakes in the broker in 2010.

(Reporting by Eric Onstad Editing by Louise Heavens and Mark Potter)

Italian coffee maker Lavazza sees “challenging” 2022 after strong 2021

MILAN (Reuters) -Italian coffee maker Lavazza said on Wednesday it expected a difficult 2022 due to raw material price rises after reporting a strong increase in profits for 2021.

The family-owned company said it had decided to suspend all its activities in Russia on March 10, adding it had also had to temporarily halt distribution in Ukraine.

Lavazza said it would have to tackle “an extremely complex and challenging” 2022, due to the rise in the prices of raw materials.

“First and foremost green coffee, but also packaging, energy, logistics – and the risks deriving from the dramatic current geopolitical situation,” Chief Executive Antonio Baravalle said.

The price increases were mainly due to global supply chain issues and damage caused by weather events, the Turin-based group added.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) came in at 312 million euros ($338 million) in 2021, up 23.3% on 2020.

Revenues increased 11% to 2.3 billion euros last year, also thanks to a recovery in the “out of home” channel after the slowdown caused by the COVID-19 epidemic, when lockdowns kept people at home.($1 = 0.9233 euros)

(Reporting by Cristina Carlevaro, editing by Jane Merriman and Alistair Bell)

Battered Luckin Coffee emerges from bankruptcy proceedings

(Reuters) – Luckin Coffee Inc, said on Monday it had emerged from bankruptcy proceedings, two years after an accounting fraud derailed the coffee chain’s business.

Founded in 2017, Xiamen-based Luckin had positioned itself as a homegrown challenger to U.S. coffee giant Starbucks Corp, but the much-hyped company almost collapsed in 2020 after findings that about 2.2 billion yuan ($337.31 million) in 2019 sales was fabricated.

Top management changes and hundreds of millions of dollars in fines later, Luckin said it had restructured its financial indebtedness in the United States and was now positioned for sustainable growth and profitability.

In March, Luckin reported a near 81% jump in quarterly revenue and operating losses of about 120.8 million renminbi ($19.0 million).

(Reporting by Uday Sampath in Bengaluru; Editing by Devika Syamnath)

Traders reroute coffee bound to Russia, demand hit from war seen

By Marcelo Teixeira

BOSTON (Reuters) – Traders are diverting coffee shipments that were initially expected to go to Russia, and some have stopped selling to that market altogether, attendees at a U.S. coffee conference said.

Although food trade is not included in sanctions imposed on Russia after its invasion of Ukraine, difficulties in processing payments from Russian importers and concerns about the safety of ships in the Black Sea have cut shipments of coffee and other goods to the country.

Russia, which calls its actions in Ukraine a “special operation,” is among the five largest coffee importers in the world. Consumers in Russia are hoarding food due to worries that supermarkets will run out of supplies.

Coffee prices have surged more than 20% in Russia due to higher costs, broker HedgePoint said last week. The brokerage estimates that the ongoing war in Ukraine will lead to demand reduction of around 1.3 million 60-kg bags.

European food trader Marex sees the hit to coffee demand higher, at around 1.8 million bags.

Olvin Lopez, commercial manager at Honduras-based coffee exporter Inloher, said he had instructions from his firm’s partner, the French food trader Sucden, to redirect a coffee shipment leaving Honduras bound for Russia to the port of New York instead.

“They didn’t say why they are rerouting the cargo, but it is probably due to logistic issues,” Lopez said on the sidelines of a SCA Coffee Expo in Boston.

A coffee trader working for an international dealer, who asked not to be named, said soft commodities trader ECOM had decided to stop any business with Russia while the war continues.

Sucden and ECOM did not return requests for comments.

Another trader said, however, that some countries continue to supply Russia with coffee, notably top grower Brazil.

“People don’t like to say much, but there are deals going on, using crypto,” he said. In addition, one coffee co-op was closing a barter deal with a Russian dealer, where coffee would be swapped for fertilizer, the trader said.

(Reporting by Marcelo Teixeira; Editing by Mark Porter)

Commodity Rally Slows on China Lockdowns and Fed Angst

Commodity Markets Fundamental Analysis

The commodity sector rally has unsurprisingly slowed down during the past couple of weeks as the market continues to digest a whole host of developments impacting the sector. During the first quarter, war and sanctions turbocharged an already strong performing sector, resulting in the Bloomberg Commodity Spot Index registering a 24% gain, its best quarter in living memory, thereby almost eclipsing the 2021 gain of 26.5%, the best annual performance since 2000.

The war in Ukraine and increasingly tough sanctions against Russia have uprooted multiple supply channels from crude oil and gas to key industrial metals as well as food commodities such as wheat, corn, and sunflower oil. All developments that have created logistical challenges and elevated input costs for many industries to the extent that some heavy energy consuming industries have started to scale back production, thereby supporting the painful and potentially long route towards stabilising prices through lower demand.

As the war drags on and hostilities temporarily slow down, the market attentions have turned to the lower demand theme which is currently being driven by some short and other more long-term developments. Crude oil is the most noticeable in this context, having shed most of its invasion-driven gains with the focus turning to China’s worsening covid outbreaks, the release of strategic reserves and a hawkish turn by the US Federal Reserve raising growth and demand concerns.

The possibility of the U.S. tumbling into a recession next year was an outcome suggested by some analysts this week after the Federal Reserve raised the prospect of faster pace rate hikes to combat high and widening inflation. The market has almost priced in ten 25 basis points rate hikes during the next ten months, with the Fed’s Bullard looking for an even faster pace. In addition, the Fed will start to aggressively trim its balance sheet from May and the reduction of liquidity will have the same impact of three or four additional 25 basis point hikes.

Inflation remains a key concern for the market and while it was talked about in 2021, it is now increasingly being felt by consumers and businesses around the world. The impact of EU gas prices trading six times above their long-term average on heating bills and energy intensive production from cucumbers to steel and fertilizer is being felt and the economic fallout can increasingly be seen.

Global food prices meanwhile remain a key concern as highlighted by the FAO Food Price Index. In March it jumped 12.6% to a record after the war wreaked havoc on supply chains in the crucial Black Sea breadbasket region, a key supplier to the global market of wheat, corn and vegetable oils.

While the index was 33% higher than the same time last year, the latest increase reflected new all-time highs for vegetable oils (23.2% MoM, 56.1% YoY), cereals (17.1%, 37.3%) and meat sub-indices, while those of sugar (6.7%, 22.6%) and dairy products also rose significantly.

The prospect of continued supply disruptions from Ukraine this year together with US and South American weather concerns as well as the mentioned rise in the cost of fuel and fertilizers will likely led to another year of tightening supply.

In Ukraine, according to UkrAgroConsult, military actions in some key production regions, closed supply lines and lack of fuel could result in a 38% y/y reduction in the wheat harvest to 19.8 million tons and 55% reduction in the corn harvest to 19 million tons. In the US, the conditions of the winter wheat crop have slumped to the worst level in a decade amid dry soil conditions while surging cost of fertiliser may negatively impact crop production in South America.

Gold

Gold traded unchanged on the week as it continued to find buyers despite a stronger dollar and Treasury yields reaching a fresh cycle high after the Federal Reserve signaled a more aggressive trajectory for rate hikes and quantitative tightening. We maintain a bullish outlook for gold, a view that has been strengthened recently by the yellow metal’s ability to find fresh buying interest despite an increasingly hawkish Fed and the breakdown in the normal strong inverse relation with US real yields.

Overall, however, the yellow metal remains stuck in a wide $1890 to $1950 range with selling attempts in the futures market being offset by asset managers and long-term focused investors seeking protection through gold ETFs against the risk of slowing growth, elevated inflation as well as continued volatility in bonds and equity markets. A fresh upside attempt remains difficult to achieve without renewed support for silver and platinum, both currently struggling on a relative basis with the XAUXAG ratio above 78 and platinum’s discount to gold at a 17-month high at 967 dollars per ounce.

Copper

Copper, the so-called king of green metals, continues to enjoy some tailwind from other industrial metals. Most recently zinc, where the threat of shortages, especially in Europe where LME stocks are critically low, has seen the price move higher. Copper did trade near a one-month high earlier in the week after Chile, the world’s largest producer of the metal, reported a 7% year-on-year decline to 399,817 tons in February, this following a drop of 7.5% year-on-year in January.

While a tight supply outlook and the green transformation will continue to underpin prices over the coming months, the market currently must deal with negative developments in China where draconian lockdown measures to combat covid outbreaks are likely to weaken the growth outlook by more than the government had originally forecast.

Once the covid cloud has lifted, the Chinese government is likely to step in with additional measures to stimulate growth and that should help off-set the impact of lower growth elsewhere caused by soaring prices and accelerated tightening from the US Federal Reserve.

After reaching a record high above $5 per pound last month, HG copper traded back to $4.5 per pound before moving higher again. The outlook for copper remains supportive with tight supply offsetting the risk of an economic slowdown. We maintain this bullish view to take prices to a fresh record high later this year. In the short term, a break below the 200-day moving average, currently at $4.41 per pound, will not ruin our bullish view, only prolong the period of range bound trading.

US and EU gas markets

US and EU gas markets went in opposite directions thereby supporting a long-awaited convergence between the two. US Henry Hub reached a 2008 high near $6.50/mmbtu, driven by robust domestic demand due to unseasonal cold weather and strong export demand for LNG. Natural gas inventories shrank by 33 billion cubic feet last week, with inventories now some 17% below the five-year average, the widest gap since 2019.

In Europe meanwhile, a reluctance to ban Russian gas, together with milder weather and record LNG imports have seen the price of Dutch TTF gas traded lower but at €108/MWh or $34.5/mmbtu it remains very elevated and at levels that will continue to negatively impact demand. Europe and especially Germany’s U-turn on Russian gas dependency will require high prices during the coming months in order to attract record oversea supplies of LNG.

Crude oil

Crude oil has drifted lower following weeks of extreme turbulence and near record prices and this week it managed to retrace most of the invasion-driven gains after breaking below the uptrend from the December low. There are several reasons why the market focus has, at least for now, turned away from the loss of Russian barrels.

The four major factor, some of which are temporary, being 1) EU avoiding adding Russia crude to its growing list of sanctioned products, 2) China’s worsening covid outbreak and extended lockdowns driving a temporary contraction in fuel demand, especially for diesel and jet fuel, 3) slowing US gasoline demand in response to high prices and the prospect of an economic slowdown as the FOMC steps up its battle against inflation, thereby hurting demand, and finally 4) the release of millions of barrels of crude oil from strategic reserves held by the US and other members of the International Energy Agency.

With the war ongoing and the risk of additional sanctions or actions by Russia the downside risk to crude oil remains, in our view, limited. In our recently published Quarterly Outlook we highlighted the reasons why oil may trade within a $90 to $120 range this quarter and why structural issues, most importantly the continued level of underinvestment, will continue to support prices over the coming years.

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

Commodity Prices Are Breaking Records And Could Be About To Surge Again

Commodity Markets Fundamental Analysis and Price Action

Earlier this week, U.S Natural Gas prices hit a 13-year high of $6.36/Mbtu and have almost doubled the first quarter of 2022. The spectacular surge in prices has prompted traders to increase bullish calls for prices to soar further and hit $10 by summer.

So far this year, U.S Natural gas prices have skyrocketed more than 65% and are on course for their strongest rally since 2009.

The bullish momentum also split over into other commodities with Aluminium, Copper, Lithium, Platinum, Palladium, Uranium, Zinc, Coffee, Wheat and Lumber prices blasting through all-time highs during the same period.

In total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains within the first quarter of 2022… And this is just the beginning!

According to Goldman Sachs “we’re still only at the first inning of a multi-year, potentially decade-long Commodities Supercycle”.

Commodity Price Forecast Video for 08.04.22

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

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

Global coffee market to record 3.1 million bag deficit in 2021/22 – ICO

LONDON (Reuters) – The global coffee market will record a 3.1 million bag deficit in the 2021/22 (October-September) season as top producer Brazil harvests a smaller, ‘off-season’ crop, the International Coffee Organisation (ICO) said in its March monthly report.

The inter-governmental body warned however, that the market balance may shift markedly due to a potential downturn in the world economy, increased production costs and reduced consumption and imports due to the Russia-Ukraine conflict.

The ICO pegged 2021/22 global coffee production at 167.2 million 60 kg bags, down 2.1% year on year, and consumption at 170.3 million bags, up by an annual 3.3%.

It said global exports of green beans in February totalled 9.88 million bags, down from 10.24 million bags a year ago. Exports reached 47.18 million bags in the first five months of the coffee year, a 3% year-on-year decrease.

Brazil continues to face issues with availability of shipping containers, though these have improved in recent weeks, the ICO said.

(Reporting by Maytaal Angel; Editing by Emelia Sithole-Matarise)

War and Sanctions Turbocharging Already Tight Commodity Markets

The prospect for a long-lasting cycle of rising commodity prices that we first wrote about at the start of 2021 continues to unfold. During the past quarter, the war in Ukraine and sanctions against Russia helped turbocharge a sector that was already witnessing a tightening supply outlook. Before government handouts and central banks dumping rates to zero helped drive a post-pandemic overstimulation of the global economy, years of ample supply with steady prices had reduced investments towards new production, thereby leaving producers ill-prepared for the demand surge that followed.

With supply already tightening, the commodity sector was extremely ill-prepared when President Putin ordered the attack on Ukraine, thereby triggering a change in the market from worrying about tight supply to seeing supply disappear. With Russia, and to a certain extent Ukraine, being major suppliers of raw materials to the global economy, we have witnessed some historic moves with Russia’s growing isolation and self-sanctioning by the international community cutting a major supply line of energy, metals and crops.

The Bloomberg Commodity Spot Index, already showing gains similar to 2021—the best year for commodity returns since 2000—will likely spend Q2 consolidating with a focus on four major potentially market-moving developments: 1) Russia’s willingness to stop the war, thereby beginning the long road to normalising commodity supply chains; 2) China’s slowing economic growth versus its ability to stimulate the world’s biggest commodity-consuming economy; 3) the strength and speed of US rate hikes and their impact on inflation and growth; and finally 4) whether commodity prices, especially across the energy sector and to a certain extent industrial metals, have reached levels that will see demand destruction set in.

Commodities Trading in Backwardation

The tightening supply outlook that emerged across global commodity markets during the past year had already driven prices sharply higher before they were turbocharged by the sudden disruption of flows from Russia and Ukraine.

As a result, the Bloomberg Commodity Spot Index—which tracks a basket of 24 major commodities spread evenly across energy, metals and agriculture—reached a record high on March 8, thereby recording a stunning and in the short term unsustainable year-to-date increase of 38 percent. A rally of such speed and magnitude lifting the input cost across the global economy carries the risk of slowing the growth and demand for many key commodities.

While most commodities—with a few exceptions—have since eased back towards their prevailing trends, the price-supporting tightness across markets has not yet shown any signs of easing. Measuring the spread between the first and second futures month we find that a record 21 out of 28 major commodity futures are currently trading in backwardation, a gauge which helps measure the market’s concern about shortfalls and the higher price buyers are willing to pay for immediate delivery compared to delivery at a later date.

Another measure shows the one-year roll yield on a weighted average of the components in the Bloomberg Commodity Index has reached a record 12 percent, with the strength currently being carried by the energy sector, cotton and grains.

Energy

Brent crude rallied to within a few percent of the 2008 record high after Russia invaded Ukraine, while fuel products, led by diesel, surged to fresh record highs. This was especially true in Europe where, as major buyers of Russian fuel products, self-sanctioning by several commodity traders raised concerns about the availability of supply. However, within a few days most of the gains had been given back with traders instead turning their attention to renewed Covid lockdowns in China and the US Federal Reserve beginning its long-awaited rate hike cycle.

With normal commodity supply channels from Russia broken, an end to the war in Ukraine is unlikely to trigger a swift return to normality. The breakdown in relations and trust between Putin’s Russia and the West is likely to take a long time to mend.

Multiple uncertainties will trigger another wide trading range during the second quarter—potentially between $90 and $120 per barrel. Ultimately the market should stabilise with an upside price risk from reduced spare capacity among key producers and continued supply disruptions related to Russia being partly offset by slowing demand as the global economy becomes increasingly challenged by inflation and rising interest rates. Add to this a temporary Covid-related drop in demand from China and the outlook for a revisit to the March high looks unlikely.

Key events that could trigger additional uncertainty remain the prospect for an Iran nuclear deal, Venezuela being allowed to increase production and, not least, an increase US shale oil production, should producers manage to overcome current challenges related to lack of labour, fracking teams, rigs and sand.

Industrial metals

Aluminium, one of the most energy-intensive metals to produce, raced to a record high during March along with nickel, while copper reluctantly also briefly touched the highest level ever. Current supply disruptions from Russia will continue to support the sector throughout 2022, not least considering the ongoing push towards a decarbonised future.

At the same time increased defence budgets in response to the Russian threat will keep demand robust despite the current risk of an economic slowdown. In addition, and supportive for the sector, is the outlook for slowing capacity growth in China as the government steps up its efforts to combat pollution, and ex-China producers for the same reasons being very reluctant to invest in new capacity.

While the energy transformation towards a less carbon-intensive future is expected to generate strong and rising demand for many key metals, the outlook for China is currently the major unknown, especially for copper where a sizable portion of Chinese demand relates to the property sector.

But considering a weak pipeline of new mining supply we believe the current macro headwinds from China’s property slowdown will moderate throughout 2022. In addition, we also need to consider the prospect that the PBOC and the government, as opposed to the US Federal Reserve, is likely to stimulate the economy, especially with a focus on green transformation initiatives that will require industrial metals.

While the Ukraine war and Russian sanctions turbocharged these metals to fresh record highs well ahead of expectations, the outlook for most metals remains supportive with tight supply and inelastic supply response likely to drive prices even higher throughout the rest of the year.

Precious metals

During the first weeks of 2022 the strength of gold surprised the mfarket, not least because the January rally unfolded while US real yields moved sharply higher. The outbreak of hostilities in Ukraine then added a short-lived geopolitical risk premium which saw gold charge higher, only to miss the 2020 record high by a few dollars.

Heading into the second quarter we see gold eventually adjust to the US rate hike cycle and move higher. Our bullish outlook is based on the belief that inflation will remain elevated, with components such as rising input costs from commodities, wages and rentals not being lowered by rising interest rates. We believe gold is also increasingly being viewed as a hedge against the markets’ currently optimistic view that central banks will be successful in bringing down inflation before slowing growth forces a rethink of the pace of rate hikes and the resulting terminal rate.

Having reached our $2000 per ounce target ahead of time we see the market consolidate its first quarter gains before eventually hitting a fresh record high during the second half as growth slows and inflation remains elevated.

Agriculture

The UN FAO Global Food Price Index hit a record high in February before the Ukraine war made matters worse by raising the prospect of even tighter markets across key food commodities, from wheat and corn to edible oils. Adverse weather in 2021 has already reduced global stock levels of key food commodities from soybeans to palm oil and corn. In addition, surging fuel prices will not only drive increased demand for biofuels, but also raise the cost of production through higher diesel and fertiliser cost.

We see an elevated risk of high food price inflation with the focus being weather events and, not least, the duration of the Ukraine war; an extended period of fighting may limit production from Ukraine, a major global supplier of wheat. In its latest monthly report, the US Department of Agriculture lowered its estimates for exports from Russia and Ukraine by a combined 7 million tons to 52 million; this estimated reduction remains clouded in a high degree of uncertainty and could rise sharply in the event of a long, drawn-out war, thereby keeping prices elevated.

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

Will Commodities Continue to Outperform in Q2 2022?

Commodity Markets Fundamental Analysis and Price Action

As we head into a fresh month and fresh quarter of 2022 – Rapidly surging global inflation, Rate Hikes and Geopolitical Risk are now emerging as the three major themes dominating and driving the financial markets.

Oil prices soared above $130 a barrel to hit their highest level in a decade. While Gold extended its parabolic rally from just under $1,800 an ounce to a high of $2,070 an ounce – just $5 short of an all-time high reached in August 2020.

The bullish momentum also split over into other commodities with Aluminium, Copper, Lithium, Platinum, Palladium, Uranium, Zinc, Coffee, Wheat and Lumber prices blasting through all-time highs.

Elsewhere, U.S Natural Gas prices have almost doubled this quarter and are on course for their strongest rally since 2009. Meanwhile, European Natural Gas prices have skyrocketed a whopping 90% to post their biggest monthly rise ever.

But the best performing commodity was Nickel.

Nickel prices snatched the headlines this month with a blistering gain of over 250% in a single day to register the biggest one-day move ever seen in the history of the commodities markets.

In total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains within the first quarter of 2022 – And this is just the beginning!

According to Goldman Sachs “we’re still only at the first inning of a multi-year, potentially decade-long Commodities Supercycle”.

Commodity Prices Forecast Video for the Week 04.04.22

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

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

Precious Metal Prices Post Best Quarter Since 2020 – What’s Next?

Commodity Prices Fundamental Analysis

In total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains within the first quarter of 2022… And this is just the beginning!

According to Goldman Sachs “we’re still only at the first inning of a multi-year, potentially decade-long Commodities Supercycle”.

Looking ahead, traders will be closely monitoring Friday’s Key U.S Employment Report for clues on the precious metal markets next big move. This is not only the most highly anticipated economic report of every month, but it’s also a key measure of economic performance and inflation tracked by the Fed – which always has the potential to move the markets significantly.

There will be a huge focus on Friday’s data, especially as the recent uptick in inflation could force the U.S Federal Reserve to raise interest rates more aggressively if needed.

With inflation running at a 40-year high, finding the right balance between stabilizing prices and supporting the economic recovery is one of the biggest challenges facing the Fed right now.

Friday’s U.S jobs report will either make the Fed’s decision on future rate hikes much easier or much more difficult, which ultimately opens the door to new and exciting opportunities ahead.

Commodity Prices Forecast Video for 01.04.22

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

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

COT: Energy Sector Led Cautious Recovery in Risk Appetite

That week that saw a post-FOMC surge in risk appetite with the MSCI World and S&P 500 both jumping by more than 6% while VIX, the fear index, slumped. Bond yields raced higher on the prospect of rising inflation, forcing a more aggressive Fed reaction while the dollar held steady with a sharply weaker yen being offset by gains across most other currencies. The commodity sector traded mixed with strong gains across the energy sector and softs being partly offset by metal weakness and emerging softness across key crops.

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.

Commodities

The Bloomberg Commodity Spot index traded higher during the reporting week, thereby recouping some the losses from the previous week when surging volatility and increased focus on margin calls forced a blanket reduction of positions across the whole sector.

Energy

The energy sector saw most of the activity with gains from 15% in crude oil to 30% in gas oil (diesel) lifting the net long across the sector for the first time in three weeks. Hedge funds lifted their WTI and Brent crude oil net long by 13k lots, after 123k lots were dumped during the previous two week amid surging volatility and margin calls. The 28% jump in ULSD (diesel) triggered a 23% reduction driven by fresh short selling.

From today’s Market Quick Take:

Crude oil (OILUKMAY22 & OILUSMAY22) trades lower in early trading with Friday’s rebel attacks on Saudi Arabia are being offset by concerns about the short-term demand outlook in China, after the world’s largest importer of crude, said it would lock down half of Shanghai for mass testing as virus flare-ups continue to spread. Russian and Ukraine peace talks resumes this week but with Putin’s government regarded as toxic to many key buyers, self-sanctioning is likely to continue despite a potential solution.

On Thursday, OPEC+ meets virtually to set targets for May but given their inability or unwillingness to discuss the elephant in the room, the drop in Russian production, hopes for additional barrels from GCC producers remain slim. Key resistance in Brent at $123/b while a break below $112/b would signal further loss of momentum.

Metals

Speculators continued to adjust positions following the recent 175 dollar top to bottom correction in gold, and after the FOMC carried out the first of many rate hikes in order to curb runaway inflation. The result being a 9% reduction in both gold and silver length. HG Copper meanwhile saw its net long jump 25% but at just 36.5k lots, it remains around 45% below the one-year peak.

From today’s Market Quick Take:

Gold (XAUUSD) trades lower as the global bond rout continues to gather momentum with the US ten-year Treasury yield surging past 2.5% in Asia while crude oil trades lower as China’s virus flare-ups worsens and Ukraine appears to be ready to discuss a deal (see below). Having failed to punch through resistance at $1962 last week, the market is once again trading on the defense with focus on ETF flows, the key source of underlying demand during the past month. A break below $1922 raising the risk of a return to key support in the $1900 area.

Copper (COPPERUSMAY22) trades lower for a third day with traders worried about the short-term impact of demand as China, the world’s top consumer, continues to battle virus flare-ups. In addition, Jiangxi Copper Co., China’s top producer of the metal, warned on Friday that prices of the metal may fall this year along with other commodities as countries roll back stimulus and high prices curb demand, while logistics bottlenecks ease.

Grains

The grains sector also saw mixed action with length being added to soybeans and corn while wheat saw a small net reduction. Overall, however, the net long across the six major futures markets reached a ten-year high and the third highest on record.

Soft Commodities

A strong across sector gain of 5.5% only attracted net buying to cotton and sugar with coffee’s bounce from a four-month low lacking conviction as longs were reduced as the price moved higher.

Forex

Despite trading lower following the long-awaited first US rate hike on March 16, speculators instead opted to increase their overall dollar long against ten IMM currency futures and the Dollar index by 45% to $15.4 billion.

Except for fresh EUR buying, flows were generally dollar friendly with selling being most noticeable in CAD (-22.6k lots or $1.8 billion equivalent), and JPY (-16k lots or $1.7 billion equivalent) which dropped to a six-year low.

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

Commodity Prices Set For The Greatest Year Since 1915 – What’s Next?

Commodity Prices Analysis for the First Quarter of 2022

As we head into the final week of March and into a fresh quarter of 2022 – rapidly surging global inflation, rate hikes and geopolitical risk are now emerging as the three major themes driving the financial markets.

So far this quarter, Commodity prices across the board have been on an absolute tear racking up double to triple digit gains – positioning themselves firmly on track for their greatest year on record in over a century.

Oil prices soared above $130 a barrel to hit their highest level in a decade. While Gold extended its parabolic rally from just under $1,800 an ounce to a high of $2,070 an ounce – just $5 short of an all-time high reached in August 2020.

The bullish momentum also split over into other commodities with Aluminium, Copper, Lithium Platinum, Palladium, Uranium, Zinc, Coffee, Wheat and Lumber prices blasting through all-time highs.

Elsewhere, U.S Natural Gas prices have almost doubled this quarter and are on course for their strongest rally since 2009. Meanwhile, European Natural Gas prices have skyrocketed a whopping 90% to post their biggest monthly rise ever.

But the best performing commodity this quarter is Nickel.

Nickel prices snatched the headlines this month with a blistering gain of over 250% in a single day to register the biggest one-day move ever seen in the history of the commodities markets.

Already within the first quarter of 2022 – a total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains and this is just the beginning!

According to Goldman Sachs “we’re still only at the first inning of a multi-year, potentially decade-long Commodities Supercycle”.

Commodities Price Forecast Video

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

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

Higher Inflation Is Here To Stay – What Does That Mean for Gold?

March has been a monumental month for monetary policy as governments and central bankers across the world ramp up the fight against rapidly surging inflation while acknowledging that inflationary pressures could persist for years, driven in part by the crisis in Ukraine.

Just a few months ago, 2022 looked set be the year of global recovery, with the U.S, China and Europe returning to pre-pandemic levels of growth. However, the world is now in a completely different place from what it was just a month ago.

The current fundamental backdrop, combined with the largest war on European soil for almost 80 years, economic impact of sanctions on Russia and the return of Coronavirus to China – once again threatens global supply chains, enviably fueling inflation expectations to rise further.

This ultimately presents huge bullish tailwinds for the entire Commodities sector and boosts demand as traders pivot into assets that are known to be reliable hedges against risk, inflation and economic shock.

Already within the first quarter of 2022 – a total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains.

And that leads me onto Gold, which right now is hovering around the $1,920 level.

Interestingly, that’s the same level Gold was at near the start of March. But also the same level Gold was at two years ago in March 2020 – just before prices surged to new all-time highs.

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

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

Crude Length Cut to Eight-Month Low; Dollar Buying Resumes

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, March 15. A week where risk appetite stage a small comeback with stock markets rising despite a continued flow of troubling news from Ukraine, and US Treasuries staging a sharp reversal with yields on the 10-year notes surging 30 basis point as the market priced in an imminent but long awaited US rate hike. In commodities, the Bloomberg Spot Index gave back the bulk of the 11% gain from the previous week with selling seen across most sectors.

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.

Commodities

The Bloomberg Commodity Spot index slumped by 8.3%, thereby giving back most of the gains seen during the first week of the Russian invasion. Russia-focused commodities like crude oil, palladium and wheat took the biggest hit in percentage terms. Overall the total net long held by managed money accounts across 24 major commodity futures was reduced by 5% to an eight-week low at 2.06 million lots, the biggest reductions seen in crude oil, natural gas, gold, silver, copper and coffee.

During 2021 the 30-day volatility on the BCOM Spot index traded within a 9% to 19.5% but since the war started on February 24, it has surged higher, reaching 31% last week, thereby forcing many hedge funds targeting a certain level of volatility to cut their exposure.

The jump has been led by spikes in energy, industrial metals and grains, all of which have seen volatility more than double. As long the volatility remains stable, trend and momentum following hedge funds will normally buy into strength and sell into weakness. The mentioned volatility surge helps to explain the current behavior where positions have been cut to pre-war levels.

Energy

Another week of extreme volatility in crude oil, this time a 22% move to the downside, drove a second weekly reduction in the combine WTI and Brent net long by 23k lots to a four-month low at 411k lots and just above the 400k lots reached in early December when crude oil briefly traded below $70/b in response to the omicron virus variant. Brent, the global benchmark saw its net long drop to a 16-month low at 153k lots.

As mentioned, when volatility spikes and traders are faced with rising margin calls on their open futures positions, the first reaction is to make an across the board reduction. This is currently very noticeable in the five oil and fuel contracts which have seen open interest fall from 7.1 million lots on March 12 to a current seven-year low at 4.7 million lots.

Monday am market comment

Crude oil (OILUKMAY22 & OILUSAPR22) rose to a one-week high in Asia as the war in Ukraine keeps global supplies very tight with traders, mostly through self-sanctioning, avoiding Russian crude, currently being offered close to 30-dollar below Brent with a limited number of buyers queuing up to secure cheap cargoes.

In addition, Middle East tensions also rose after Houthi rebels attacked sites across Saudia Arabia over the weekend. With supply tightening, the market will be looking for signs of demand destruction, mostly through the cost of diesel and gasoline as well as the impact of temporary covid related lockdowns in China.

Metals

Gold’s recent surge towards the 2020 record high and subsequent abrupt rejection helped drive a 5.5% correction and with that a relative small 16% reduction in the net long to 147.5k lots, the first weekly reduction in six weeks. Small in the sense that gold almost gave back all of its post invasion gains.

With most of the reduction being driven by long liquidation and a very limited amount of fresh shorts, this highlights a change that was primarily driven by leveraged traders forced to reduce bullish bets. Other big changes were a 41% reduction in the platinum long and a 31% reduction in the copper long to 29k lots and just below the average sized positions leveraged funds have held during the past year.

Monday am market comment

Gold (XAUUSD) & silver (XAGUSD) trade steady as investors continue to weigh monetary policy tightening in the US against the inflationary impact of the Russia-Ukraine war. Long liquidation from leveraged funds who had loaded up on gold futures in recent weeks may have run its course, while longer-term focused investors have been continuing buyers of gold ETFs since the war began.

During this time, total holdings have jumped by 134 tons to a one-year high at 3,246 tons, with more than half of the increase seen during golds recent 175-dollar correction. Gold as being bought as a hedge against elevated inflation and a central bank policy mistake with slowing growth potentially preventing the FOMC from carrying out its planned number of rate hikes before being forced to revert to a period of renewed stimulus. Key support at $1890/oz with a break above $1957 needed to signal fresh upside potential

Agriculture

Coffee long liquidation accelerated as it extended to a fourth week with the net long falling 26% to an eight month low at 29k lots. In sugar, a 4.8k lots small reductions followed the massive 79.5k lots jump the previous week.

Grains were the only sector seeing net buying and after four weeks of continued buying the total long across the six contracts tracked in this has reached a ten-year high at 803k lots. The bulk being held in the soybean complex (363k) and corn (373k) with the recently surge in wheat to record highs only a attracting a 67k lots position in the Kansas and Chicago wheat contracts.

Forex

Continued market turmoil and expectations for an imminent rate hike from the US Federal Reserve helped drive the first increase in bullish dollar bets since early January. The aggregate dollar long against ten IMM currency futures and the Dollar Index jumped by 53% to $10.7 billion.

On an individual level we find several major changes with biggest being a 68% reduction in the euro long to just 18.8k lots, the 40k lots reduction was the biggest one-week of net selling since June 2018. Specs also sold JPY (6.5k), GBP 16.5k) and not least MXN where 63.6k lots of selling, the biggest one-week reduction in two years flipped the position back to a net short. Countering these changes were buying of CAD (10k) as well as the antipodean currencies of NZD (16k) and not least the AUD where the 33.3k lots of buying, the biggest in seven-years helped reduce the net short by 43% to 44.9k lots.

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

Commodity Traders Eye Big Gains As Fed Risks Another Recession – What’s Next?

The most highly antipated FOMC Meeting of 2022 and quite possibly the most important monetary policy decision in Jerome Powell’s career took place last Wednesday with the Federal Reserve lifting interest rates for the first time in the pandemic era.

At the end of its two-day policy meeting, the Federal Open Market Committee increased its benchmark interest rate by a quarter of a percentage point and signalled further hikes at all six remaining meetings this year.

Looking back throughout the whole of 2021, Fed Chair Jerome Powell played down the biggest year-on-year rise in inflation seen in more than four decades – characterizing the record spike as “transitory”, which inevitability will always be remembered as the worst inflation call in the history of the Federal Reserve.

There’s no denying it, that the Fed is caught in a box of its own making because it didn’t move quickly enough on raising rates last year. Now it has to be seen to move aggressively, which ultimately means, Stagflation is now a major risk to the economy in the second half of the year, or worst still a recession.

Historically, every Fed rate hike cycle over the last 70 years has pushed the economy into recession and traders are convinced that this time, it won’t be any different.

Only time will tell, however one thing we do know for certain is that the U.S dollar and Equity markets tends to lose altitude once the Fed begins its tightening cycle. This inversely presents huge bullish tailwinds for the entire Commodities sector from the metals, energies to soft commodities – as they are viewed as one of the most reliable hedges against risk, inflation and economic shock.

Already within the first quarter of 2022 – a total 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains and this is just the beginning!

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

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