Speculators Rotate Towards Crude Oil and Natgas

A week that saw continued stock market weakness and rising bond, albeit at a much reduced pace after Jerome Powell pledged to do what’s necessary to reduced inflation while at the same time prolonging the economic expansion. The dollar traded weaker ahead of last Wednesday’s, thereby supporting a strong rally in commodities led by energy and industrial 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.


The Bloomberg Commodity Index jumped 2.2% during the reporting week to January 11 with a 6.3% gain in energy and 1.2% in industrial metals offsetting weakness across the agriculture sector which with the exception of coffee and cocoa saw broad losses led by sugar and hogs. Responding to these developments, money managers accumulated fresh longs across the energy sector, not least in crude oil, while cutting back on exposure across all other sectors.

In crude oil, the combined net long in Brent and WTI jumped by the most since November 2020 to reach 538k lots or 538 million barrels, still well below the most recent peak at 737k lots from last June. A US cold blast helped send natural gas up by 14% and the net long up by 30% to 163k lots.

In the other sectors of metals and agriculture, speculators opted to reduce their exposure with the few exceptions being soybeans, cocoa and coffee. Rangebound HG copper as an example saw its net long reduced by 15% to 22.2k lots, primarily due to increased short selling, some of which were probably stopped out during the failed breakout attempt above $4.47 towards the end of last week. Gold and silver both saw net selling , while the platinum short jumped 86%.

In agriculture, speculators increased their long positions in all three soybeans contract, the corn long was cut by 6% while the CBOT wheat short jumped by 40% to an 18-month high. In softs, the sugar long continued to be cut, this time by 61.6k lots to 76.5k lots, and since hitting a cycle peak last August the net long has now been reduced by 72% to a near 18 month low. Cocoa flipped back to a small net long, the coffee long rose 4% while the cotton long was cut by a similar percentage.

Market comments from today’s Market Quick Take:

Crude oil (OILUSFEB22 & OILUKMAR22) trades mixed with Brent crude oil briefly challenging the double-top at $86.75, a seven-year high, before having a rethink as China GDP and retail sales slowed amid ongoing measures to curb the spreading of the omicron variant.

The prompt spreads in WTI and Brent remain elevated at 63 and 74 cents per barrel, thereby signaling rising tightness. Later this week monthly Oil Market Reports from OPEC on Tuesday and IEA on Wednesday will shed some further light on the current situation. Speculators, a little late to the recent rally, boosted bullish oil bets in WTI and Brent bets by the most in 14 months last week.

Copper (COPPERMAR22) slid the most in seven weeks on Friday as weaker-than-expected U.S. economic data (see below) together with weakness in China added to concerns that global growth may slowing amid rising inflation and the spreading virus. High Grade’s drop back below $4.50 triggered some stop loss selling from recently established longs before stabilizing overnight after China, the world’s top consumer, cut rates to support its economy. The worry over tight supplies, however, has not gone away and should cushion any short-term weakness.

Gold (XAUUSD) remains resilient despite Friday’s renewed surge in bond yields as the market continues to price in the prospect of rising US interest rates, potentially at a more aggressive pace than previously expected. Support continues to build in the $1800-area while a break above $1830 could see it target $1850 ahead of the November peak at $1877.


In forex, the major flow was selling of JPY, where the net short increased by 25.3k lot or the equivalent of $2.7bn. Additional selling of AUD (-2.1k lots) took the net short to a fresh record short at 91.5k lots. The EUR position flipped back to a net long after speculators bought 7.6k lots while the GBP short was reduced by 26%. Overall, the dollar long against ten IMM currency futures and the Doller Index rose by a small 1% to $23.5 billion.

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

Gas Markets Lead Broad Commodity Strength in 2022

Commodities extended their strong start to the year this week and once again the energy sector was the main focus with tighter-than-expected supply driving crude oil higher while extreme roller-coaster rides best describe what unfolded in the natural gas market, both in the US and especially in Europe. Gold traded steady with easing yields and a weaker dollar supporting a surprisingly robust start to the year. The industrial metals sector jumped to a three-month high driven by rapidly declining inventories, supply disruptions and the prospect for Chinese stimulus.

On the macroeconomic front the commodity sector received some additional tailwind from a weaker dollar and softer bond yields after data showed US consumer prices reached a forty-year high at 7% in December, in line with expectations. China, in contrast, saw its CPI cool, and together with weak lending data it raised the prospect for the Chinese government speeding up the pace of some of the 102 major projects outlined in its 2021-25 development plan. Many of the areas pinpointed will required industrial metals in some sort as they focus on energy security, affordable housing, infrastructure developments and logistics.

Industrial metals sector

The industrial metals sector jumped to a three-month high on the prospect of rapidly declining inventories, supply disruptions and the mentioned prospect for Chinese stimulus raising the potential for a renewed upside push. Nickel led from the front after reaching a decade high on worries Indonesia, the world’s biggest shipper, will introduce export taxes on raw nickel exports to focus on expanding more profitable refining activities at home. The move by Indonesia, together with solid demand towards the production of electrical-vehicles batteries, may trigger a large supply deficit in 2022.

Following months of sideways trading, copper showed signs of breaking higher with the move above the $4.47-50 area of resistance-turned-support being driven by the prospect for rising demand towards electrification, tight supplies and signs China is stepping up its policy response to support a slowing economy, thereby off-setting recent macro risks, especially those stemming from China’s beleaguered property sector.

Agriculture sector

The agriculture sector has seen a mixed start to the year with tight supply markets such as coffee, cotton and soybeans trading higher while weakness in wheat has continued this month. Gathering pace after the USDA raised its forecast for world inventories, and after the International Grains Council forecast record world production in the upcoming 2022-23 season. Adverse weather developments in Brazil continues to negatively impact supplies of coffee and most recently also soybeans, although some beneficial rains are now expected in the growing areas.

Natural gas

Another roller-coaster week unfolded in global gas markets. The US natural gas first month futures contract jumped 14% on Wednesday to a six-week high, in response to frigid freezing weather before collapsing by 12% the following day on the prospect for weather turning milder and after the weekly stock draw was in line with expectations. Adding to this was the recent surge in LNG shipments to Europe and the once-insulated US market has become much more exposed to international developments, all of which supported the biggest weekly rise since November.

Meanwhile in Europe, the energy crisis rumbles on and despite an armada of LNG ships delivering increased supplies, prices remain at punitively and, for some, unaffordable prices. The mentioned arrival of LNG shipments and so far mild January weather has reduced the risk of blackouts and gas storage running empty, but uncertainties regarding the Nord Stream 2 pipeline and Russia’s intentions in Ukraine continue to trigger sudden spikes and high volatility.

On Thursday, the Dutch TTF benchmark gas future briefly traded below €70/MWh in response to the mentioned mild weather and strong overseas LNG supplies, before suffering a sharp reversal higher back above €90/MWh after Russia-US talks failed to ease fears of military action in Ukraine, a crossing point for around one-third of Russian gas to Europe.

Crude oil

Crude oil continues its month-long rally and while the early January jump was driven by temporary worries about supply disruptions in Libya and Kazakhstan, a bigger and more worrying development has become apparent during this time. Besides the surging Omicron variant having a much smaller negative impact on global consumption, it is the emerging sign that several countries within the OPEC+ group are struggling to raise production to the agreed levels that has supported prices this month.

For several months now we have seen overcompliance from the group as the 400,000 barrels per day of monthly increases was not met, especially due to problems in Nigeria and Angola. However, in their latest production survey for December, SP Global Platts found that 14 out of the 18 members, including Russia, fell short of their targets. According to Platts, the 18 members in December produced 37.72 million barrels a day, some 1.1 million barrels below their combined quota.

The rising gap between OPEC+ crude oil quotas and actual production has already been felt in the market with front month futures prices in both WTI and Brent having rallied stronger than later-expiring contracts. The spread or so-called backwardation between the first and the second Brent futures contract has risen from a low point at 20 cents a barrel in early December, when Omicron worries sparked a sharp correction, to 70 cents a barrel currently.

Global oil demand is not expected to peak anytime soon and that will add further pressure to available spare capacity, which is already being reduced monthly, thereby raising the risk of even higher prices. This supports our long-term bullish view on the oil market as it will be facing years of under investment with oil majors diverging some of their already-reduced capital expenditures towards low carbon energy production.

The timing of the next move up hinges on Brent’s short-term ability to close above $85.50/b, the 61.8% retracement of the 2012 to 2020 selloff, followed up by a break above the double top at $86.75. First though, the chart below increasingly points to the need for a period of consolidation or perhaps even a correction. But with firm fundamentals in play only a bigger than expected omicron development and stronger production can send the price sharply lower.


Gold traded higher thereby almost reversing the losses seen during the first few days of the month, when surging US bond yields triggered some weakness. Gold’s ability to withstand the 0.3% jump in US ten-year real yields at the start of the year has surprised some, but not us, given our focus on gold’s relative cheapness to real yields that had been rising since last July.

Having seen that misalignment disappear, gold then received additional support this week from a weaker dollar, not only against the JPY as risk sentiment rolled over, but also against the big EURUSD pair which managed to break free of sub-1.1400 resistance after US CPI jumped to the highest in decades.

Several hawkish comments from Fed members, led by Fed Vice Chair nominee Lael Brainard who said she was open to a March rate move, had limited impact on gold, the most interest and dollar sensitive of all commodities. It highlights our view that the gold market has by now fully priced in a succession of US rate hikes starting this March, and with the bond market being torn between a Fed-driven increase in bond yields against the rising risk of a bond-friendly economic slowdown, we see a much more balanced risk-reward situation emerging in gold.

Silver’s recent outperformance faded in response to some end-of-week profit taking among the industrial metals. For silver to shine and move higher towards the $23.90 resistance area, it first needs to break above $23.41, the 50% retracement of the November to December selloff. Gold meanwhile has once again established some support in the $1800 area ahead of key support at $1777. A break above the $1830-35 area could see it target $1850 ahead of the November peak at $1877.

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

Exclusive-Biden weighing cuts to 2022 ethanol blending mandate proposal -sources

By Jarrett Renshaw and Stephanie Kelly

(Reuters) – The Biden administration is considering lowering the 2022 ethanol blending mandate below the proposed 15 billion gallons amid backlash from the oil refining lobby and unions arguing the shrinking U.S. ethanol industry can no longer support the target, according to two sources familiar with the administration’s thinking.

U.S. President Joe Biden vowed to bring some normalcy back to laws requiring refiners to blend biofuels like corn-based ethanol into the nation’s gasoline pool after his predecessor, Donald Trump, took unprecedented steps to relieve refiners from the requirement.

But Biden is finding it difficult to live up to his promise. The COVID-19 pandemic has dampened fuel consumption and triggered a handful of ethanol plant shutdowns. Higher regulatory costs have refiners threatening to close refineries and shed high-paying union jobs.

In December, the Environmental Protection Agency issued a long-awaited biofuel blending mandate proposal that cut ethanol requirements for 2020 and 2021 but restored them to 15 billion gallons for 2022. Farmers and biofuel producers criticized the rollbacks but welcomed the restoration this year.

But, in recent weeks, administration officials have considered rolling back the 15 billion gallon mandate when the final rule is issued later this year, the two sources told Reuters.

“EPA remains committed to the growth of biofuels in America,” said Nick Conger, an EPA spokesperson. “We look forward to reviewing the robust comments that we receive from all stakeholders before finalizing our rulemaking later this year.”

The administration had initially planned to set the 2022 ethanol mandate at 14.1 billion gallons, Reuters previously reported https://www.reuters.com/business/energy/exclusive-us-epa-considering-cuts-biofuel-blending-obligations-2020-2021-2022-2021-09-22, but went with 15 billion gallons under pressure from Farm-Belt Democrats like Senator Tammy Duckworth of Illinois.

“The White House is caught between a rock and a hard place. On one hand, they want to support the agricultural and biofuel industry, but they have been bombarded by unions and refiners who say there’s not enough ethanol and they are listening,” said one of the sources familiar with the discussions.

Under the Renewable Fuel Standard, refiners must blend biofuels like ethanol into their fuel pool or buy tradable credits, known as RINs, from refiners who do. Merchant refiners like PBF Energy and Monroe Energy have long complained that the cost of purchasing RINs threatens their plants.

While cuts to the 2020 and 2021 ethanol mandate briefly lowered RIN costs, they have since rebounded. RINs are trading about 50% higher from the around 80 cents after the mandates were announced in December.

After Reuters reported the news on Wednesday, RIN prices fell about 6% to $1.20 each. Margins to produce gasoline fell to an intraday low of $17 per barrel, before recovering.

Mike Burnside, Policy Analyst at the American Fuel & Petrochemical Manufacturers, a leading refining trade group, told the EPA during a hearing on the blending mandate proposal that its 2022 targets are out of step with demand.

“EIA (the Energy Information Administration) projects that gasoline consumption in 2022 will be below 2019 demand, so it is unreasonable to propose 15 billion gallons for conventional biofuel in 2022 as if the pandemic never happened and we are back to normal,” Burnside said.


The U.S. ethanol industry has seen a number of facilities shut down in the last few years, and the industry had to deal with reduced fuel demand because of the coronavirus pandemic. There were 197 U.S. ethanol plants at the beginning of 2021, down from 201 a year earlier, EIA data showed.

Some ethanol companies have strayed from production of the corn-based fuel.

For instance, a company formerly known as Pacific Ethanol Inc said in 2020 it would change its name to reflect its focus on specialty alcohols used in beverages and sanitizers instead of fuel. It is now Alto Ingredients Inc.

“I don’t see anyone running to invest more,” said Ed Hirs, who teaches energy economics at the University of Houston.

Still, the ethanol industry enjoyed higher margins and increased production in the later half of 2021.

In November, margins to produce ethanol in the Corn Belt increased to $1.82 per gallon, the highest since 2014, Refinitiv Eikon data showed. They have since fallen to about 37 cents per gallon.

U.S. ethanol production in October rose to the most since 2017, according to the EIA.

“The administration has indicated blending requirements will remain strong and at 15 billion gallons for 2022, and we have every expectation that they will deliver on that promise,” said Growth Energy Chief Executive Emily Skor, in response to the news on Wednesday.

(Reporting By Jarrett Renshaw and Stephanie Kelly, Editing by Chizu Nomiyama and Marguerita Choy)

Exclusive-Tereos to exit malt business, eyes Romanian sugar unit closure

By Sybille de La Hamaide

PARIS (Reuters) – Tereos, the French sugar and ethanol group, has sealed an agreement with grain cooperative Axereal to sell its stake in their malt business and is consulting unions on a plan to close its sugar activities in Romania, it said in a document to investors.

Tereos, the world’s second largest sugar producer by volume, has undertaken a wide ranging review of its businesses after a top management reshuffle in late 2020. The new team, which had expressed concern about the group’s high debts, made deleveraging one of its top priorities.

In September, Tereos announced it was to sell its minority stake in two starch joint ventures in China as part of the reorganisation.

In the document, published as part of a bond launch this week, Tereos said it had sealed a deal with Axereal, France’s leading grain collector, to exit their partnership started in 2014, when Tereos’ current Chief Executive Philippe de Raynal was leading Axereal.

Tereos will sell its 11.7% stake in Copagest, the holding of Axereal’s malt business Boortmalt, and buy Axereal’s 2.8% stake in Tereos Agro-Industries, it said.

Tereos Agro-Industries is the holding for the starch and sweeteners operations and part of its international sugar business, a spokesperson said. She declined to give financial details of the agreement.

Tereos estimated that its stake in Copagest was worth 62.2 million euros ($71.08 million) as of March 31, the end of its 2020/21 fiscal year. Boortmalt became the world’s largest malt producer after it purchased Cargill’s malt business in 2019.

“Following this transaction, we will have terminated our partnership with Axereal and fully exited the malt business,” Tereos said in the document.

In addition, Tereos said it was “in the process of consulting employees’ representative bodies with a view to present the project of a potential shutdown of its Romanian sugar activities in the context of a pessimistic outlook.”

“Since its acquisition by Tereos, the Ludus sugar plant in Romania has been facing difficulties mainly due to constant reduction in sugar beet surfaces despite several mitigating actions and has accumulated substantial losses,” Tereos said.

Reuters reported in June last year that the cooperative group was seeking to exit its loss-making Romanian sugar activities.

The Romanian business had 153 permanent employees at the end of September, out of a total 15,000 for the whole group.

Tereos has said it aims to focus on its activities in Europe and Brazil. It is the second largest sugar and ethanol producer in Brazil and also has operations in Reunion Island, Mozambique, Indonesia, Tanzania and Kenya.

It could sell other operations and exit partnerships deemed non-strategic in the future, it said in the document.


Tereos on Monday announced plans for a 300 million euro ($340 million) issue of senior unsecured notes due in 2027, which it said it would use to repay existing debt. The investor roadshow was due to last through Wednesday.

The group eventually raised 350 million euros with a yield set at 4.75%, IFR said later on Wednesday.

Tereos’ net debt stood at 2.63 billion as of Nov. 30 last year, up 263 million euros, or 11.1%, on Sept. 30, but earnings were strong, it said in the document.

For the two-months ended Nov. 30, 2021, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at 173.0 million euros, up 59% on the two-month period ended Nov. 30, 2020. It is the highest adjusted EBITDA for a two-month period since March 2017, it said.

In the eight months to Nov. 30, adjusted EBITDA stood at 373.4 million euros, up from 346.2 million euros on a year earlier.

It confirmed its objective to reach a full-year EBITDA of between 600 and 700 million euros by the end of September 2022.

The group is due to publish its third quarter results up to the end of December early February.

($1 = 0.8751 euros)

(Reporting by Sybille de La Hamaide. Editing by Jane Merriman)

Brazil faces another year of high food inflation due to drought

By Nayara Figueiredo

SAO PAULO (Reuters) – Brazilian consumers could see another round of stiff rises in food prices this year as meatpackers grapple with higher costs due to a drought hurting the crops used to feed livestock.

Meat industry group ABPA says there is no relief in sight before Brazil starts harvesting its mid-year corn crop.

“We see the need for companies to continue to pass on costs,” Ricardo Santin, the head of ABPA, said in an interview.

Given a weaker outlook for the domestic harvest, companies such as BRF SA and JBS SA may have to import cereal, as they did in 2021, he said.

Private analysts are slashing their crop forecasts due to hot, dry weather in Brazil’s southern states, while state crop agency Conab has been conservative, trimming its outlook but projecting a larger soy and corn crop than last year.

Meat prices in Brazil rose 8.45% in 2021, according to government statistics agency IBGE, contributing to overall food inflation of 7.94% and fuelling a 10.06% rise in the benchmark consumer price index, the highest for a calendar year since 2015.

Marcos Zordan, an executive at meat processor Aurora, said a rise of more than 10% in Brazilian corn prices at the start of the year is startling buyers. If that keeps up, companies such as Aurora may resort to importing corn from Argentina or Paraguay, where the La Nina weather pattern has also hurt crop forecasts. “I don’t believe there will be a shortage, but it will be an expensive product, no doubt,” Zordan said. In the last two weeks, the price of domestic corn jumped to 94 reais per 60-kg bag, compared to 84 reais previously, on news of the drought hammering southern Brazil, Zordan noted.

Cesar Alves, analyst with Itaú BBA Agribusiness, said meatpackers were initially expected to save on input costs as planting of Brazil’s summer crops fell within the ideal climate window in key states.

Now, the first corn crop will be smaller than anticipated, by around four million tonnes, according to government estimates.

“Corn is on the rise again,” Alves said. “At least in the first quarter of the year, it will be much tighter for the meat industry.”

(Reporting by Nayara Figueiredo; Writing by Ana Mano; Editing by Paul Simao)

China to keep tariffs on U.S. distillers grains while conducting review

SINGAPORE (Reuters) – China’s commerce ministry said on Tuesday it will maintain anti-dumping and anti-subsidy tariffs on imports of distillers grains (DDGS), a by-product of ethanol production used in animal feed, from the United States during a review.

The ministry will conduct expiry review investigations on the anti-dumping and anti-subsidy measures imposed on DDGS imports from the United States from Jan. 12 and it should end before Jan. 12, 2023, the ministry said in statements.

“Corn prices in China are still high and corn processors are facing tight margins.” said Darin Friedrichs, co-founder of agricultural research firm Sitonia Consulting.

“If US DDGS were coming into China they would further pressure the margins for those plants,” he added.

The ministry said it had on Oct. 25 received an application for expiry review of anti-dumping measures submitted by the China Alcoholic Drinks Association on behalf of China’s dried corn distiller’s grains industry.

China’s tariffs on U.S. DDGS were first implemented in 2016 at a rate of 33.8%, and its imports of the feed ingredient fell sharply.

Anti-dumping duties were raised to the current level of 42.2%-53.7% in January 2017, while the anti-subsidy tariffs were raised to 11.2%-12% from 10.0%-10.7%.

The ministry said any interested party could submit suggestions and evidence to the review within 20 days.

(Reporting by Shivani Singh; editing by Jason Neely, Robert Birsel, Kirsten Donovan)

Explainer-What is at stake for the U.S. biofuel blending law in 2022 and beyond

By Stephanie Kelly

NEW YORK (Reuters) – The U.S. biofuel blending program known as the Renewable Fuel Standard (RFS) could see its most transformative year yet in 2022, as the Biden Administration must make decisions to reset statutes that mandate U.S. renewable fuel blending.

The program was designed to mandate certain volumes of renewable fuels to replace or reduce petroleum-based fuels. Oil refiners, which are required to blend the billions of gallons of biofuels into their fuel mix, say the program is too costly and needs to be reined in, while corn farmers and biofuel producers like the standards, as they have helped to build a multi-billion gallon market for their products.


Congress created the RFS in 2005 and expanded the program in 2007. The Environmental Protection Agency (EPA) administers it.

At the beginning of the program, Congress set yearly volume requirement targets of renewable fuel for the program through 2022. Currently, the proposed volume requirement for 2022 is about 21 billion gallons.

Refiners that do not blend the biofuels can buy tradeable credits, known as RINs, from those that do to show compliance with the mandates.

Some oil refiners have been exempted from the requirements in previous years because they were able to prove financial harm, in what are known as Small Refinery Exemptions.


This year the EPA will have to decide on the next phase of the program in coordination with the Department of Energy and the Department of Agriculture.

The EPA plans to propose requirements beginning in 2023 in May this year, with a final rule to come in December.


Corn farmers and biofuel producers want the EPA to raise required blending volumes of renewable fuels, said Scott Irwin, professor of agricultural and consumer economics at the University of Illinois.

Meanwhile, merchant refiners say the costs of the program are too high and threaten jobs and business at smaller refineries.

“The crude oil refining side wants to give a permanent haircut to the RFS so that basically growth in biofuels would have to be market-driven rather than driven by mandates,” Irwin said.


It’s too soon to say how the administration will approach finalizing its proposals. However, there are several factors that could come into play.

Oil prices and gasoline costs for U.S. motorists rose to multi-year highs last year, and with midterm elections approaching, the administration is wary of hindering production of oil and petroleum-based fuel supplies.

However, the White House has set aggressive targets to reduce carbon dioxide emissions and fight climate change. The RFS could be a key tool in this fight going forward, through incentivizing production of renewable fuels. The White House has to weigh the interests of refining labor unions, farmers, and consumers.


There’s some uncertainty around what exactly the RFS program could include in 2023 and beyond.

The EPA is considering making electric vehicle power generation eligible for renewable fuel credits, a top official told Reuters in December, after the White House directed the agency to study how using renewable fuels to power electric vehicle charging could generate tradeable credits.

The move could boost the U.S. electric vehicle industry, which only accounts for roughly 2% of the U.S. vehicle fleet.

It’s also unclear how the program will incorporate Small Refinery Exemptions going forward. The EPA recently proposed a rejection of 65 pending applications for the exemptions, but the action is not final.

Some have speculated that the program will be less focused around corn-based ethanol, the most widely used biofuel and a key lobbying force in the industry, and instead around advanced biofuels such as renewable diesel, made from plant oils or animal fats.

“I don’t think there’s any doubt that the future trajectory is going to be weighted toward advanced biofuels,” Irwin said. “What’s going to be interesting to see in the reset is how advanced versus conventional is handled.”

(Reporting by Stephanie Kelly)

World food prices hit 10-year high in 2021

PARIS (Reuters) – World food prices jumped 28% in 2021 to their highest level in a decade and hopes for a return to more stable market conditions this year are slim, the U.N.’s food agency said on Thursday.

The Food and Agriculture Organization’s (FAO) food price index, which tracks the most globally traded food commodities, averaged 125.7 points in 2021, the highest since 131.9 in 2011.

The monthly index eased slightly in December but had climbed for the previous four months in a row, reflecting harvest setbacks and strong demand over the past year. [GRA/]

Higher food prices have contributed to a broader surge in inflation as economies recover from the coronavirus crisis and the FAO has warned that the higher costs are putting poorer populations at risk in countries reliant on imports.

In its latest update, the food agency was cautious about whether price pressures might abate this year.

“While normally high prices are expected to give way to increased production, the high cost of inputs, ongoing global pandemic and ever more uncertain climatic conditions leave little room for optimism about a return to more stable market conditions even in 2022,” FAO senior economist Abdolreza Abbassian said in a statement.

A surge in the price of fertilisers, linked in turn to spiralling energy prices, has ramped up the cost of so-called inputs used by farmers to produce crops, raising doubts over yield prospects for next year’s harvests.

In December, prices for all categories in the food price index bar dairy products fell, with vegetable oils and sugar falling significantly, the agency said in its monthly update.

It cited a lull in demand during the month, concerns about the impact of the Omicron coronavirus variant, and supplies from southern hemisphere wheat harvests for the declines.

However, all categories in the index showed sharp increases during 2021 as a whole and the FAO’s vegetable oil price index hit a record high.

Crop futures have seen volatile trading at the start of 2022, with oilseed markets stirred by drought in South America and floods in Malaysia. [POI/]

Dairy prices maintained their recent strength in December, helped by lower milk production in Western Europe and Oceania, the FAO said.

(Reporting by Gus Trompiz; Editing by David Clarke)

Farming for the climate: Off-season ‘cover’ crops expand as U.S. growers eye low-carbon future

By Karl Plume

CHICAGO (Reuters) – Illinois farmer Jack McCormick planted 350 acres of barley and radishes last fall as part of an off-season crop that he does not intend to harvest. Instead, the crops will be killed off with a weed killer next spring before McCormick plants soybeans in the same dirt.

The barley and radishes will not be used for food, but Bayer AG will pay McCormick for planting them as the so-called cover crops will generate carbon offset credits for the seeds and chemicals maker.

The purpose of cover crops is to restore soil, reduce erosion and to pull climate-warming carbon from the atmosphere through photosynthesis. The carbon trapped in roots and other plant matter left in the soil is measured to create carbon credits that companies can use to offset other pollution.

The practice shows how the agriculture industry is adapting as a result of climate change. Farmers no longer make money merely by selling crops for food and livestock feed – they may also be paid for the role crops can play in limiting planet-warming emissions.

More and more U.S. farmers are planting cover crops, from grasses like rye and oats to legumes and radishes. While some are converted into biofuels or fed to cattle, most are not harvested because their value is greater if they break down in the soil.

Cover crops are a pillar of regenerative agriculture, and they are generally seen by environmentalists as an improvement over traditional agriculture. It is an approach to farming that aims to restore soil health and curb emissions through crop rotation, livestock grazing, cutting chemical inputs and other practices.

Rob Myers, director for the Center for Regenerative Agriculture at the University of Missouri, estimates cover crop plantings swelled to as much as 22 million acres in 2021. That is up 43% from the 15.4 million acres planted in 2017, according to the most recent U.S. Department of Agriculture (USDA) data.

“There are so many things pushing cover crops forward. The carbon payments are the newest thing. We’ve seen a tremendous farmer interest in soil health,” he said.

Myers estimates that by the end of the decade between 40 million and 50 million acres of cover crops will be planted annually.

The surge will likely accelerate as government and private conservation programs expand, experts say.

An even greater expansion of cover crop acreage in coming years could be a boon to seed and fertilizer companies, though the companies say it is hard to predict which cover crops farmers will decide to plant.

Companies including Bayer, Land O’Lakes and Cargill Inc have launched carbon farming programs over the past two years that pay growers for capturing carbon by planting cover crops and reducing soil tillage.

Land O’Lakes subsidiary Truterra paid out $4 million to U.S. farmers enrolled in its carbon program in 2021 for efforts the company says trapped 200,000 metric tons of carbon in soils.

Others are expanding from small pilot programs, including Cargill, which aims to increase its sponsored sustainable farming programs to 10 million acres by the end of the decade, up from around 360,000 acres currently. Seedmaker Corteva Inc boosted its carbon offering from three U.S. states to 11 for the 2022 season.

Federal conservation programs have for years paid farmers to set aside environmentally sensitive lands such as flood plains or wildlife habitat, and the Biden administration plans to expand those programs. President Joe Biden’s Build Back Better legislation targeted some $28 billion for conservation programs, including up to $5 billion in payments to farmers and landowners for planting cover crops, though the bill’s fate remains unclear.


Much of the growth in cover crop plantings to date has been led by a limited number of conservation-conscious farmers pursuing other goals such as soil fertility or water management. Program payments rarely cover the cost of seeds and labor.

“You’ve got to want to do it,” said McCormick, who has increased his cover crop acres more than tenfold over the past six years and received his first payment from Bayer this autumn.

“If somebody wants to hand me a couple of bucks an acre for something I’m doing, I’ll take it. But I wouldn’t do it just for the incentive. I don’t think the incentives are great enough,” he said, adding that his main motivation is the role played by cover crops in improving soil and making his farm more drought tolerant.

Similarly, Ohio farmer Dave Gruenbaum rapidly increased his cover crop plantings beginning five years ago after liquidating his dairy herd, expanding to all of his 1,700 acres in each of the past two years.

“It’s about having something green growing year-round,” he said. “It’s amazing how the soil is changing.”

Gruenbaum enrolled in a program administered by Truterra, which has helped to offset a portion of his planting and labor cost.

Some experts caution that the shift to planting more off-season cover crops could result in narrower planting windows for farmers’ main cash crops, particularly if climate change triggers more volatile spring weather.

Cover crop seed shortages are also likely.

“There’s an incredible pulse of demand coming … The demand for seed is going to exceed supply so there’s going to be a huge supply challenge,” Jason Weller, president of Truterra, told an American Seed Trade Association conference in Chicago last month.

While emissions from destroying the crops are minimal, some critics still say the practice will increase applications of farm chemicals as acres expand.

Environmentalists say cover crop planting is still an improvement on traditional agriculture, which normally leaves fields fallow for half the year and foregoes an enormous amount of plants’ carbon-capture potential.

“Cover crops can be a really important part of organic and regenerative farming systems,” said Amanda Starbuck, research director with Food and Water Watch. “But it all depends on how they’re being implemented.”

(Reporting by Karl Plume in Chicago; Editing by Caroline Stauffer and Matthew Lewis)

LNG, coal lead 2021 commodities rally as markets eye COVID-19 for next move

By Naveen Thukral and Florence Tan

SINGAPORE (Reuters) – Commodity prices from energy and metals to agricultural products rebounded sharply in 2021, with power fuels leading the rally, driven by tight supplies and a strong economic recovery as COVID-19 vaccinations staved off widespread lockdowns.

Global demand for commodities is expected to remain robust in 2022 and underpin prices as the world economy continues to recover, although similar price jumps are unlikely, analysts and traders say.

“2021 has been characterised by a huge broad-based rally,” said Jeffrey Halley, a senior analyst at brokerage OANDA.

“Although I believe commodity prices will remain robust, I believe the rebound in 2020 and the rally of 2021 will be exceptional years and as such I am not anticipating the same level of gains in the year ahead.”

Energy and food prices rocketed higher this year, hammering utilities and consumers from Beijing to Brussels, raising inflationary pressures.

High prices are encouraging producers to ramp up output, but some analysts expect supplies for products such as oil and liquefied natural gas (LNG) to stay tight as these projects require years for production to come on line. (Graphic: Top energy markets in 2021, https://fingfx.thomsonreuters.com/gfx/ce/gdvzykrxypw/TopEnergy2021.png)


Record coal and natural gas prices led to a severe power crunch from Europe to India and China in 2021.

Asian LNG rallied more than 200%, while Asia’s benchmark coal prices doubled.

“Global LNG demand grew by 20 million tonnes per year in 2021 with Asia accounting for virtually all of this growth,” said Valery Chow, head of Asia gas and LNG research at Wood Mackenzie, adding that more than 20% growth in demand from China has made it the world’s top importer, overtaking Japan.

“However, persistently high LNG spot prices are likely to start dampening overall demand growth, especially in the more price-sensitive markets of South Asia and Southeast Asia,” he said.

Global oil prices also recovered 50% to 55% in 2021, with Brent settling at $77.78 per barrel and WTI at $75.21 per barrel, and are set to rise further https://www.reuters.com/markets/commodities/global-oils-comeback-year-presages-more-strength-2022-2021-12-23 next year as jet fuel demand catches up. [nL1N2TG03Y]

In China, coal prices have more than halved from a record high reached in October after the top producer and consumer boosted output https://www.reuters.com/world/china/china-nov-coal-output-strikes-new-high-ensure-winter-supply-2021-12-15 and tamed prices.


The power crunch in China and Europe hit aluminium production, driving prices up over 40% for a second year of gains. However, it also affected demand for iron ore as the world’s top steel producer China cut output.

Iron ore prices, which hit record peaks in May, crashed in the second half of the year amid strict output curbs in China. Dalian iron ore futures fell more than 10% after a massive rally over the past two years.

Base metals are expected to outperform as energy transition will drive demand, analysts say, while supply chain bottlenecks could persist.

LME copper rose for a third year, up about 25% in 2021.

“Copper demand is expected to enter its second year of expansion, especially after the recently-concluded COP26 demonstrated an increasing willingness by governments to prioritise clean energy,” OCBC economist Howie Lee said. (Graphic: China’s main metals markets in 2021, https://fingfx.thomsonreuters.com/gfx/ce/zgpomaworpd/TopMetals2021.png)


Chicago soybeans rose for a third year in a row, corn by 22% and wheat by more than 20%.

Supply constraints due to adverse weather and strong demand generally boosted agricultural markets.

Both Malaysian palm oil and soybean oil added more than 30%, each rallying for a third year.

For beverages, arabica coffee added almost 80%, taking gains into a second year and robustas jumped 70%, recouping three years of losses, as supply chain issues increased appetite. (Graphic: Top global agriculture futures markets in 2021, https://fingfx.thomsonreuters.com/gfx/ce/byvrjmogqve/TopAgs2021.png)

Raw sugar rose more than 20%, rallying for a third year and white sugar made similar gains as production fell in top producer Brazil because of a drought and frosts.

Precious metals prices may cool, dragged down by strong risk appetite in equities and other markets, analysts say.

Gold was largely unchanged after dropping last yearand silver is set to end the year down after two strong years.

(Reporting by Naveen Thukral and Florence Tan in Singapore; additional repporting by Yuka Obayashi in Tokyo, Enrico Dela Cruz, Manila, Muyu Xu and Emily Chow in Beijing; graphics by Gavin Maguire; editing by Richard Pullin)

Grinch hits candy cane makers with sugar shortage, twisted supply chain

By P.J. Huffstutter and Marcelo Teixeira

CHICAGO (Reuters) – Orders have been pouring into Andrew Schuman’s candy cane business this year, but business has been anything but sweet.

“We’re not taking new orders from new customers,” said Schuman, chief executive officer of Hammond’s, based in Denver, Colorado. “We can’t keep up with demand.”

Candy makers, like retailers and farmers, have been slammed during the pandemic with high commodity prices, labor shortages, and transportation and supply chain snarls, preventing them from fully cashing in on the holiday season.

For more than a century, Hammond’s Candies has twisted and packed up the classic Christmas treat for tiny gift shops and massive grocers alike. It is the largest wholesale supplier of U.S. handmade candy canes.

This year, Hammond’s labor costs have increased 30%, yet staffing remains a problem: The company’s 250-person crew is down nearly 100 people.

Hammond’s is not alone.

When Sam’s Club, a Walmart unit, placed an order for Doscher’s Candy Co.’s gourmet candy canes, co-owner Greg Clark was thrilled. Still, he said, Doscher’s had staff and supplies to produce about 70% of the hand-crafted candies Sam’s Club wanted.

“More and more Sam’s Club members are shopping for seasonal candy, including candy canes,” a company spokeswoman said. “In an effort to meet the anticipated demand, we increased buys from other suppliers and pulled inventory and production forward where possible.”

Total seasonal confectionery sales are up 20% over last year, for the five-week period ending Dec. 5, according to the National Confectioners Association and IRI market data. Winter holiday non-chocolate sales – including candy canes – are up more than 34% from 2020.

Retailers have increased holiday candy items per store by more than 9%; and the total amount of non-chocolate products in stores is up nearly 23%, according to the data.

Many consumers are scrambling to stock up for the holidays after missing family gatherings last year.

“This is the fourth grocery store I’ve hit today, trying to find enough candy canes for our tree and stockings,” grumbled Terri Andresson, 51, browsing at Mariano’s grocery store in Chicago.

Kroger Co, which owns Mariano’s, declined to comment.

Spangler Candy Co., the largest U.S. candy cane maker, ran extra shifts this fall to meet demand, said president Kirk Vashaw. The Ohio-based firm turned away business and faced supply-chain headaches.

“We would have the cherry flavoring scheduled to come in on Monday, but the trucks were delayed, so we would have to stop and switch over to raspberry,” Vashaw said.


Facing tight global supplies, some sugar suppliers have limited sales to food manufacturers.

The U.S. imports about a quarter of its annual sugar needs, according to U.S. Department of Agriculture data. A swath of this year’s domestic crop was destroyed when Hurricane Ida tore across Louisiana, the nation’s second-largest sugarcane producing state.

    Meanwhile, freight prices are soaring, and Brazil and Thailand – two of the world’s top sugar producers – had smaller-than-expected crops. Sugar prices are at a decade-high.

    “I’ve heard that some commercial buyers are looking at erythritol as a substitute sweetener,” said Bob Cymbala, a food trader at A&J Global USA, referring to a sugar substitute made from corn.

But prices are rising for corn-based sweeteners too. Clark from Doscher’s Candy said suppliers of corn syrup – used to make candy canes – are quoting a 10% hike in 2022.

    As sugar supplies tightened, the U.S. government adjusted sugar import quotas after some overseas sugar suppliers failed to deliver the product.

Rick Pasco, president of the Sweetener Users Association trade group, said candy producers are hurt by the U.S. sugar policy, which limits imports to protect local growers.

“We are only getting a fraction of what we need” Pasco said.

(Reporting By P.J. Huffstutter in Chicago and Marcelo Teixeira in New York City; Editing by Caroline Stauffer and David Gregorio)

U.S. overpaid corn farmers $3 billion in Trump trade aid -GAO

By P.J. Huffstutter and Leah Douglas

CHICAGO (Reuters) -The Department of Agriculture overpaid U.S. corn farmers in 2019 by around $3 billion for impacts from former President Donald J. Trump’s trade policies, in part because the agency over-estimated the value of their lost export business, according to a nonpartisan government agency report released Monday.

The Market Facilitation Program in 2018 and 2019 distributed $23 billion in payments to farmers under the USDA’s Farm Service Agency to help offset the heavy blows farmers faced in the wake of Trump’s trade war with China and other top export markets.

Payments to corn farmers were approximately $3 billion more than USDA’s final estimated damages from the trade war, while soybean, sorghum, and cotton farmers received less than the estimated trade damage, the report from the U.S. Government Accountability Office (GAO) found.

The report, requested by the U.S. Senate Agriculture Committee, also found that the way USDA distributed payments led to producers in different regions receiving different payments for the same crop.

Farmers in the South benefited the most, according to the report, while farmers in the Northeast and West received the least amount in payments.

At the time, the widely varying payouts confused and irritated farmers, as well as local USDA employees who received limited training on the program and struggled to process applications and payments.

“We recommended better reviews and greater transparency in USDA analyses” going forward, the GAO said in a statement on Monday announcing the report.

The GAO recommended that USDA’s Office of the Chief Economist (OCE) be more transparent in its methodology process, as well as revise its processes for assessing the baselines by which farmers are granted aid.

OCE disagreed with the report’s findings and said its team did their job; that GAO’s recommendations should not be aimed at OCE; and that the problem was with policy decisions in which it was not involved, according to an Oct. 21 letter it sent to the GAO.

“The role of USDA’s Office of the Chief Economist is to provide data-driven analysis. They did that,” a USDA spokesperson said in a statement to Reuters. “What happened from that point on was in the hands of President Trump’s political appointees.”

(Reporting By P.J. Huffstutter in Chicago and Leah Douglas in Washington; Editing by Chizu Nomiyama and David Gregorio)

Hunger lingers for millions of underemployed, low-income Americans

By Christopher Walljasper

CHICAGO (Reuters) – Sofia Suarez, a receptionist at a dental office in Chicago, was out of work for about three months in the early days of the COVID-19 pandemic.

Nearly a year and a half later, her income has not fully bounced back due to reduced hours. Facing mounting bills and rising food prices, she turns to the Lakeview Food Pantry in Chicago for free groceries every month or two.

“I have just a little money to spend on my rent and my bills,” said Suarez, 38.

Suarez, like more than 4 million Americans classified as “underemployed” by the Bureau of Labor and Statistics in October, fell through the cracks in the U.S. government’s multibillion-dollar attempt to stave off financial uncertainty during the pandemic.

As the U.S. economy this year came roaring back from lockdowns in 2020, low and middle-income Americans felt the sharpest hunger pangs. Ironically, hunger has persisted for many even though the vast sums of government money deployed in the crisis helped lift nearly 12 million Americans out of poverty.

    There is abundant evidence that the job market is recovering rapidly – with roughly one-and-a-half vacant jobs for every unemployed worker. But the rising wages that are only recently beginning to draw more reluctant Americans back to work are being far outstripped by inflation, with the cost of food purchased for home consumption alone up by 6.4% in the last year through November.

During the first two weeks of October, 19.8 million American households reported being food insecure – defined as “sometimes or often” not having enough to eat, according to the most recent U.S. Census Bureau’s Pulse Survey. The survey shows 8% of U.S. households faced hunger pre pandemic, a figure that peaked at 14% last December and was still elevated at 9% in October 2021.

When only the poorest households are considered, those making less than $25,000 per year, 27% reported not having enough to eat versus 23% before the pandemic.

Federal pandemic aid arrived in the form of direct stimulus checks, enhanced unemployment benefits, emergency rental assistance, and increased food stamp allotments. But those programs can be challenging to navigate.

Suarez, who does not have children, said her husband attempted to enroll in unemployment insurance, but was frustrated by the system, so they both opted to reduce spending and make do with less.

Families that have children were eligible for more benefits than Suarez, including advanced child tax credits, increased access to school meals, and pandemic-EBT debit cards to pay for meals while students were learning from home.

But escalating food prices have made it harder for families to keep up with grocery bills. World food prices rose for a fourth straight month in November to remain at a 10-year high, according to the United Nations.

“The prices have gone up. There’s nowhere to go to get … cheap peanutbutter, jelly, chips, meat,” said Terrence Holloway, who is on disability after an injury. Holloway, 41, has also turned to Chicago food pantries when his grocery money runs out, which seems to happen sooner each month.

Food inflation adds pressure to food pantries attempting to ward off hunger. Many are expanding their services from providing food to helping people tap in to federal and state aid programs.


As U.S. emergency aid expires, political will to renew food aid is in question. The most recent version of the $1.8 trillion “Build Back Better” budget package includes funding for free school meals year-round, as well as extending the child tax credit. It does not expand federal food buying for local pantries, a lifeline for food banks over the last year. The bill still faces opposition due to its steep price tag and may undergo more cuts.

It took years for American workers to recover from the last major recession before the COVID-19 downturn.

Curbing aid too soon could create a second wave of food insecurity, similar to what occurred just over a decade ago following the 2008 financial crisis, according to Geri Henchy, director of nutrition policy at the Food Research and Action Center, an anti-hunger advocacy organization.

“I think that if people harden their hearts and turn off the spigot too early, we will see really, really significant increases in food insecurity,” she said. “The pandemic’s not over. People aren’t back to normal. So that benefits cliff needs to be addressed.”

Hunger spiked following the 2008 recession, after federal stimulus and extended unemployment benefits ended. Hunger rates did not return to pre-recession levels until 2019, according to the U.S. Department of Agriculture’s annual food security report.

Doris Rodriguez, a bank worker helping to raise her grandson, experienced that slow climb out of financial uncertainty. She battled unemployment and foreclosure on her Chicago home after the 2008 recession and says she has struggled to find financial security ever since.

“It’s been rough for me since the last recession,” she said. “I never did actually land a job where I could sustain myself without any assistance.”

Rodriguez lost her job at a bank more than a year into the pandemic. She attempted to navigate federal and local aid, but with rent and utility bills looming, she turned to the St. Cyprian Food Pantry, loading a cart with canned goods, bags of produce and boxed cereal.

Her grandson was eligible for free school meals, but she struggled to tap in to the state of Illinois’ unemployment insurance benefits system.

Expanded unemployment was not an option for Luis Lorenzana, a banquet server in Chicago. He has worked at a few weddings and small conferences that have resumed since the pandemic began, but does not qualify for unemployment. The Omicron coronavirus variant has created more uncertainty but he hopes events come back in full before his savings run dry. Visiting the food pantry helps, he said, though it they sometimes lacks the selection of foods preferred by his family.

“There’s no other choice. We have to survive,” he said.

(Reporting by Christopher Walljasper in Chicago; Additional reporting by Dan Burns in New York; Editing by Caroline Stauffer and Matthew Lewis)

Yearend Risk Reduction Despite Underlying Strength

 The COT reports published weekly by the US CFTC highlight futures positions and changes made by hedge funds across commodities, forex and financials during the latest reporting week to last Tuesday, December 7. A week that saw stocks trading higher on optimism the omicron variant wouldn’t derail global growth. Treasury yields and the dollar rose while the commodity sector received a fresh bid following its worst slump in more than a year. With yearend and the low liquidity season upon us, speculators went against the direction of the markets and instead opted to reduce exposure in both commodities and the dollar.

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.

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, December 7. A week that saw the biggest one-day rally in US stocks since March on optimism the omicron variant wouldn’t derail global growth. Treasury yields and the dollar rose while the commodity sector received a fresh bid following its worst slump in more than a year.

However, looking across all the asset classes covered in this update, we find position squaring becoming a major theme. December is normally a time of year when traders reduce exposure as liquidity starts to dry up as trading books are being reduced ahead of the holidays and yearend. With this in mind the net changes may not give much insights with regards to the short-term direction of the market. Examples being the reductions in dollar longs and commodities, both occurring in a week where both rose.


Net selling of commodities continued for a second week, but at 117k lots the reduction slowed compared with the previous week where the 364k lots reduction was the biggest one-week reduction since the first round of Covid-19 panic hit the market in February last year. Despite strong gains with 20 out of 24 futures contracts trading higher, the general theme as mentioned was one of risk reduction with gross longs seeing a 124k lots reduction while the gross short was reduced by 8k lots.

Only a handful of contracts saw net buying led by corn (17.2k lots), soybeans (4.5k) and WTI (2.4k) while selling was led by natural gas (-37k), sugar (-22.8k), Brent (-13k) and gold (-11.6k).


The most interesting of the changes last week was the 13.1k lots reduction in the Brent crude oil long to a fresh 13-month low at 154k lots. The contract has now seen nonstop selling for the past nine weeks, and despite rallying by 9% last week, the recovery from the omicron washout and break above the 200-day moving average was not enough to persuade speculators to change their defensive stance. A behavior which is in stark contrast to the overall market belief in higher prices into 2022.

Commodity related updates from our daily Market Quick Take available here

Crude Oil

Crude oil (OILUKFEB22 & OILUSJAN22) trades near a three-week high as the market continues to view current omicron worries as short term concerns and mounting speculation that China, the world’s biggest buyer of crude oil, will start adding fiscal stimulus in early 2022 in order to stabilise the economy. Both Brent and WTI are challenging their 21-day moving averages with a break above potentially adding more technical momentum. Speculators meanwhile reduced Brent crude oil longs in the week to December 9 for a ninth, and nine weeks of non-stop reductions have seen the net long drop to a 13-month low. A behavior which is in stark contrast to the overall market belief in higher prices into 2022. Focus turning to monthly oil market reports from OPEC today and IEA tomorrow.


Gold (XAUUSD) remains stuck below its 200-day moving average at $1794 with focus this week on Wednesday’s FOMC meeting, and how they will respond to inflation rising at the fastest pace since the 1980’s. The market is currently pricing in three rate hikes next year with the first one due around June. Countering the negative price impact of a potential more aggressive US central bank, the rapid spreading of the omicron virus is also receiving some attention given its potential negative growth impact.

Industrial metals

Industrial metals have started the week on a firmer footing with iron ore jumping 6% on raised expectations that China will move to increase stimulus next year to support the economy. Following the end of a three-day annual Central Economic Work Conference, the party signaled a clear change in focus away from growth towards ensuring stability. They also vowed to front load policies to halt the recent slide.

Natural Gas

Surging EU gas prices ahead of the European Council meeting on December 16. Apart from having to deal with Covid-19 and the Russian threat on its eastern borders, the council is also set to decide whether investments in gas and nuclear energy should be labelled climate friendly. The design of the EU green investment classification system is closely watched by investors worldwide and could potentially attract billions of euros in private finance to help the green transition, especially given the need to reduce the usage of coal, the biggest polluter.


In forex, the speculative flow was skewed towards dollar sales, primarily driven by short covering in EUR, JPY and CAD. Just one week after hitting an 18-month high on omicron worries and heightened Fed tightening focus, the overall dollar long against ten IMM currency futures and the Dollar index was reduced by 16% to $23.3 billion.

As can be seen in the table below, the overall focus was primarily on reducing exposure which helps to explain that the dollar length was reduced in a week where the greenback rose. The 4.6 billion dollar reduction was primarily driven by a 5.1 billion dollar equivalent broad reduction in gross short positions led by JPY ($1.9 bn) and EUR. Other major changes was the MXN net short which reached a four-year high at 64k lots or the equivalent of $1.5 billion.

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

Commodities Back on Track for a Strong 2021 Finish

Commodities saw their first broad increase in eight weeks as the initial negative impact of the Omicron variant faded, thereby giving crude oil a strong boost. The energy crisis in Europe went from bad to worse with gas and power prices tearing higher amid shrinking stockpiles. Gold was held down by the prospect for an accelerated pace of US rate hikes in 2022 but overall the latest developments helped the commodity sector stay on course for its strongest performance since 2000.

The second week of December normally signals the beginning of a calm period where markets settle down ahead of the upcoming holiday break and new year. This year so far looks to be an exception with plenty of major uncertainties still casting a shadow over the market, thereby also raising the prospect of volatile market activity into a period where liquidity starts to dry out.

The initial negative market reaction at the beginning of the month to the new Omicron variant did fade during the past week. But reports about its rapid spreading capabilities and worries about the efficacy of existing vaccines has led to a wave of new restrictions, thereby once again raising a threat to economic activity. At the same time, the market has had to deal with surging inflation and the prospect of a return to a new and potentially aggressive US rate hiking cycle, now priced in to start around June next year.

The Bloomberg Commodity Index, which tracks a basket of major commodities spread evenly between energy, metals, and agriculture, rose for the first time in eight weeks, thereby consolidating its very strong 2021 performance, currently at 25%, the strongest annual jump since 2000. Most of the gains, however, have initially been driven by the market finding its poise following the Omicron-driven sell-off the previous week. With that in mind, it was no surprise to find the energy sector on top with crude oil recouping half what it had lost in the correction from the October peak.

Agriculture was mixed with profit taking hitting coffee after reaching a decade high, buyers returned to cotton and sugar following a recent +12% correction. The grains sector traded lower for a second week, led by wheat, which dropped to a five-week low after the USDA raised its outlook for global stocks. The drop in Chicago also helped drag down the recent highflying futures contracts for Kansas and Paris milling wheat. In its monthly supply and demand update, the US government raised the level of global wheat stock at the end of the 2022-23 season after receiving a boost from production upgrades in Russia and Australia while US export slowed with high prices curbing demand.

Industrial metals received a bid from signs of an improved demand outlook in China, despite ongoing concerns about its property sector. The industrial metal sector outlook for 2022 remains clouded with a great deal of uncertainty with forecasters struggling to find consensus, and this uncertainty also helps explain why a bellwether metal like copper has been rangebound for close to six months now.

Annual outlooks and price forecasts from major banks with a commodity operation have started to roll in, and while the outlook for energy and agriculture is generally positive, and precious metals negative, due to expectations for a rise in US short-term rates and long-end yields, the outlook for industrial metals is mixed. 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.

During the past few months, however, copper has in our opinion performed relatively well considering the mentioned and known worries about the economic outlook for China, and more specifically its property sector. Additional headwinds have been created by the stronger dollar and central banks beginning to focus more on inflation than stimulus. To counter Chinese economic growth concerns, the government has been turning more vocal in their support saying it plans more support for business.

With this in mind, and considering a weak pipeline of new mining supply, we believe the current macro headwinds from China’s property slowdown will begin to moderate through the early part of 2022, and with inventories of both copper and aluminum already running low, this development could be the trigger that sends prices back towards and potentially above the record levels seen earlier this year. Months of sideways price action has cut the speculative length close to neutral, thereby raising the prospect for renewed buying once the technical outlook improves.


Gold’s less than impressive performance extended to a fourth week, and while it managed to consolidate above the previous week low at $1761, it struggled to find a bid strong enough to challenge resistance at $1793, the 200-day moving average. The yellow metal has struggled since Jerome Powell, the Fed chair, signaled a clear change in the FOMC’s focus from creating jobs to fighting inflation.

In response to the recent inflation surge, market expectations for future US rate hikes have jumped with three 0.25% hikes now priced in for 2022, with the first one expected no later than June, a year earlier than expected just a few weeks ago. It is these expectations that have seen analysts lower their 2022 price forecasts for gold, with some even now predicting the metal could fall out of favor and trade lower next year.

We do not share this view, and still see gold trading higher in a year from now. However, we fully understand the reasons as they are predominantly being led by expectations for rising bond yields driving up real yields which for several years have been heavily negatively correlated to the price of gold. Looking at the correlation below, gold should be able to weather an initial rise in real yields to around –0.75% from the current level below –1%.

Rising interest rates will likely increase stock market risks with many non-profit high growth stocks suffering a potential violent revaluation. In addition, concerns about persistent government and private debt levels, increased central bank buying and the dollar rolling over following months of strength, are all potential drivers that could offset the negative impact of rising bond yields.

For now, gold needs a trigger and after the November CPI print rose to 6.8%, the highest since the 80’s, the attention will turn to the December 15 FOMC meeting for additional guidance on the pace of tapering and the timing of future rate hikes. With silver continuing to underperform, having suffered a recent 14% correction, the upside potential ahead of yearend looks limited. Speculators have reduced most of the length that was added in the futures market during the early November breakout attempt but for them to return to the buy side, the technical outlook needs to improve significantly

Crude oil

Crude oil’s week-long recovery from the recent Omicron-related slump slowed after a study found the new variant is 4.2 times more transmissible than Delta, leading to rising infections and with those new restrictions on movements in several nations. The negative short-term impact on mobility in response to new variants has become shallower with vaccine rollouts protecting the health system from breaking down. For now, the market is expecting the Omicron virus surge, despite its high infection rate, to show the same pattern, thereby preventing a major drop in mobility and demand for fuel.

While potentially delayed by a few quarters, we still maintain a long-term bullish view on the oil market as it will be facing years of likely under investment with oil majors losing their appetite for big projects, partly due to an uncertain long-term outlook for oil demand, but also increasingly due to lending restrictions being put on banks and investors owing to a focus on ESG and the green transformation.

The short-term outlook depends on whether Brent and WTI can build a strong foundation above the 200-day moving averages at $73 and $69.80 respectively. No doubt that the main threat to this support remains concerns about the virus and its ability to pose a bigger threat than the Delta variant.

Natural gas

While the US gas market tried to recover from a two-month top to bottom slump of more than 40% caused by mild winter weather across Central and Eastern US, the EU gas and power market went from bad to worse. The combination of an unplanned outage temporarily cutting supplies from Norway’s giant Troll field, geopolitical risks related to Ukraine, stable winter supplies from Russia, freezing cold weather and rapidly declining stocks, all helped drive the Dutch TTF one month benchmark gas back above €100 per MWh or $34 per MMBtu.

With rising demand for coal driving the cost of EU emissions to a fresh record above €90 per tons, before suffering a 12% correction on speculative long liquidation, the cost of power has surged as well. In Germany the one-year baseload contract reached a record €192 per MWh, or more than 5 times the long-term average. Looking at the current trajectory of gas consumption and with no signs of extra supplies from Russia, the risk of inventories depleting before spring remains a major threat to the European market and the main reason why gas prices trade at levels high enough to kill demand.

The EU is expected to decide before December 22 whether investments in gas and nuclear energy should be labelled climate friendly. The design of the EU green investment classification system is closely watched by investors worldwide and could potentially attract billions of euros in private finance to help the green transition, especially given the need to reduce the usage of coal, the biggest polluter.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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Analysis – Global farmers facing fertiliser sticker shock may cut use, raising food security risks

By Emily Chow, Roberto Samora and Bernadette Christina Munthe

BEIJING/SAO PAULO/JAKARTA (Reuters) – Key crops, from Brazilian corn to Malaysian durians, are at risk after tight supplies and blistering prices of fertiliser have caused farmers to scrimp on vital crop nutrients, adding to global food security and inflation fears.

Fertiliser costs soared this year amid rising demand and lower supply as record natural gas and coal prices triggered output cuts in the energy-intensive fertiliser sector. Urea surged more than 200% this year while diammonium phosphate (DAP) prices have nearly doubled.

With global food prices at their highest in more than a decade, rising fertiliser costs will only add to pressures on food affordability, especially in import-reliant economies, while stretched budgets leave little room for government subsidies, said Frederic Neumann, HSBC’s co-head of Asian economics research. (Graphic: Global fertiliser prices, https://fingfx.thomsonreuters.com/gfx/ce/zjvqkywnwvx/Fertiliser%20price%20chart.jpg)

“At a time when COVID-19 already decimated the lives and livelihoods of untold millions, soaring food costs are hitting the poor especially hard,” he said. “This raises the risk that higher fertiliser costs will not only hit farmers but will also be passed on to consumers via higher food prices.”


With the United Nations Food and Agriculture Organization’s (FAO) food price index at its highest since 2011 – when high food prices helped foment the “Arab Spring” uprisings – the world’s farmers are already under strain to increase food supply.

But analysts say fertiliser supply tightness will worsen early next year. European, North American and North Asian farmers all need to step up purchases ahead of spring planting, while key producers China, Russia and Egypt have curbed exports to ensure domestic supplies.

“Most stockpiles of urea are now secured, meaning global producers will be ‘sold out’ until Jan. 1,” said U.S.-based Josh Linville, director of fertiliser at StoneX Group Inc. “Producers start the new year very low on unsold inventories and they will be met by sizeable global demand in Q1 as U.S., Canada, Brazil, Europe, Asia all step forward to purchase.” (Graphic: Fertiliser output chart, https://fingfx.thomsonreuters.com/gfx/ce/xmvjonrbnpr/Fertiliser%20output%20chart.jpg)

In response, farmers across the world are either delaying purchases or reducing fertiliser use to save money.

India and Egypt – both major farm economies – increased government subsidies in November, with India’s fertiliser ministry boosting supplies to districts with low stocks to ensure availability for winter-planted crops.


So far, high crop prices have cushioned the blow for many growers, and some can switch from nitrogen-hungry wheat and corn to soybeans next season. (Graphic: Fertiliser agriculture usage, https://fingfx.thomsonreuters.com/gfx/ce/xmpjonnkovr/Agri%20usage%20chart%20new.jpg)

But in 2022, few crops or farmers will be spared, sources say.

In Germany, farmers hit by price increases are likely to reduce fertiliser use, which could lower harvest volumes “depending on the scale that this takes place,” said Bernhard Kruesken, secretary-general of German farming association DBV.

“Crop types which achieved higher producer prices in past months will be in consideration for sowing,” Kruesken added.

Brazil, the world’s top soybean grower and third-largest corn producer, feeds 10% of the global population. The country has warned of a fertiliser shortage next year that is predicted to slow soy, corn and cotton farm expansions.

“Soy partially dodged it because a lot of inputs had been (already) purchased, but the second corn crop of the cycle is going to run head-on into that rise in fertiliser costs,” said Andre Pessoa, partner at Brazilian agribusiness consultancy Agroconsult. “For the 2022/23 cycle, I would say we are going to have some problems. I’ve told farmers the problem isn’t even price anymore. Now it’s guaranteeing availability.” (Graphic: Fertiliser trade chart, https://fingfx.thomsonreuters.com/gfx/ce/zdvxoxnqjpx/Fertiliser%20trade%20chart.jpg)

Even in North America, home to some of the world’s wealthiest farmers, growers have delayed purchases they usually make ahead of spring plantings, hoping prices drop.


Although weather conditions, disease, pests and water supply also are crucial in determining how crops develop, fertilisers are among the most potent production factors that farmers control.

But many growers, and especially the millions of smallholders who produce a third of the world’s food, will have little choice but to reduce fertiliser usage in 2022.

In Southeast Asia, which produces most of the world’s palm oil, growers are bracing for higher output costs with industry players already seeing disruptions in fertiliser procurements and lower imports.

“Malaysia imports 95% of its fertiliser supply. Production of fruits and vegetables, including durian, will be hit worse than oil palm, as it requires higher quality fertiliser,” said Teo Tee Seng, Malaysian managing director of agrochemical supplier Behn Meyer AgriCare.

Albertus Wawan, an Indonesian oil palm smallholder who already cut fertiliser use by a third, will delay his next application to January to save on two month’s usage.

“Once fertiliser prices increase, it won’t go down,” Wawan said. “This is the challenge for farmers in the future.”

Recent dips in oil prices could provide some relief to fertiliser producers, but any future energy shocks caused by unexpected cold snaps would trigger higher food prices, according to an FAO report in November.

“We need to understand that all policy measures that lift energy prices will lift food prices,” said Josef Schmidhuber, deputy director at FAO’s trade and markets division. “This must not mean that we de-emphasize climate change mitigation measures, but we need to find ways to increase fertiliser use efficiency… and critically review our energy policies.”

(Reporting by Emily Chow in Beijing and Beijing newsroom, Roberto Samora and Brad Haynes in Sao Paulo, Bernadette Christina Munthe in Jakarta, Michael Hogan in Hamburg, Chu Mei Mei in Kuala Lumpur, Helen Reid in Johannesburg, Sarah El Safty in Cairo, Polina Devitt in Moscow, Nidhi Verma and Mayank Bhardwaj in New Delhi, Gus Trompiz in Paris, Julie Ingwersen in Chicago; editing by Shivani Singh, Gavin Maguire and Gerry Doyle)

Beijing biotech firm banks on GM corn in race to be China’s Monsanto

By Dominique Patton

BEIJING (Reuters) – As China prepares to open its $120 billion corn market to genetically modified (GM) seed, little-known Dabeinong Biotechnology hopes to reap the benefits of early biotech investments and a law keeping foreign firms on the sidelines.

The long-anticipated commercialization of GM corn in the world’s No. 2 producer is set to significantly boost yields, reducing the need for imports. It may also spur hoped-for reform of a chaotic and oversupplied seed sector, industry experts say, creating a new multibillion dollar market that may eventually open up to global seed giants.

New regulations drafted last month lay out for the first time the steps needed in China for approval of corn varieties that integrate GM traits, paving the way for the market to open as early as next year.

Beijing has made clear it will champion home-grown leaders in seed technology, and Dabeinong is the larger of two local companies with an insect-resistant and herbicide-tolerant corn already approved as safe by the agriculture ministry.

“For the first two years, because we’re the first mover in the market, and we believe our technology is better, we’ll have two thirds of the share,” general manager Liu Shi told Reuters.

By the third year, even with more competition, it could generate around 1 billion yuan ($155 million) in royalties, he estimated. The company will rely on seed breeders using its traits to generate revenues.


Dabeinong Biotechnology was founded in 2011 as a unit of large animal feed producer, Beijing Dabeinong Technology Group Co. Ltd.

The parent firm made headlines in the United States after a senior executive was among several people charged with stealing corn seed from fields in Iowa and Illinois. The executive, the brother-in-law of group founder Shao Genhuo, was jailed for three years in 2016.

Dabeinong strictly abides by the law and is trying to rebuild its image, said Liu, who joined the company earlier this year. He previously worked at Monsanto, now part of Germany’s Bayer, in the 1990s when the GM pioneer was trying to get its first products accepted.

Dabeinong, with a staff of 160, hopes to emulate the success of the U.S. seed giant, but above all wants to help farmers, Liu said.

For now, Dabeinong’s corn traits use genes that were discovered and commercialised by other firms but are off-patent. The biotech firm is working on its own genes, although these are yet to be approved.

It may need to move quickly before its “me-too” products lose their value, said an executive at a multinational seed company who declined to be named.

To ensure its first-mover advantage, Dabeinong is hiring more commercial staff and in September invited seed companies to visit trial plots in Inner Mongolia and Henan province planted with corn containing its Fengmai brand traits.

It has licensing deals with almost 200 seed firms.


Early demand is likely to be strong.

China harvested 261 million tonnes of corn in 2020/21 from some 41 million hectares, largely to feed its huge herds of pigs and chickens. Each hectare, however, yielded only about 60% as much corn on average as in No. 1 producer, the United States.

Graphic: Average corn yields over the last five years in the world’s top producers – https://graphics.reuters.com/CHINA-GMO/DABEINONG/zdpxonlgrvx/chart.png

About 70% of corn seed sold in China’s northeast breadbasket is already illegally bred GM seed, said an October article in the state-backed China Seed Industry journal, highlighting its popularity with farmers.

But Dabeinong won’t be alone for long.

Though global seed giants like U.S.-based Corteva Inc and Bayer cannot enter China’s GM market, Syngenta, the world’s No. 3 seed producer owned by China’s Sinochem Holdings, expects to become market leader, according to the prospectus for its upcoming IPO.

Syngenta is a major player in GM grains, but as it was only bought in 2017 is still playing catchup in China in the drawn-out process to win biosafety certificates for its GM traits from regulators.

Hangzhou Ruifeng Biotechnology, a tiny firm founded by university professor Shen Zhicheng, has an insect-resistant, herbicide-tolerant trait approved as safe by Beijing. The company also uses some new genes.

Yuan Longping High-tech Agriculture Co Ltd, backed by state-owned conglomerate CITIC, is also developing GM traits.

Meanwhile, the exact timing of GM corn is still uncertain.

Under the new rules, seed varieties that integrate GM traits must undergo a one-year production trial, and it is not clear if Beijing will accept data already gathered by Dabeinong.

“We have two plans, a more aggressive one for commercial seed production in 2022, and another for 2023,” said Liu. “We’re waiting for the government’s message.”

($1 = 6.3733 Chinese yuan renminbi)

(Reporting by Dominique Patton; editing by Richard Pullin)

OPEC+ Surprise in a Week Driven by Omicron Angst

The commodity sector traded lower for a second week in response to fresh demand and growth worries triggered by the new Omicron coronavirus variant. In addition, the US Federal Reserve, as mentioned in our latest update, officially changed its focus from job creation to battling surging inflation, thereby raising the prospect for an accelerated reduction of stimulus and rising interest rates. The two-week loss measured by the Bloomberg Commodity Index reached the highest level since March 2020, but it could have been quite a bit worse if OPEC+ hadn’t successfully managed to ‘sell’ another production increase to the market.


Weeks of strong demand for agriculture commodities saw a small reversal as the Omicron variant and improved regional weather developments helped trigger profit taking among some the recent highflyers led by cotton, sugar and wheat. In recent weeks up until November 23, funds had aggressively been buying up food commodities while reducing exposure in energy and metals. The result being an increase in the combined long held across 13 major futures contracts to a six-month high at 1.13 million lots, representing a nominal value of $43.5 billion.

It helps to explain some of the price weakness this past week with recently established longs being reduced, not due to a change in the underlying fundamentals supporting the individual futures markets, but more as part of the general risk reduction seen in response to Omicron uncertainties.

During the week, the UN FAO published its monthly Global Food Price Index for November and it showed a 1.2% increase on the month while Year-on-Year growth slowed to a still very elevated 27.3%. The index now sits less than 0.5% below the 2011 record with last month’s increase driven by strong gains in cereals, such as wheat, dairy and sugar.

Natural gas

Natural gas prices around the world continue to diverge with US prices collapsing to near $4 per MMBtu while in Europe the price of Dutch TTF benchmark gas remains stuck above $30 per MMBtu driven by tight supply and strong cold weather demand. Gas prices in the US on the other hand have come under pressure from milder-than-normal weather and rising production, and this week it drove a 22% price drop, the biggest weekly drop since 2014. While the EU is already witnessing a major energy crisis which could get worse, should we see another cold winter, the US has seen its inventory levels held in underground caverns return to their long-term average, thereby almost completely ruling out the risk of winter shortages.

Crude oil

Crude oil witnessed a very volatile week with traders having to grapple with the risk of another virus-related drop in demand, the recent SPR release announcement and not least the response from the OPEC+ group of producers meeting on Thursday to set their production target for January. Before then, the price of Brent crude oil had slumped by 21% from the October high with very wide trading ranges reflecting a deep uncertainty in the market with prices jumping around as the Omicron news flowed ebb and flowed between bad and less bad.

Heading into Thursday’s meeting, the market had built up expectations the group would come out defending oil prices by reducing or potentially even cancelling the January production increase. Instead, they managed to pull off a remarkable feat by supporting the price while at the same time raising production by the usual 400k barrels per day. There are several reasons why they managed to pull this off:

  • The market had already priced in a significant, and not yet realised, Omicron-related drop in demand
  • The group kept the meeting “in session” meaning they can meet and adjust production levels at short notice before the next planned meeting on January 4
  • The decision to ease political tensions with large consumers, led by the US, potentially resulting in a reduced number of strategic reserves leaving storage due to lack of demand from refineries.
  • Members with spare capacity, such as Russia and Saudi Arabia, wanted to increase production, partly to off-set the short fall from producers such as Nigeria, Angola and Equatorial Guinea who are currently producing around 500k barrels per day below their allocated quotas.
  • Finally, the recent slump in WTI back below $70 and even lower further out the curve may reduce the threat from US producers who could now adopt more cautious spending plans for 2022.

While potentially delayed by a few quarters, we still maintain a long-term bullish view on the oil market as it will be facing years of likely under investment with oil majors losing their appetite for big projects, partly due to an uncertain long-term outlook for oil demand, but also increasingly due to lending restrictions being put on banks and investors owing to a focus on ESG and the green transformation.

From a technical perspective, Thursday’s price action created a so-called Hammer which often signals a reversal of the recent trend. For that to be confirmed Brent crude oil would need a close back above its 200-day moving average, currently at $72.85.


Gold’s less than impressive behavior continued during a week where it failed to find a bid despite raised Omicron concerns sending Treasury yields lower and, at least temporarily, the dollar lower as well. Adding to this, an unfolding destruction of value across many so-called and up until recently very popular bubble stock names, the exodus out of these also failed to attract any safe-haven demand for investment metals.

Instead, it slumped to a one-month low at $1762, less than three weeks after its failed upside break to $1877. It highlights a market which during the past five months has seen plenty of failed breakout attempts in both directions, with the end result being a noisy, but rangebound, market struggling for direction. What could change that in the short term remains unclear with the metal on one hand finding support from persistently low real yields and raised virus uncertainties, and on the other struggling with the potential for a more aggressive inflation fighting stance from the US Federal Reserve.

Following the renomination, both Powell and Brainard, the new vice-chair, have come out showing a clear change in focus. Powell, among other comments, has said: “We know that high inflation takes a toll on families, especially those less able to meet the higher costs of essentials like food, housing, and transportation. We will use our tools both to support the economy and a strong labor market, and to prevent higher inflation from becoming entrenched”.

As mentioned, the current technical picture looks very messy with resistance now established at $1792 which coincides with the average price seen these past five months, while the nearest area of support can be found around $1760 followed by $1720.

Industrial metal sector

The industrial metal sector traded flat on the week with no major price movements seen in bellwether metals such as copper and aluminum. The market focus has started to shift to what may lie in store for 2022, not least the potential price impact from slowing growth in China versus rising demand for the so-called green metals that will be key components in the energy transition away from fossil fuels to renewables.

During the past few months, copper has in our opinion performed relatively well considering heightened worries about the economic outlook for China, and more specifically its property sector which has seen near defaults as well as a slump in home sales. Additional headwinds have been created by the stronger dollar and central banks beginning to focus more on inflation than stimulus. In order to counter Chinese economic growth concerns, Vice Premier Liu He has been out saying growth this year should exceed targets, and the government plans more support for business.

With this in mind, we believe the current macro headwinds from China’s property slowdown will begin to moderate through the early part of 2022, and with inventories of both copper and aluminum already running low, this development could be the trigger that sends prices back towards and potentially above the record levels seen earlier this year.

Staying on the subject of inventories, recently we have seen stock levels of aluminum and copper at the LME fall to their lowest levels since 2007 and 2005 respectively. In fact, the six industrial metals traded on the LME are currently all trading in backwardation, and such a synchronized level of tightness was last seen in 2007.

High Grade Copper has been averaging $4.35 since April with the current action confined to a range between $4.2 and $4.5 while major support can be found in the $4 area. The lack of momentum in recent months has driven a sharp reduction in the speculative long held by hedge funds, a development that could trigger a significant amount of activity once the technical and/or fundamental picture becomes clearer.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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World food prices climb in November, stay at 10-year peak -FAO

ROME (Reuters) – World food prices rose for a fourth straight month in November to remain at 10-year highs, led by strong demand for wheat and dairy products, the U.N. food agency said on Thursday.

The Food and Agriculture Organization’s (FAO) food price index, which tracks international prices of the most globally traded food commodities, averaged 134.4 points last month compared with a revised 132.8 for October.

The October figure was previously given as 133.2.

The November reading was the highest for the index since June 2011. On a year-on-year basis, the index was up 27.3% last month.

Agricultural commodity prices have risen steeply in the past year, driven by harvest setbacks and strong demand.

The FAO’s cereal price index rose by 3.1% in November from the previous month and was 23.2% higher than its year-ago level, with wheat prices hitting their highest level since May 2011.

FAO said wheat prices were supported by concerns about unseasonable rains in Australia and uncertainty over potential changes to export measures in Russia.

The dairy price index posted the largest monthly rise, up 3.4% from the previous month. “Strong global import demand persisted for butter and milk powders as buyers sought to secure spot supplies in anticipating of tightening markets,” FAO said.

Global sugar prices rose 1.4% on the month and was up nearly 40% year-on-year. “The increase was primarily driven by higher ethanol prices,” FAO said.

The meat price index posted its fourth consecutive monthly decline, shedding 0.9% on the month, while world vegetable oil prices fell 0.3% on October levels, but international palm oil prices remained firm, FAO said.

Rome-based FAO cut its projection of global cereal production in 2021 to 2.791 billion tonnes from 2.793 billion estimated a month ago, according to its cereal supply and demand outlook.

However, the expected world cereal output would still represent a record, FAO said.

“The month-to-month downgrade is primarily the result of an anticipated marginally smaller global coarse grains outturn, reflecting reduced forecasts for barley and sorghum production,” FAO said.

World cereal utilization in 2021/22 was forecast to rise by 1.7% above the 2020/21 level, hitting 2.810 billion tonnes. FAO’s forecast for world cereal stocks by the close of seasons in 2022 stood at 822 million tonnes, up 2.9 million tonnes since November but still down 0.7% from opening levels.

(Reporting by Crispian Balmer)

Speculative Positioning Ahead of Fridays Omicron Dump

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.

Futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 23. While a lot of water has flowed under the bridge since last Tuesday, it is nevertheless interesting, not least considering the report encapsulated the market reaction to last weeks renomination of Fed chair Powell which helped send both treasury yields and the dollar sharply higher, as well as the oil market reaction to the coordinated SPR release announcement. Finally, it also gives us an idea about the level of positioning ahead of Friday’s omicron related sell off.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 23. The report normally released on Friday’s was delayed due to last weeks Federal holidays, and while a lot of water has flowed under the bridge, its nevertheless interesting.

Not least considering the report encapsulated the market reaction to last weeks renomination of Fed chair Powell which helped send both treasury yields and the dollar sharply higher, as well as the oil market reaction to the coordinated SPR release announcement. Also it gives a good idea about how funds and speculators were positioned ahead of the sharp risk off to the new omicron virus variant.


The commodity sector saw sizable shift out of energy and metals into the agriculture sector where all 13 futures contracts covered in this update saw net buying. During the week the energy sector lost 2.1% while precious metals dropped 4.3% after gold broke below key support at $1830. A 1.5% rise in copper was not enough to convince speculators who cut their net long by 20%. Most noticeable however was the strong buying seen across the agriculture sector, with strong demand and weather worries more than offsetting the headwind caused by the stronger dollar.


Crude oil, both Brent and WTI, were sold ahead of the coordinated SPR release announcement last Tuesday. The combined net long dropped by 14k lots to a one-year low at 514.6k lots. The loss of price momentum during the past few months has, despite an overriding bullish sentiment in the market, been driving the reduction, and following Friday’s 10% price collapse these traders have been rewarded for sticking to the signals the market was sending instead of listening to bullish price forecasts. Hedge funds are not “married” to their positions hence their better ability to respond to changes in the technical and/or fundamental outlook.


Having increase bullish gold bets by 65k lots during the previous two weeks, funds were forced to make 45k lots reduction last week in response to the Powell renomination sending gold sharply lower and below support in the $1830-35 area. Speculators have been whipsawed by the price action in recent weeks and it helps to explain why they are in no mood to reenter in size despite renewed support from Covid19 angst. Silver’s 6% sell off during the week helped trigger a 17% reduction in the net long to 30k lots while in copper a small price increase was not enough to stem the slide in net length.

Following seven weeks of selling, the net length has dropped by 64% to 19.5k lots, a 13-week low. Months of rangebound behaviour has reduced investor focus, and until we see High Grade Copper make an attempt to break its current $4.2 to $4.5 range, the level of positioning is likely to remain muted.


More concerned with other drivers such as weather, strong demand and supply chain disruptions helped trigger across the board buying of all 13 futures contracts split into grains, softs and livestock. The combined long held across these contracts reached a six-month high at 1.13 million lots, representing a nominal value of $43.5 billion. Buying was broad with the top three being corn, sugar and soybeans. Elsewhere the net long in Arabica coffee reached a fresh five-year high at 58k lots and KCB wheat a four-year high at 65.6k lots.

UPDATES from today’s Market Quick Take

Crude oil (OILUKJAN22 & OILUSJAN21) turned sharply lower in early European trading as the mood across markets soured on renewed concerns about the omicron virus strain. This after Moderna’s head told the Financial Times that existing vaccines will be less effective at tackling omicron and it may take months before variant-specific jabs are available at scale.

The news come days before the OPEC+ group of producers meet to discuss production levels for January. Brent crude oil already heading for its biggest monthly loss since March 2020 trades below its 200-day moving average for the first time in a year, a sign that more weakness may lie ahead, thereby raising the prospect for OPEC+ deciding to pause or perhaps even make a temporary production cut.

Gold (XAUUSD) received a muted bid overnight in response to the omicron virus comments from the head of Moderna (see oil section above). In addition, comments from Fed chair Powell helped reduced 2022 rate expectations from three to two after he said the omicron virus posed risks to both sides of the central bank’s mandate for stable prices and maximum employment.

Despite this development together with softer Treasury yields and a weaker dollar, gold continues to struggle attracting a safe-haven bid. Silver (XAGUSD) looks even worse having dropped to a six-week low on weakness spilling over from industrial metals.


Broad dollar buying following Fed chair Powell’s renomination helped drive a 20% increase in the greenback long against ten IMM currency futures and the Dollar index to $25.4 billion and near a two-year high. All the currencies tracked in this saw net selling with the biggest contributors being euro (12.6k lots), CAD (11.8k) and JPY (4.1). The net short on the latter reached 97.2k lots or the equivalent of $10.6 billion, a short of this magnitude helps explain the strength of the sell off in USDJPY since last Thursday when safe haven demand picked up as the omicron news began to spread.

Despite hitting a 16-month low last week the euro short only reached 12.6k lots, a far cry from the -114k lots reached during the panic month of February last year when the pair briefly traded below €1.08.

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