Fast-fashion chain Primark expands sustainable cotton programme

LONDON (Reuters) – Primark, one of Europe’s biggest fast fashion chains, has pledged to train an additional 125,000 smallholder cotton farmers in more sustainable farming methods in India, Pakistan and Bangladesh by the end of 2023.

The group’s sustainable cotton programme trains farmers on using fewer chemical pesticides and fertilisers and less water, thereby preserving the biodiversity and helping to mitigate against climate change. It also lowers input costs and improves yields and profits for the farmer, the group says.

Primark, owned by London-listed Associated British Foods, said on Friday the commitment would take the total number of farmers in the programme to over 275,000 by the end of next year.

Last September, Primark vowed to cut its environmental impact by using more recyclable materials, making clothing more durable, and improving wages for workers.

It pledged that 100% of the cotton in its clothes would be sourced from its sustainable cotton programme, organic or recycled by 2027. It also committed to make all its products from recycled fibres or more sustainably sourced materials by 2030.

Currently, almost 40% of Primark clothing is made from recycled fibres or more sustainably sourced materials.

With environmental campaigners singling out the fashion industry for its heavy use of water and chemicals, major brands are coming under pressure to adapt supply chains and address a culture that has led to millions of items ending up in landfill.

Many environmental campaigners are sceptical about green pledges from brands, believing they are driven by a need for good PR and that the industry requires a wider culture change instead. Primark says its sheer size means it can make a difference.

Last month Primark said it would raise some prices as it battles inflationary pressures.

(Reporting by James Davey; Editing by Mark Potter)

Mali’s workers feel the squeeze as sanctions take hold

By Paul Lorgerie and Tiemoko Diallo

BAMAKO (Reuters) – Mohamed Cisse used to employ hundreds of workers in Mali’s capital Bamako before economic sanctions last month shut borders and cut the lifeblood of his construction business.

Cement is scarce. Its key ingredient, clinker, comes from neighbouring Senegal, from which all but essential goods are blocked. Cisse has been forced to shut three of his four building sites.

The Economic Community of West African States (ECOWAS) meant to send a powerful message to Mali’s military leaders when it imposed the sanctions after the junta delayed plans to hold elections in February following two coups.

But workers, many of whom have so far supported the junta for ousting unpopular President Ibrahim Boubacar Keita in 2020, are worried about the outsized impact on ordinary citizens in one of the world’s poorest countries.

Hundreds are being laid off; goods for import are stuck in mammoth traffic jams at border crossings; cotton and gold, major economic drivers, cannot reach regional buyers.

How successful the sanctions are in forcing Mali’s leaders to hold elections sooner, or if they reduce support for the junta, could influence how ECOWAS seeks to punish other coup leaders in Guinea and Burkina Faso who have also snatched power over the past year.

“We had a lot of hope when we saw these well-trained, well-structured soldiers. But the situation of this embargo, I would say that it is … 70% the fault of the government, which presented an imprecise (election) timetable,” Cisse said.

The interim government set up by the junta did not respond to requests for comment. It had previously said the sanctions were “disproportionate, inhumane, illegitimate and illegal” and will have severe consequences on the population.

ECOWAS says it is imposing the sanctions because Mali’s leaders said they would delay elections until December 2025, nearly four years later than they originally agreed.

TIGHTENING NOOSE

Malians are accustomed to hardship. A decade-old Islamist insurgency has taken over parts of the north and centre, killing thousands. The COVID-19 pandemic contributed to a rise in the cost of fuel and other goods.

But now the economy is under severe strain. Mali has defaulted on 54 billion CFA francs ($93 million) in interest and principal payments since January, data from the West Africa monetary union’s debt agency Umoa-Titres shows.

The government says it is unable to meet its obligations because the sanctions have cut it off from regional financial markets.

“Closing landlocked Mali’s borders, in a country that depends entirely on its coastal neighbours for trade, is nothing short of catastrophic,” said Eric Humphery-Smith, an analyst at risk consultancy Verisk Maplecroft.

The authorities need tax income to pay about $120 million in monthly government wages, said Modibo Mao Makalou, an economist and former adviser to the ousted president Keita. But revenues, including from customs duties and income taxes, are under threat, he said.

Remittances from the region, key to the economy, are also being blocked as wire transfers and bank transfers fail to go through.

“I think (the government) can last 2-3 months maximum, but the noose must be loosened,” Makalou said, referring to the funds left to be able to pay wages and meet other outgoings.

While the impact has yet to be shown in hard economic data, Malians are struggling.

Issiaka Mahmoud Bah, managing director of Bamako-based recruitment firm Golden Resources Management, used to receive resumes from about 25 job applicants per day. He now gets up to 100. Meanwhile, the number of employers seeking workers has plummeted, he said.

Revenues for Sonef, a transport company that buses people from Mali across West Africa, have dropped 80% in recent weeks, said company manager Mamadou Traore. Its customers, including people who transport dyed fabrics to Ivory Coast or bring in fish from Senegal, cannot travel, he said.

“We have had to close several stopovers and put dozens of agents on technical unemployment,” he said.

($1 = 582.7500 CFA francs)

(This story corrects paragraph 14 to show govt wage figure is monthly, not yearly)

(Writing by Edward McAllister; Editing by Bate Felix and Alison Williams)

China’s labour policies in Xinjiang are discriminatory, ILO body says

By Emma Farge

GENEVA (Reuters) – An International Labour Organization committee has expressed “deep concern” about China’s policies in its far western region of Xinjiang, calling them discriminatory and asking Beijing to bring its employment practices into line with global standards.

The report on the region, home to China’s minority Muslim Uyghurs, risks stoking geopolitical tensions between China and the United States at a sensitive time for Beijing as it hosts the Winter Olympics.

The United States accuses China of genocide and along with other Western nations has imposed a diplomatic boycott of the Games over China’s treatment of Uyghurs in Xinjiang. Allegations of rights abuses include some that are reviewed by the ILO committee, such as China’s alleged use of forced and prison labour. China denies the accusations.

“The Committee expresses its deep concern in respect of the policy directions expressed in numerous national and regional policy and regulatory documents and requests therefore the government to … review its national and regional policies with a view to eliminating all distinction, exclusion or preference,” the report released by the U.N. agency on Thursday said.

Specifically, the committee asked China to repeal provisions “that impose de-radicalisation duties on enterprises and trade unions” in Xinjiang and to amend political re-education provisions.

“As a ILO member state, the Chinese government is firmly committed to respecting, promoting and realizing the full access to productive and freely chosen employment and decent work for all China’s ethnic minority groups including Uyghurs in Xinjiang,” its diplomatic mission in Geneva said on Twitter, adding that U.S. labour practices had previously fallen foul of the same committee.

The United States and Britain welcomed the committee’s findings and called on Beijing to take the steps requested.

An ILO official told Reuters that the alleged violations would be raised at a major conference in June.

This could lead to a formal complaint and the establishment of a commission of inquiry to investigate abuses on the ground, as occurred in Myanmar in the 1990s.

In its report, the ILO committee examined a number of allegations by the International Trade Union Confederation, including that Beijing has used a “widespread and systematic” programme of forced labour throughout Xinjiang that violates an Employment Policy Convention.

The Chinese government called the allegations “untrue and politically motivated” in remarks summarised in the report.

China has been a member of the Geneva-based ILO since 1919 and has ratified many of its legally binding conventions.

The ILO committee is an independent body made up of 20 jurists to provide an impartial evaluation of all member states’ application of global labour standards.

(Additional reporting by Yew Lun Tian in Beijing; Editing by Nick Macfie, Mark Heinrich and Mark Porter)

Column-Escalating U.S. inflation forces macro policy rethink: Kemp

By John Kemp

LONDON (Reuters) – U.S. consumer prices are rising at the fastest rate for decades, a sign that aggregate demand for goods and services from households and businesses is overwhelming the economy’s productive capacity.

Prices for all goods and services increased at a compound rate of 4.2% per year over the two years ending in December 2021, the fastest two-year increase since 1991 (https://tmsnrt.rs/3qnnbYl).

At this rate, the price level will double and nominal wages will halve every 17 years, fast enough to ensure that inflation has become much more noticeable for households and businesses and has risen up the political agenda.

Contrary to the earlier views of policymakers at the White House and the Federal Reserve, the increase in prices has been neither transitory nor confined to volatile items such as gasoline.

Core prices for all items other than food and energy increased at a compound annual rate of 3.5% in the two years to December, the fastest since 1993 (“Consumer price index”, U.S. Bureau of Labor Statistics, Jan. 12).

And in the most recent three months, ending in December, core prices were advancing at an annualised rate of almost 7%, implying inflationary pressure was intensifying rather than easing.

Price rises were faster for goods (15.8%) even when food and energy are excluded (13.7%) but services prices were also rising much more rapidly (5.0%) than the Fed’s long-term average target of just over 2.0% per year.

HANDBRAKE TURN

In the last three months, largely in response to the surge in prices, policymakers have pivoted abruptly from a rhetorical focus on sustaining the recovery and increasing employment to controlling inflationary pressures.

“The economy has rapidly gained strength despite the ongoing pandemic, giving rise to persistent supply and demand imbalances and bottlenecks, and thus to elevated inflation,” Fed Chairman Jerome Powell said this week.

“We know that high inflation exacts a toll, particularly for those less able to meet the higher costs of essentials like food, housing, and transportation,” the Fed chief told senators at his confirmation on Tuesday.

“We will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.”

Until now, the White House and the Fed have tended to blame price rises on specific bottlenecks linked to economic re-opening (a micro-economic problem) rather than too much aggregate demand (a macro-economic one).

They have pointed to evidence that there is still significant spare capacity in the labour market, with far fewer people in employment than before the pandemic erupted in early 2020.

In December, there were still only 149 million non-farm jobs in the economy, compared with 157 million that would have been expected if employment had continued growing along its pre-pandemic trend.

The civilian labour force participation rate for those aged 25 years and over was still only 62.8% in December compared with 64.5% in the same month in 2019.

Both the White House and the Fed have pointed to this jobs gap to argue the economy is still operating below its potential and needs short-term stimulus to achieve full employment.

But potential output is determined by the availability of capital, energy, raw materials and production capacity as much as labour.

On many of these other measures, the economy is already close to its pre-pandemic trajectory, implying there is little or no spare capacity.

Real gross domestic product is just 2.5% below its pre-pandemic five-year trend. Real personal consumption expenditures are only 0.8% below trend.

Total energy consumption was still 1.1% below track in the three months to September, but manufacturing production was already 2.9% above its anaemic pre-pandemic trajectory by November.

In practice, the pandemic and recession are likely to have disrupted some productivity growth and destroyed some capacity semi-permanently, so spare capacity may be even less than these figures suggest.

MICRO VERSUS MACRO

With the economy operating close to full capacity, but demand still increasing rapidly, inflationary pressures have accelerated significantly.

If the economy is like a complex system or a machine, the rate-limiting factor or source of friction in this case is not the availability of labour but tightness in production capacity, energy and other raw materials.

In the first nine months of 2021, the White House and Federal Reserve’s exclusive focus on the labour market blinded them to the increase in frictional pressures in other parts of the system.

Policymakers attempted to use macroeconomic policy (low interest rates, bond buying and government spending) to solve a microeconomic problem (persistent under-employment in sections of the labour force).

In April, White House advisers gave a lengthy press briefing in which they argued the economy could be run “hot” without “overheating”, but this has proved impossible.

There is not enough manufacturing capacity, freight transportation capacity, oil, gas and other raw materials to sustain the rapid rate of demand growth being fuelled by expansionary monetary and fiscal policies.

The resulting excess demand is showing up as rapid price increases across a broadening range of final products (furniture), semi-finished products (semiconductors) and raw materials (cotton).

Now policymakers have a macroeconomic problem (too much demand) they are attempting to solve with microeconomic interventions (antitrust enforcement and targeted measures to support supply chains).

Prices will continue to escalate until aggregate demand is brought back into line with aggregate supply, either through slower demand growth, faster supply growth, or some combination of the two.

In practice, there may be some scope to increase supply growth, but it is likely to be limited in the short term, which means most of the adjustment will have to come from slower growth in demand.

Ending central bank bond buying, higher interest rates, slower growth in government spending and tax rises will all likely be needed to moderate demand growth over the next two years and reduce inflationary pressure.

The challenge for policymakers is to achieve a slowdown in demand growth, and inflation, without tipping the economy into a recession.

John Kemp is a Reuters market analyst. The views expressed are his own

(Editing by William Maclean)

Speculators Initial Reaction to Stock and Bond Market Rout

This COT report highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, January 4. A week where a rout in tech shares dragged US stocks from all-time highs on worries about higher interest rates amid a rout in US bonds. The commodity sector traded higher, primarily supported by the industrial metal and soft sector, with the best individual performances being crude oil, soybeans, coffee and cotton.

In terms of market action around New Year the Nasdaq lost 1.3% while the higher concentration of value stocks saw the S&P 500 trade close to unchanged. The dollar held steady while US ten-year yields jumped 17 basis points to 1.65%.

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

Commodities

The commodity sector traded higher, primarily supported by the industrial metal and soft sector, with the best individual performances being crude oil, soybeans, coffee and cotton. Somewhat offsetting these were losses in natural gas, palladium, wheat and sugar.

Speculators reaction to these developments were relatively muted, most likely due to the time of year with books barely reopened before the reporting week ended last Tuesday. Overall the energy sector saw buying led by Brent crude oil and gasoline. Metals were mixed with gold selling being offset by silver buying, the platinum short  was halved while copper length rose by 27%.

The agriculture sector saw strong demand for soybeans in response to Brazil crop worries while ample supply saw the CBOT wheat short rise by 69% to a six-month high. In softs, selling of sugar took the net long to a 17-month low while the 7% increase in the cotton long lifted the long/short ratio to a very unhealthy 151 longs per each short.

Latest comments from today’s Market Quick Take:

Crude oil (OILUKMAR22 & OILUSFEB22) trades steady with focus on robust demand and so far, a limited fallout from the omicron surge, together with the prospect for OPEC+ struggling to deliver the promised production hikes as several producers have started to hit their limit, some due to lack of investments.

Countering the short-term threat of even higher prices are easing supply disruptions in both Libya and Kazakhstan, but overall, demand remains robust as signaled in the six-month futures spread in Brent which has more than doubled since the December, omicron demand worry low point. Focus this week on EIA’s STEO and US CPI, as well as omicron developments, especially in China where the zero-tolerance approach may hurt demand through lockdowns.

Gold (XAUUSD) had a relatively strong first week of trading with the massive 30 bp surge in US ten-year real yields to a six-month high at –0.78% being partly offset by a softer dollar and stocks as well as geopolitical risks, and rising inflation as seen through higher wage pressures in Friday’s US job report.

Yields have climbed further overnight with the market starting to price in four Fed rate hikes in 2022, starting as early as March. Silver (XAGUSD) meanwhile continues to find support around $22 ahead of the key double bottom at $21.42 while resistance can be found at $22.65. Gold remains challenged as long it stays below the triple top at $1830 and so far, $1783 has prevented an even deeper selloff.

Forex

In forex, the speculative flows were mixed resulting in the combined dollar long against ten IMM currency futures and the Dollar index holding steady at $23.2 billion, with buying of EUR, CHF and GBP being offset by selling of JPY and AUD.

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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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)

Factbox-U.S. legislative clamp-down on products from China’s Xinjiang

BEIJING (Reuters) – U.S. legislation to ban imports from China’s western Xinjiang region passed the U.S. House of Representatives this week and could have ramifications for goods from textiles to solar panel materials.

The House passed the act on concerns over forced labour in Xinjiang, in Washington’s continued pushback against alleged abuses of the Uyghur Muslim minority by Beijing.

Human rights organisations have accused China of exploiting forced labour from Uyghurs and other minority groups, as well as setting up a system of detention camps.

China has repeatedly denied the accusations and said its measures in Xinjiang are necessary to fight terrorism.

WHAT DOES THE ACT SAY?

Under the “Uyghur Forced Labor Prevention Act”, goods from Xinjiang, a region in China’s far west about the size of Mongolia and with a population of some 25 million, would be presumed to be made using forced labour, and so banned from ports of entry into the United States.

Exceptions to the ban could be granted if “clear and convincing evidence” was provided that the goods were not made using any forced labour.

Some goods – like cotton, tomatoes, and polysilicon, a material used in solar panel manufacturing – would be designated “high priority” for enforcement action.

Efforts to contravene the import ban would be met with sanctions.

To become law, the act must also pass the Senate and be signed by President Joe Biden.

HOW MUCH TRADE WOULD BE AFFECTED?

Xinjiang’s overall exports fell 12.2% to $15.8 billion last year, from 2019, with the outbreak of the coronavirus pandemic, according to customs data from the region.

But shipments to the United States surged 116% in 2020 to $653.5 million even as it stepped up its rhetoric on alleged human rights abuses.

Last year, Xinjiang’s exports to the United States accounted for about 4% of the region’s outbound shipments by value, up from less than 2% in 2019.

The region’s customs data did not give a breakdown of what products were shipped to U.S. customers.

Overall, electronics products led Xinjiang’s exports in 2020 by value, accounting for nearly a third of the region’s outbound shipments. That was followed by clothing and accessories, footwear and cultural products.

Lower down the list was farm produce, which accounted for about 5% of Xinjiang’s exports, with a total value of $867.3 million.

Exports of textile yarns, fabrics and related products reached $774.5 million, or almost 5% of the region’s overall outbound shipments.

POLYSILICON, COTTON AND TOMATOES

Analysts estimate that 45% of the world’s solar panel-grade polysilicon comes from Xinjiang – an increasingly important material as countries ramp up their renewable energy capacity.

The Biden administration has already banned imports from Chinese-based Hoshine Silicon Industry Co but stopped short of imposing a ban on all imports from the region.

Agricultural products are also in focus, after allegations from some researchers and foreign lawmakers that Xinjiang authorities use coercive labour programmes to meet seasonal cotton-picking needs.

The Trump administration announced an import ban on all cotton and tomato products from the region in January.

U.S. Customs and Border Protection estimated in January that about $9 billion of cotton products and $10 million worth of tomato products were imported from China into the United States in the preceding year.

WHAT HAS CHINA’S RESPONSE BEEN?

China strongly denies the claims made in the act and says all labour in Xinjiang is consensual and contract-based.

“This is in essence political manipulation and economic bullying in the name of human rights,” Wang Wenbin, a foreign ministry spokesman, said on Thursday.

“The U.S.’s intention is to undermine Xinjiang’s prosperity, stability and ethnic solidarity, and contain China’s development.”

(Reporting by Gabriel Crossley, Ryan Woo, Emily Chow and Beijing newsroom; Editing by Robert Birsel)

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.”

WORSE BEFORE IT GETS BETTER

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.

NO CROP SPARED

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.

SMALLHOLDERS SUFFER

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)

Commodity Supercycle Set For New Highs As Inflation Runs Hot – What’s Next?

There are plenty of reasons why Commodities are on the move from rapidly surging global inflation, tightening supply, logistical bottlenecks to booming demand across many highly essential Commodities as world economies recover from the COVID-19 pandemic.

So far this year, a long-list of Commodities have already blasted through all-time record highs including Aluminium, Copper, Cotton, Coffee, Crude Oil, Natural Gas, Nickel, Lithium, Wheat and Uranium just to name a few.

In total 27 Commodities ranging from the metals, energies to soft commodities have tallied up double to triple digit gains, so far in 2021 and this is just the beginning.

Looking ahead, inflation will continue to drive the markets again this week. The biggest macro events that traders will not want to miss out on include; U.S CPI Inflation Data, Producer Price Index and Consumer Sentiment.

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

WTI and Copper Bought, Gold sold as Risk on Reigns

Saxo Bank publishes two 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 below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, June 2. A week where appetite for risk driven by stock market euphoria leading to hopes of a V-shaped recovery continued to be the dominant force.

The Bloomberg Commodity Index rose 0.7% with gains in energy, metals and grains being off-set by losses in softs and livestock. Speculators only made small changes to their positions with the net-long across 24 major commodity futures increasing by 2% to 545k lots. Buying of WTI crude oil, gas oil, copper and cotton being off-set by selling of gold, soybeans, corn and coffee.

Energy

Buying of WTI crude oil extended into a 9th week with funds adding 17k lots to bring the net-long to 380k lots or 380 million barrels, the highest since July 2018. Short sellers added small length for a second week thereby keeping the long/short ratio steady. The Brent crude oil net-long saw a small reduction as short-sellers added length for the first time since March. Despite dropping by almost 9% the natural gas long was kept close to unchanged with both long and short positions rising.

OPEC and its oil-producing allies agreed on Saturday to extend the group’s historic 9.7 million barrels/day production cut by one month to the end of July. As we highlighted in our latest update the risk of failure, despite concerns about non-compliance from a handful of producers, was limited given the need to support the price while lockdowns are eased and demand recover. A recovery that potentially risks being slower than the market expects due to the risk of second waves.

According to the latest weekly EIA report, demand for distillates in the US, which is mainly diesel, hit a 1999 low some 30% below the five-year average. Gasoline demand meanwhile has recovered but was 1.9 million barrels/day or 25% below the average for this time of year. With the deal having been all but priced in ahead of the meetings the risk to crude oil remains balanced. Speculative momentum may see both WTI and Brent take aim at closing the gaps to $41.05/b and $45.18/b respectively.

However much higher prices at this early stage in the recovery carries the risk of becoming self defeating as it invites back increased production from high cost producers, not least along the US shale patch. The market may soon also begin to focus on rising production after July from core OPEC members while Libya is showing signs of returning production.

Metals

The lack of short-term tactical opportunities together with the rising risk appetite seen across other asset classes, continued to cut interest in gold. Last week speculators cut bullish bets on COMEX gold futures by 8% to 137k lots, a one-year low. This during a time where demand for gold via bullion backed exchange-traded funds registered a new record with total holdings rising above 100 million ounces. Part of this development may be a product specific challenge that the futures contract currently faces.

The transatlantic disconnect that occurred between gold futures traded in New York and spot gold traded in London back in March left many market makers with heavy losses. This after the spot to futures spread, the so-called Exchange for physical or ETF, blew out thereby forcing cut backs and reduced risk appetite among market makers normally assuring a well functioning market place. These developments are likely to have led to some investors and traders instead focusing on bullion-backed ETFs.

The silver net-long held steady at 27k lots with the near 4% rally failing to attract fresh long positions. Potentially due to the fact that silver’s recent outperformance against gold reached its target as highlighted through the gold-silver ratio. Additional gains in silver may now require support from gold which struggled towards the end of week when a stronger than expected US job report sent real yields higher and gold lower.

HG Coppers continued recovery and flirtation with key resistance at $2.50/lb – that got broken on Thursday – finally saw the net switch to a long position for the first time since January. Dictated by the mentioned breakout funds are likely to add additional speculative length with the price now potentially taking aim at $2.60/lb.

Agriculture

The UN FAO’s Global Food Price Index reached the lowest monthly average since December 2018 last month. Covid19-related declines extended to a fourth month with all sub-indices with the exception of sugar seeing declines. A development which is also being replicated by the speculative exposure with hedge funds holding net-short positions in seven out of the ten grains and softs contracts tracked in this report.

Selling of corn continued with the net reaching a one-year high at 282k lots. This despite signs of a recovering price in response to increased ethanol-linked demand, The rising fuel cost theme also supported another week of short-covering in sugar. Hardest hit was Arabica coffee after the recent technical break below key support wiped out the remaining long with a net-short of 7k lots emerging.

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

Corn Prices Hit A 5 Week High, Will Cotton Prices Break The 70 Level?

I will be recommending a bullish position if prices close above 3.85 while then placing the stop-loss at the contract low which was hit on September 9th at 3.65 as the risk would be $1,000 per contract plus slippage and commission as the chart structure is outstanding due to the low volatility that we have experienced over the last several months.

Corn prices are now trading above their 20 day moving average but slightly below their 100 day which stands at major resistance at 3.91 as the USMCA trade agreement will be passed this week as that is a very bullish fundamental factor coupled with the fact that the Chinese trade agreement has been written in stone as I think the bottom has occurred in the grain market as these are very bullish factors for corn prices which still historically speaking are depressed.

The large money managed funds are heavily short corn while adding another 30,000 contracts last week as they believe lower prices are ahead, however I disagree with that situation so play this to the upside as the risk/reward is in your favor.

TREND: HIGHER–MIXED 

CHART STRUCTURE: EXCELLENT

VOLATILITY: INCREASING

Cotton Futures

Cotton futures in the March contract is currently trading higher by 45 points at 67.25 reversing some of the losses that we witnessed last Friday as prices are still hovering right near a 5 month high.

The large money managed funds are still short this commodity by 3,000 contracts as they still believe lower prices are ahead, however I have been recommending a bullish position from around the 66.60 level and if you took that trade continue to place the stop loss under the November 21st low of 63.70 as an exit strategy as the chart structure will start to improve in next week’s trade therefor the monetary risk will also be reduced.

Cotton prices are trading above their 20 & 100 day moving average telling you that the trend is to the upside with the next major level of resistance around the 68.00 level as I think that could be tested in this week’s trade as optimism that China will become a more active buyer of U.S cotton should be supportive in the coming weeks ahead.

At the current time I have several bullish recommendations as I think the commodity markets in 2020 will have significant rallies from these depressed levels as I do think with the emergence of all these trade deals occurring the bearish situation has ended as the risk/reward is in your favor to the upside.

TREND: HIGHER

CHART STRUCTURE: EXCELLENT

VOLATILITY: INCREASING

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

Weekly Forecast: Cutton, Sugar, Rice and Orange Juice Futures

Cotton Futures

Cotton futures in the March contract settled last Friday in New York at 66.69 while currently trading at 64.00 down about 270 points for the week as prices have now hit a 5 week low.

I have been recommending a bearish position from around the 65.00 level and if you took that trade continue to place the stop loss at 67.13, however the chart structure will improve in next weeks trade therefor the monetary risk will be lowered.

Cotton prices are trading under their 20-day but still slightly above its 100 day moving average which also stands at major support around the 63.00 level as I think that area will be touched in next week’s trade.

One of the main problems for cotton is the fact that we can’t come up with a trade agreement with China as they are the number one importer of U.S cotton in the world and until that situation is cemented look for lower prices ahead. At the current time my only other soft commodity recommendation is a bullish sugar trade as I do think cotton prices have topped out in the short-term so continue to play this to the downside while placing the proper stop loss making sure that you risk only 2% of your account balance on any given trade.

Sugar Futures

Sugar futures in the March contract settled last Friday in New York at 12.73 a pound while currently trading at 12.74 basically unchanged for the trading week continuing it’s extremely low volatility.

I have been recommending 2 bullish positions with an average price of 12.67 and if you took that trade continue to place the stop loss under the 10-day low which now stands at 12.46 & in Monday’s trade that will be raised to 12.51 as the chart structure is outstanding at the current time due to the fact that prices have been stuck in the mud.

Sugar is still trading slightly above its 20 and 100 day moving average as the trend remains higher as we need some fresh news to dictate short-term price action as the Brazilian Real has hit a 4 year low against the U.S dollar as that has a negative influence on prices. The next major level of resistance stands at the 13.00 area as I will be looking at adding more contracts at that level due to the fact that the stop-loss is so tight therefor the risk/reward is in your favor so stay long.

Orange Juice Futures

Orange juice futures in the January contract settled last Friday at 100.50 while currently trading at 99.00 down about 150 points for the week as prices are still stuck in a tight 4 week consolidation.

I will be recommending a bullish position if prices break the 101.65 level while then placing the stop loss under the contract low which was hit on October 30th at 96.10 as the risk would be around $850 per contract plus slippage and commission.

We are starting to enter the very volatile winter season for orange juice prices as a possible frost could hit the State of Florida sending prices sharply higher as that situation has occurred in the past as I do think we are in a bottoming-out pattern as the downside is limited.

Volatility at the current time remains low as I don’t think that situation is going to last much longer as the weather conditions at the current time remain ideal, but it is a long growing season so look to play this to the upside.

TREND: MIXED

CHART STRUCTURE: EXCELLENT

VOLATILITY: LOW

Rice Futures

Rice futures in the January contract settled last Friday in Chicago at 11.89 while currently trading at 12.23 up about $0.34 for the trading week as prices are right near a 5 week high. I had been recommending a bearish position from around the 11.82 level getting stopped out around 12.10 earlier in the week while at the present time I’m sitting on the sidelines waiting for another trend to develop.

Rice prices are now trading above their 20 and 100 day moving average as the trend has turned higher, however the chart structure is terrible therefor the risk/reward is not in your favor as prices rallied straight up over the last week. The volatility has finally come back to life in this historically volatile commodity as my only grain recommendation is a bearish soybean trade which continues to grind lower on a daily basis.

S&P 500 Futures

The S&P 500 in the December contract settled last Friday in Chicago at 3118 while currently trading at 3111 down about 7 points for the trading week breaking a 4 week winning streak.

I have been recommending a bullish position from around the 3006 level and if you took that trade the stop loss has now been raised to 3074 as the chart structure will also improve in next week’s trade therefor the monetary risk will be reduced.

For the bullish momentum to continue prices have to break the November 19th high of 3132 in my opinion as earnings season has been very solid coupled with the fact that we are entering the holiday markets which generally push prices higher.

Expectations for an outstanding Christmas season is predicted as the U.S economy is by far the strongest in the world with historically low unemployment and an excellent stock market helping fuel the economy so stay long as I still think the 3200 level is realistic come year end.

The S&P 500 is trading far above its 20 & 100 day moving average as this is the strongest trend to the upside out of all commodity sectors as we continually grind higher on a weekly basis despite this recent setback.

TREND: HIGHER

CHART STRUCTURE: IMPROVING

VOLATILITY: LOW

The Article was written by Michael Seery (CTA—COMMODITY TRADING ADVISOR)