Brazil mills cancel sugar export contracts, shift output to ethanol

By Marcelo Teixeira

(Reuters) – Brazilian sugar cane mills are cancelling some sugar export contracts and diverting production to ethanol to cash in on high energy prices, according to people with direct knowledge of the deals, raising concerns of a sugar shortage.

Nearly every company involved in sugar trading in Brazil has seen cancellations, a trader at a large international commodities merchant told Reuters on the sidelines of Sugar Week in New York last week. He estimated total cancellations so far at 200,000 to 400,000 tonnes of raw sugar.

“It is happening because of the production mix change and also because of the crop delay,” the trader said.

Brazil exports around 2.2 million tonnes of sugar per month during the peak of the crop. A large fall in sugar output could lead to a global sugar shortage, some traders say.

Most mills in Brazil are flexible and can partially shift from sugar or ethanol production. Right now, production is shifting in favor of ethanol as high energy prices driven by pandemic recovery and war in Ukraine spur more fuel output.

Recent analyst projections show lower sugar output numbers and higher ethanol volumes because biofuel sales have become more profitable for mills. Ethanol sales increased 2.6% in April.

A second trader, also working for a large international food merchant, confirmed the cancellations – known in the industry as washouts – and said most traders are trying to be flexible when negotiating. “These are take-or-pay contracts, there is a fee, so sometimes the cost could be high for the mill,” he said.

An executive at one of the largest mills in Brazil who asked not to be named said the gains from shifting from sugar to ethanol offset the costs of cancellations. Brazil is second largest ethanol producer after the United States.

“Ethanol sales are paid in one or two days, while export sugar takes much longer, and mills have many bills to pay in the harvest kick-off,” he said.

Hydrous ethanol was trading at the equivalent of a sugar price of 20 cents per pound late last week, while sugar futures in New York were trading a bit over 19 cents per pound. [SOF/L]

Last season mills used 45% of the sugarcane crop to make sugar and 55% to make ethanol. Every percentage point corresponds to around 700,000 tonnes of sugar.

According to data from sugar industry group UNICA, the lowest sugar mix was 34.3% in 2019, a year of low sugar prices. The highest was 49.7% in 2006, when higher prices prevailed.

(Reporting by Marcelo Teixeira; editing by Richard Pullin)

Ukraine sugar producer Astarta completes 2022 sugar sowing

KYIV (Reuters) – Ukraine’s major white sugar producer, Astarta, has completed sowing at 33,000 hectares, almost the same acreage as it sowed in 2021, the company said on Monday.

In 2021, Astarta sowed 33,500 hectares for sugar beet, or almost 15% of the country’s overall beet sowing area.

“We are convinced that we should not reduce agricultural production during the war, on the contrary, its current scale must be preserved,” the company quoted Vadym Skrypnyk, director for agricultural production and storage, as saying.

The company said it also sowed 38,000 hectares of corn, 40,000 hectares of soybeans, 55,000 hectares of winter wheat, 30,000 hectares of sunflower and some acreage of other crops.

Astarta produced 266,000 tonnes of white sugar from its 2021 harvest, processing 1.8 million tonnes of sugar beet.

That was up from 2020 when it harvested about 1.5 million tonnes of sugar beet and refined 226,000 tonnes of white sugar for a market share of 22%.

The agriculture ministry said last week farmers had sown 181,400 hectares of sugar beet as of May 12 compared with 224,700 hectares at the same date in 2021.

(Reporting by Pavel Polityuk; editing by Jason Neely)

Russian wheat prices up, export pace slows

(Reuters) – Russian wheat export prices rose last week with higher wheat prices in Chicago, analysts said on Monday, adding that the country’s exports were slowing down due to seasonal factors.

Prices for wheat with 12.5% protein content for supply in May from Black Sea ports were at $390 free on board (FOB) at the end of last week, up $5 from a week earlier, the IKAR agriculture consultancy said.

Sovecon, another consultancy, said, citing data from ports, that Russia exported 330,000 tonnes of grains last week compared with 440,000 tonnes a week earlier.

The consultancy expects the pace of wheat exports from Russia to slow to 1 million tonnes in May from 2.2 million tonnes in April as the state export quota is being depleted.

In the domestic market, prices fell due to strong rouble currency and higher supply from farmers who need to clean up their storage before the new crop arrives in summer.

Russia’s 2022 wheat crop is expected to reach a record-high of 87 million tonnes, President Vladimir Putin said last week.

Spring grains were planted on 12.6 million hectares as of May 12 vs 11.5 million hectares a year ago as the sowing accelerated in Russia’s Volga region, Sovecon said.

The weather remains very good for the upcoming crop, Sovecon said, adding that farmers across almost all key regions report good conditions for winter wheat.

Other Russian data provided by Sovecon and IKAR:

Product: Price at the end Change from week

of last week: earlier

– Domestic 3rd class 15,875 rbls/t -175 rbls

wheat, European part ($248.91)

of Russia, excludes

delivery (Sovecon)

– Sunflower seeds 40,650 rbls/t -250 rbls

(Sovecon)

– Domestic sunflower 111,700 rbls/t -2,650 rbls

oil (Sovecon)

– Domestic soybeans 50,500 rbls/t -450 rbls

(Sovecon)

– Export sunflower $1,900-2,000/t unchanged

oil (Sovecon)

– Export sunflower $1,940/t unchanged

oil (IKAR)

– White sugar, $960.6/t -$2.5

Russia’s south

(IKAR)

($1 = 63.7780 roubles)

(Reporting by Reuters; Editing by David Evans)

Dreyfus sees larger Brazil shift to ethanol, warns of sugar shortage

By Marcelo Teixeira

NEW YORK (Reuters) -Global commodities trader Louis Dreyfus projected on Wednesday that Brazilian mills will divert a larger-than-expected amount of sugarcane to ethanol production due to high energy prices, causing a reduction in global sugar supplies.

Dreyfus sugar director Enrico Biancheri said during the Citi ISO Datagro sugar conference in New York that Brazil’s center-south (CS) mills would produce only 29 million tonnes of sugar in the new season that started in April, a view that would be in the low end of analysts’ estimates so far.

“At current prices the world is heading to a shortage of sugar, due to a ethanol-oriented crop in Brazil,” Biancheri said, adding that sugar prices will need to rise to a premium over ethanol prices to cause an increase in sugar production.

Brazil mills have certain flexibility to change cane allocation to sugar or ethanol, depending on market prices. Due to high energy prices, there was an expectation in the sugar market that mills would shift some cane to ethanol, but Dreyfus sees that shift as more drastic.

As a comparison, U.S. broker and analyst StoneX projected on Tuesday that Brazil CS mills would produce 33.9 million tonnes of sugar, near 4 million tonnes above Dreyfus’ estimate.

Biancheri said that ethanol sales are currently giving mills a financial return that would be equivalent to a sugar price of 20.18 cents per pound. Sugar was trading on Wednesday on ICE at 18.54 cents/lb.

(Reporting by Marcelo Teixeira; Editing by Franklin Paul and Will Dunham)

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

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

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

Commodities

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

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

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

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

Energy

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

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

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

Metals

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

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

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

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

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

Agriculture

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

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

Forex

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

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

What Is the Commitments of Traders report?

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

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

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

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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

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

Brazil commodities sales to Arab nations soar as importers stock up on food

By Ana Mano

SAO PAULO (Reuters) – Brazilian exports to the 22 countries in the League of Arab Nations rose in the first quarter amid a spike in agricultural commodities prices and a drive to stock up on food, according to a statement sent to Reuters on Tuesday.

Brazil’s total exports to the group reached $3.86 billion in the period, an almost 34% increase from the same time a year ago, the statement from the Arab-Brazil Chamber of Commerce said.

A boost in sales to the Arabs nations also reflects Russia’s and Ukraine’s reduced participation in the global grains and fertilizer trade, the statement noted, referring to two major suppliers of products like wheat and sunflower oil.

Iron ore, which accounts for most of Brazil’s sales to the Arab nations, stood at $690.29 million in the first quarter, a fall of 12.5% year-on-year. On the other hand, strong demand for food products worked in favor of domestic exporters, who made a windfall.

Chicken meat sales rose by almost 11%, to $591 million, while sugar sales jumped almost 20% to $588.8 million in the first three months of the year.

Soy products sales soared 122.8% to $318 million, while wheat exports stood at $285.86 million, marking a 438.06% jump.

Brazil also boosted corn and frozen beef sales by 27.21% and 165.73%, respectively, to the Arab nations, according to the data.

The Brazil-Arab Chamber said nations outside the Arab world are keen to guarantee food supplies, a boon to Brazilian food exporters.

However, the Chamber expressed concern that a potential drop in fertilizer imports from Russia and Belarus, hit by Western sanctions, could negatively impact Brazil’s 2022/2023 grain crop.

(Reporting by Ana Mano; Editing by Marguerita Choy)

Commodity Markets Analysis – Can The Fed Fight Inflation Without Causing A Recession?

Commodity Markets Fundamental Analysis

It is becoming more evident, day by day, that Central banks across the world are fighting a losing battle against rapidly surging inflation and no matter what actions they take now, it will be nowhere enough to tame ever-rising inflationary pressures.

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

Fast forward to today – inflation is running at a 41-year high and still rapidly accelerating.

To regain its credibility, the Fed must now be seen to move more aggressively on rate hikes, which ultimately means, Stagflation is now a major risk to the economy in the second half of the year, or worst still a recession.

As traders very well know – Monetary policy is a blunt instrument, not capable of surgical precision.

There is generally a very narrow path in successfully engineering a slowdown without causing unintended economic damage. Right now, that path looks extraordinarily narrow given just how far the current rate of inflation is away from the Fed’s preferred inflation target of 2%.

Historically, 11 of the last 14 Fed tightening cycles since World War II have been followed by a recession within the next 12 months.

Will the Fed get it right this time?

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

So far this year, 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains already – And this is just the beginning!

To quote Goldman Sachs, “they have never seen the Commodities markets this bullish before”.

Commodity Price Forecast Video for the Week 2 – 6 May 2022

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

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

COT: Metals Led Exodus of Spec Longs on FOMC and Growth Fears

A week that saw a continued deterioration in the global growth outlook driven by extended China lockdowns and increasingly aggressive rate hike signals from members of the US FOMC. The S&P 500 lost 6.4% while VIX jumped 12% to 33.5%. The broad Bloomberg dollar index rose 1.3% while ten-year bond yields slumped by 22 basis points to 2.72%.

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

Commodities

The Bloomberg Commodity Spot index dropped 2.3% after hitting a post-Easter record high with all sectors registering losses led by industrial metals (-5.2%) and precious metals (-4%). In response to these developments, hedge funds cut bets on rising commodity prices by the most since last November. Seventeen out of 24 contracts saw net selling with overall net long being reduced by 8% to 2 million lots, representing a $14.3 billion drop in the nominal value to $149.3 billion.

Biggest reductions hitting the metal sector led by gold and copper, followed by the softs sector. The energy sector saw no appetite for adding exposure, despite strong gains among the fuel contracts.

Latest updates on crude oil, gold and copper can be found in our daily Market Quick Take here

Energy

Crude oil was mixed with surging fuel prices supporting a relative outperformance of the WTI contract, but overall a 12k lots increase in WTI was more than offset by a 14k lots reduction in Brent, on global demand concerns, thereby leaving the net down by 2k to 411k lots, and near a 17-month low.

Fuel products surged higher amid tightness caused by Russian sanctions with gasoil in Europe and diesel in New York (ULSD) both surging higher by 30% and 27% respectively. These changes, however, did not attract any appetite for adding risk with both contracts seeing only small changes.

Metals

The combination of growth concerns, especially in China, and very aggressive rate hike statements from US FOMC members, combined with a stronger dollar, helped drive a dismal week for both industrial and precious metals.

Speculators responded to the 2.8% drop in gold by cutting bullish bets by 20% to 99.4k lots with the bulk of the change being driven by long liquidation, not fresh short selling. A similar picture in silver which in response to a 7.4% loss saw its net long being cut by 36% to 26.5k lots.

Platinum saw 13.3k lots of selling flip the net positions back to a net short for the first time since September. HG Copper fared even worse with speculators wiping the slate clean with the net returning close to neutral for the first time since May 2020 when the price was trading close to half the current level.

Agriculture

The grains sector saw the net long being reduced from a ten-year high by 36k lots to 783k lots. Selling was led by corn and soybeans while wheat only witnessed a small reduction in an already relative small bullish bet. The exception was soybean oil which jumped 5.4% in response to a growing global supply crisis impacting edible oils such as sunflower and palm oil.

The softs sector saw the biggest week of net selling since November with the stronger dollar and a general deterioration in risk appetite triggering reductions across all four commodities led by sugar and cocoa.

Forex

Another week of broad dollar strength with the Dollar Index rising 1.3% saw speculators turn net buyers of dollars for the first time in four weeks. The net long versus ten IMM currency futures and the Dollar Index rose 8% to $15.7 billion.

Currencies seeing the biggest amount of net selling was led by the euro (-9.1k lots) and sterling (-10.7k lots) with the latter seeing the net short reach a 2-1/2-year high at 69.6k lots. Yen short covering after hitting a 20-year low supported a temporary bounce, and with that a 11.7k lots reduction in the net short to 95.5k lots, still by far the most shorted currency against the dollar.

What is the Commitments of Traders report?

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

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

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

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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

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

WCU: Fuel Price Surge Lifts Inflation and Risks Killing Demand

Commodity Markets Monthly Fundamental Analysis

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

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

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

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

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

Crude oil

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

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

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

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

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

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

Gold

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

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

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

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

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

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

Copper

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

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

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

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

Agriculture

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

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

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

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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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

Bunge lifts 2022 earnings outlook as Ukraine war crimps crop supplies

By Karl Plume and Ruhi Soni

(Reuters) -Global farm commodities merchant Bunge Ltd on Wednesday reported a higher quarterly adjusted profit and raised its full-year earnings forecast by 21% on robust demand and tighter supplies of essential crops since Russia’s invasion of Ukraine.

The two-month war exacerbated already thin supplies of grain and oilseeds after weather-reduced crops in South America and other key production areas, boosting demand and lifting crop processing margins for Bunge.

The results mirrored strong earnings from rival Archer-Daniels-Midland on Tuesday.

Bunge shares surged 5% to $120.80 on the New York Stock Exchange after reaching a record high last week, and were up almost 30% this year.

Bunge’s results highlighted how global grains merchants have weathered surging crop prices and supply chain disruptions triggered by the Russia-Ukraine war. The two nations supply nearly a third of the world’s wheat exports, a fifth of globally traded corn and around 80% of sunflower oil.

World grain and vegetable oil supplies will not recover from disruptions caused by the war for “a long period of time” so other growers and processors, particularly in South America, will play a greater role in tamping down soaring food inflation, Bunge Chief Executive Greg Heckman said.

“There will be a long tail on this because there is infrastructure that has been damaged. There are seaborne logistics that have to be untangled. There are waters that need to be de-mined,” he said.

Bunge’s Mykolaiv port facility sustained damage in fighting last month, but company executives said on Wednesday that it did not appear to be significant.

A prolonged conflict would be a tailwind for Bunge, which makes money trading and processing crops and shipping products around the world.

Bunge raised full-year adjusted earnings guidance to $11.50 per share, from $9.50 previously, and said the guidance had “upside potential” as tight supplies and strong demand persist.

Adjusted profit, excluding one-off items, rose to $4.26 per share, compared with $3.13 a year earlier, topping the consensus estimate of $2.94, according to Refinitiv IBES.

(Reporting by Ruhi Soni in Bengaluru and Karl Plume in Chicago; Editing by Shailesh Kuber, Chizu Nomiyama, Marguerita Choy and Jonathan Oatis)

Mondelez flags profit hit from Ukraine crisis even as quarterly results impress

By Deborah Mary Sophia

(Reuters) -Mondelez International Inc flagged a hit to its annual profit due to the Russia-Ukraine war, even as higher prices and resilient demand helped the Oreo maker top Wall Street estimates for quarterly results.

The war has exacerbated the pain for packaged food makers by sparking a rally in wheat, oil, and energy prices when they are still struggling with global supply-chain snarls, higher freight costs and labor shortages.

Mondelez expects a 3-cent hit to its adjusted per share earnings in 2022 and a $200 million impact on its revenue.

“We expect elevated levels of input cost inflation to continue through the remainder of the year, and we will continue to take necessary actions to offset this dynamic,” Chief Executive Officer Dirk Van de Put said.

The Trident gum maker said it now expects inflation in the low double-digit range for the year, up from its prior view of about 8%.

Analysts, however, said the lowered profit outlook was not much of a surprise.

“The efforts Mondelez is making to focus on new products and better-selling items, and lowering controllable costs, should eventually pay off,” said Edward Jones analyst John Boylan, adding the chocolatier’s price hikes so far appear to be accepted by consumers.

The price increases and strong growth in the Ritz crackers maker’s emerging markets helped lift its organic revenue 8.6% in the first three months of the year, and fueled a raise in its full-year core sales forecast.

Mondelez now expects organic net revenue to increase over 4% in 2022. It had previously expected growth in line with its long-term target of more than 3%.

Net revenue rose 7.3% to $7.76 billion in the quarter, topping Refinitiv estimates of $7.39 billion, while adjusted profit of 84 cents per share came in higher than the 74 cents expected.

(Reporting by Deborah Sophia in Bengaluru; Editing by Krishna Chandra Eluri)

Primark to raise prices as cost pressures mount

By James Davey

LONDON (Reuters) -Budget fashion chain Primark will raise prices as it battles severe inflationary pressures, its parent Associated British Foods said on Tuesday, as it also warned on the margin outlook at its food businesses, sending shares lower.

The group said Primark has been unable to fully offset the cost pressures it is facing with savings and so will implement selective price increases across some of its autumn/winter stock from August.

Finance chief John Bason told Reuters that Primark was keeping its pledge not to raise prices for spring/summer stock. He declined to say what the magnitude of price rises would be for autumn/winter.

“We will absolutely ensure that we are the best value around, that’s not going to change,” he said.

Rival Next said last month its prices would rise by up to 8% this year.

The pricing moves underscore the balancing act the clothing industry is facing as it struggles to protect margins without denting demand amid the biggest squeeze on household budgets for decades.

Shares in AB Foods were down 5.7% at 0852 GMT.

Primark’s sales increased 59% to 3.54 billion pounds in its first half to March 5 as COVID-19 restrictions eased.

Reflecting the inflationary pressures, it now expects a greater reduction than previously expected in its second-half operating profit margin. The full-year margin was forecast at 10% versus 11.7% in the first half.

Bason said that since the end of the first half Primark’s sales had continued to improve in the United Kingdom, but not in continental Europe.

AB Foods, which also owns major sugar, grocery, ingredients and agricultural businesses, saw first-half adjusted operating profit nearly double to 706 million pounds ($900 million).

Sales in the food businesses, which include grocery brands Twinings tea, Jordans cereals, Kingsmill bread and Ovaltine drinks, rose 6% to 4.34 billion pounds.

The group’s food businesses are experiencing inflationary pressures in raw materials, commodities, supply chain and energy, which it has taken action to offset through operational cost savings and price increases.

With commodity and energy prices having further increased following Russia’s invasion of Ukraine, the group expects a greater margin reduction in its food businesses than previously expected for the full year.

“We expect recovery in the run-rate of these margins, but the full effect of margin recovery is now anticipated in our next financial year,” AB Foods said.

Overall the group still expects growth in adjusted operating profit in the second half compared to the same period last year and “significant progress” in full-year adjusted operating profit.

An interim dividend of 13.8 pence a share, up from 6.2 pence, is being paid.

($1 = 0.7841 pounds)

(Reporting by James Davey; Editing by Paul Sandle and Jan Harvey)

ADM, Bunge expected to post strong results as Ukraine war ignites demand

By Karl Plume

CHICAGO (Reuters) – A string of strong quarterly profits by global agribusinesses Archer-Daniels-Midland Co and Bunge Ltd likely continued in the first quarter despite surging crop costs and global supply chain disruptions triggered by Russia’s invasion of Ukraine, analysts said ahead of earnings releases this week.

Both companies capitalized on good oilseed and corn processing margins and heightened demand for the crops they ship around the world after the war cut off shipments from the breadbasket region cradled around the Black Sea, they said.

ADM, which reports results ahead of the market open on Tuesday, is expected to post first-quarter earnings of $1.41 per share, according to a consensus estimate from Refinitiv IBES, about in line with $1.39 a share in the same quarter a year earlier.

The expected robust earnings in the three months ended March 31 would add to recent strong results for the companies that stemmed from rising demand for food and biofuels and shifts in trade flows during the COVID-19 pandemic.

The consensus estimate for Bunge, which reports on Wednesday, is $2.86 per share, compared to a strong quarter a year earlier when robust margins and surging exports propelled earnings to $3.13 a share.

Supply chain middlemen like ADM and Bunge thrive when crises such as droughts or war trigger shortages in parts of the world.

Food commodity prices surged to multi-year or record highs as the invasion launched by Russia in February cut off supplies representing nearly a third of global wheat exports, a fifth of corn exports and 80% of sunflower oil shipments.

Still, the companies’ crop processing and trading margins remained strong as surging demand for products such as animal feed, cooking oil or ethanol climbed.

ADM executives have said they expect ethanol demand to return to pre-pandemic levels this year, and the White House this month announced a move to allow higher ethanol blends during the summer to combat soaring fuel costs.

“They stand to benefit from where they are in the supply chain,” said Chris Johnson, lead agribusiness analyst for Standard & Poor’s. “Overall, their economies of scale and their procurement allow them to not be hit so hard on the input side and make more on the distribution and processing side.”

Both ADM and Bunge shuttered their Ukraine facilities, which represent a minimal share of their global businesses, and have yet to resume operations. Bunge’s operations there include two crushing plants and a Black Sea port facility, while ADM operates an export terminal, a crush plant and several inland elevators.

(Reporting by Karl Plume in Chicago; Editing by Will Dunham)

COT: Spec Buying Pauses on China and Growth Concerns

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

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

Commodity markets

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

General comment from today’s Market Quick Take

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

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

Agriculture

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

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

Energy

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

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

Metals

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

Forex

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

What is the Commitments of Traders report?

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

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other

Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other

Forex: A broad breakdown between commercial and non-commercial (speculators)

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

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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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

Commodity Rally Fades on China and Turbocharged Rate Hike Expectations

If the latter was the only focus, a peak in commodities would be near, however we see an equally challenged supply side keeping the sector supported for a prolonged period of time.

Commodity Markets Fundamental Analysis

There is little doubt that recent very strong readings on growth and employment will start to be negatively impacted over the coming months by persistently-high inflation and rising rates. If that was only the focus on commodities, the peak would be in by now and lower prices could be expected during the coming months. However, we believe commodities will continue to be supported as supply is likely to be equally or perhaps even more challenged than demand. Sanctions against Russia, now a pariah nation to much of the world, are unlikely to disappear once peace returns to Ukraine.

Being the world’s second largest exporter of commodities from energy to metals and agriculture, consumers and industries around the world will continue to struggle sourcing the raw materials needed. In addition, recent weak first-quarter trading updates from the biggest mining companies, such as BHP, Vale, Rio Tinto and Anglo American, have all highlighted the challenge they face with the rising cost of everything from steel and diesel to labor, as well as social unrest and troubled weather. All factors that have seen production fail to meet expectations.

Copper

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

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

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

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

Global food prices meanwhile remain a key concern as highlighted by the FAO Food Price Index. In March it jumped 12.6% to a record after the war wreaked havoc on supply chains in the crucial Black Sea breadbasket region, a key supplier to the global market of wheat, corn and vegetable oils. While the index was 33% higher than the same time last year, the latest increase reflected new all-time highs for vegetable oils (23.2% MoM, 56.1% YoY), cereals (17.1%, 37.3%) and meat sub-indices, while those of sugar (6.7%, 22.6%) and dairy products also rose significantly.

Chile, a supplier of 25% of the world’s copper, have seen production slow in recent months, and with an “anti-mining” sentiment emerging in the newly elected government, the prospect of maintaining or even increasing production seems challenged. In addition, Chile has entered its 13th year of drought and water shortages are having a major impact on the water-intensive process of producing copper. In addition, government legislation has been put forward to prioritize human consumption of water, and if voted through it may delay investment decision but also force mining companies to invest in desalination facilities, thereby raising the cost of production further.

Crude oil

Crude oil continues to trade within a narrowing range around $107 in Brent and $102.5 in WTI. Beneath the surface, however, the market is anything but calm with supply disruptions from Libya and Russia currently being offset by the release of strategic reserves and lower demand in China where officials are struggling to eradicate a wave of Covid-19 in key cities.

In addition, the market is on growth alert with the US Federal Reserve signaling an aggressive tightening mode in order to curb inflation, a process that most likely will reduce growth and eventually demand for crude oil. US refinery margins hit a record earlier this week before falling by more than 10%, developments still reflecting the high prices global consumers are forced to pay as supply of key fuels, such as diesel and gasoline, remain tight due to reduced flows from Russia.

Next week, the focus will turn to earnings from the oil supermajors such as Exxon Mobil, TotalEnergies and Chevron. Apart from delivering eye-watering profits the market will mostly be focusing on the prospect for increased production and how they see the impact of the war in Ukraine, demand destruction from rising prices and monetary tightening.

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

Gold and Silver

Gold and silver price developments this past week described very well the current drivers impacting markets with gold trading relatively steady while silver saw renewed selling pressure. Despite its recent lackluster price performance, gold nevertheless continues to attract demand from asset managers seeking protection against rising inflation, lower growth, geopolitical uncertainties as well as elevated volatility in stocks and not least bonds.

This past week the market once again raised its expectations for US rate hikes with projections now pointing to three consecutive half-point Fed interest-rate hikes. The quickest pace of tightening since the early 1980’s could see rates higher by 2.5% by December.

Gold’s ability to withstand this pressure being seen as the markets attempt to find a hedge against a policy mistake tipping the world’s largest economy into a downturn. So far, however, the current US earnings season has shown companies are able to pass on higher costs and preserve margins.

With input prices staying elevated due to war and sanctions and a general scarcity of supply, only the killing of demand can bring down inflation. A view that has seen the gold-silver ratio hit a two-month high above 80 with silver underperforming given its semi-industrial status.

Total holdings in bullion-backed ETFs meanwhile hit a fresh 14-month high as asset managers continue to accumulate holdings into the current weakness. In addition, signs of strong retail and central bank demand are likely to support gold, despite the recent breakdown in correlation between gold and US ten-year real yields indicating gold on this parameter alone is overvalued.

In our recently published Quarterly Outlook we highlight the reasons why we see the prospect for gold moving higher and eventually reaching a fresh record-high later this year.

Natural Gas

Gas prices in Europe have lost some momentum this month with spring and warmer weather reducing demand, thereby sending the price of prompt delivery gas to the lowest level since the start of the war in Ukraine. Low supplies from Russia and a reduction in flows from Norway due to seasonal maintenance has been offset by strong arrivals of LNG shipments and a warm beginning to spring. As a result, storage levels across the continent have started to build almost a month earlier than last year.

As Europe steps up its effort to reduce dependency on Russian gas these developments have been met with a sigh of relief, but a long and very expensive road lies ahead for this plan to succeed. In the short term, the market will continue to worry European buyers objection to Russia’s rubles-for-gas order with bills due later this month.

While the front month price of Dutch TTF benchmark gas has dropped to around €100/MWh, still six times the long-term average, the cost of securing gas for the coming winter from October to next March remains stubbornly high around the same level. In other words, the usual profitable trade of buying cheap summer gas to storage in order to sell it at a higher price during the peak winter demand season is currently not working. What it will mean for the speed of stock building remains to be seen.

In the US meanwhile the front month Henry Hub natural gas contract reached a 13-year high around Easter above $8/MMBtu or €25/MWh in European money, before reversing lower on technical selling to the current $7/MMBtu. Strong domestic and export demand together with a shortage of coal are testing drillers’ ability to expand supplies, not least considering a US government pledge to increase exports to Europe. So far, no major pick up in production has been seen, resulting in stockpiles trailing the seasonal average by around 17%.

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

What Does A Fed-Induced Recession Mean For Commodity Prices?

Commodity Markets Fundamental Analysis

Data released this month, showed U.S Inflation is now running at new four-decade high of 8.5% from a year ago – the largest annual increase since 1981.

After spending the whole of 2021, pushing the narrative that surging inflation was only transitory and nothing to worry about – belatedly now, the Fed has decided to swing into action. At its policy meeting in March, Fed officials announced that they would raise interest rates ‘aggressively’ this year, setting the economy up for one of its steepest tightening cycles in a quarter of a century.

Concerns the Fed will struggle to moderate inflation while simultaneously sustaining an economic expansion have been stoked by the central bank’s spotty record in successfully engineering a slowdown without causing unintended economic damage.

Historically, 11 of the 14 last Fed tightening cycles since World War II have been followed by a recession within the next 12 months.

Will the Fed get it right this time?

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

According to Goldman Sachs, “they have never seen the commodities markets this bullish before”.

Commodity Prices Forecast for 22.04.22

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

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

Brazil’s Petrobras elects Jose Mauro Coelho as CEO

SAO PAULO (Reuters) – Brazilian state-run oil company Petrobras said on Thursday its board of directors has elected Jose Mauro Coelho as the firm’s chief executive for a one-year term.

Coelho, who will replace retired army general Joaquim Silva e Luna in the job, is set to take office later on Thursday.

The move comes right after the company voted Coelho onto its board, paving the way for the government technocrat to take the helm of the firm, as under Petrobras’ statutes the chief executive must be on the board to get elected.

Coelho, who previously served as the secretary of oil, gas and biofuels at Brazil’s Mines and Energy Ministry, was tapped for the role earlier this month after energy consultant Adriano Pires backed out of the government’s nomination.

(Reporting by Gabriel Araujo; editing by Diane Craft)

Commodity Rally Slows on China Lockdowns and Fed Angst

Commodity Markets Fundamental Analysis

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

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

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

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

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

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

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

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

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

Gold

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

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

Copper

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

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

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

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

US and EU gas markets

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

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

Crude oil

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

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

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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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

Food prices hit record high in March, U.N. agency says

By Gus Trompiz

PARIS (Reuters) -World food prices jumped nearly 13% in March to a new record high as the war in Ukraine caused turmoil in markets for staple grains and edible oils, the U.N. food agency said on Friday.

The Food and Agriculture Organization’s (FAO) food price index, which tracks the most globally traded food commodities, averaged 159.3 points last month versus an upwardly revised 141.4 for February.

The February figure was previously put at 140.7, which was a record at the time.

Russia and Ukraine are major exporters of wheat, corn, barley and sunflower oil via the Black Sea, and Moscow’s six-week-old invasion of its neighbour has stalled Ukrainian exports.

The FAO last month said food and feed prices could rise by up to 20% as a result of the conflict in Ukraine, raising the risk of increased malnutrition.

The agency’s cereal price index climbed 17% in March to a record level while its vegetable oil index surged 23%, also registering its highest reading yet, FAO said.

Disruption to supplies of crops from the Black Sea region has exacerbated price rises in food commodities, which were already running at 10-year highs in the FAO’s index before the war in Ukraine due to global harvest issues.

Sugar and dairy prices also rose sharply last month, the FAO said.

In separate cereal supply and demand estimates on Friday, the FAO cut its projection of world wheat production in 2022 to 784 million tonnes, from 790 million last month, as it factored in the possibility that at least 20% of Ukraine’s winter crop area would not be harvested.

The revised global wheat output estimate was nonetheless 1% above the previous year’s level, it said.

The agency lowered its projection of global cereals trade in the 2021/22 marketing year as increased exports from Argentina, India, the European Union and the United States were expected to only offset some of the disruption to Black Sea exports.

Total cereal trade in 2021/22 was revised down by 14.6 million tonnes from the previous monthly outlook to 469 million tonnes, now 2% below the 2020/21 level.

Projected world cereal stocks at the end of 2021/22 were revised up by 15 million tonnes to nearly 851 million tonnes, mainly because of expectations that export disruption will lead to bigger stockpiles in Ukraine and Russia, the FAO added.

(Reporting by Gus Trompiz; editing by Jason Neely, Jan Harvey and Barbara Lewis)

Sugar maker Tereos appoints Ludwig de Mot as new CEO

PARIS (Reuters) – French sugar and ethanol maker Tereos said on Tuesday it had appointed Ludwig de Mot as its new chief executive, succeeding Philippe de Raynal who left the company in February after just a year at the helm.

Tereos, the world’s second-largest sugar producer in volume and with large operations in Brazil, has been reshuffling its top management and reviewing its strategy since 2020 when a long-running internal feud led to the ousting of its chairman and CEO.

De Mot, a 58-year old Belgian, was previously interim manager in charge of transformation at airport services group Swissport. He also held board member and executive positions in the maintenance services, minerals production and packaging industries.

It is the first time that Tereos has appointed a non-French to lead the cooperative, the group’s spokeswoman said. De Mot will start on April 7.

“His industrial experience and expertise in transformation are assets that will enable Tereos to deploy a progress plan at its various production sites and thus accelerate its return to sustainable profitability,” Tereos said in a statement.

Gwenael Elies, the current chief financial officer who had served as acting CEO since de Raynal’s departure, was appointed head of finance, information systems, legal, tax and human resources, Tereos said.

(Reporting by Sybille de La Hamaide, editing by Gus Trompiz and Susan Fenton)