Moroccan household finances hit by imported inflation – planning agency

RABAT (Reuters) – Inflation, driven by an increase in the cost of imported products and an improvement in domestic demand, will continue to undermine the purchasing power of Moroccans this year, the planning agency said on Tuesday.

Inflation is expected to remain at 2021’s level of 1.8% this year, compared with 0.8% in 2020, the agency said in a report.

Household purchasing power will grow by just 0.7% in 2022, compared with an average growth rate of 1.1% between 2010 and 2019, the agency said, adding household debt would be equivalent to 34% of GDP this year.

The Moroccan government has announced it will increase spending on subsidies for soft wheat, sugar and cooking gas to 17 billion dirhams ($1.8 billion) in 2022, following a surge in prices in the international market.

Spending on subsidies would represent 1.6% of GDP this year, the agency said.

Thanks to an improvement in domestic and foreign demand and an exceptional crop year, Morocco’s economy grew by 7.2% last year after a contraction of 6.3 in 2020, it said.

This year, Morocco’s economic growth would slow to 2.9% assuming an average crop harvest, the agency said.

The fiscal deficit would narrow to 6.1% this year compared to 6.5% in 2021, partly thanks to higher tax revenue, it said.

(Reporting by Ahmed Eljechtimi; Editing by Mark Potter)

Speculators Rotate Towards Crude Oil and Natgas

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

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

Commodities

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

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

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

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

Market comments from today’s Market Quick Take:

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

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

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

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

Forex

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

What is the Commitments of Traders report?

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

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

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

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

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

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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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

Gas Markets Lead Broad Commodity Strength in 2022

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

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

Industrial metals sector

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

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

Agriculture sector

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

Natural gas

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

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

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

Crude oil

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

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

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

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

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

Gold

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

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

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

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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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

Taliban increase payment in wheat as economic crisis deepens

KABUL (Reuters) – The Taliban administration said on Tuesday it was expanding its ‘food for work’ program, in which it uses donated wheat to pay thousands of public sector employees instead of cash as a financial crisis intensifies.

Wheat, largely donated by India to the previous U.S.-backed Kabul government, is being used to pay 40,000 workers 10kg of wheat per day for working five hours a day, agriculture officials told a news conference.

The scheme, which has largely paid labourers on public works programs in Kabul, will be expanded around the country, they said.

“We are ready to help our people as much as we can,” said Fazel Bari Fazli, deputy minister of administration and finance at the Ministry of Agriculture.

The Taliban administration has already received an additional 18 tonnes of wheat from Pakistan with a promise of 37 tonnes more and is in negotiation with India for 55 tonnes, according to Fazli.

“We have lots of plans for food for work program,” he said.

It was not clear how much of the donated wheat would be used as direct humanitarian aid and how much to pay workers.

The expanding program underlines the growing conundrum faced by the Taliban administration as cash in the country dries up and could raise questions among donors over the use of humanitarian aid for government purposes while strict restrictions remain on financial flows into the country.

International sanctions on Taliban members, frozen central bank assets and the sudden drop off in international assistance that once formed the backbone of the economy has left the Taliban government with limited government finances and a growing economic crisis.

Humanitarian aid has continued as foreign governments attempt to prevent millions from starving, but is designed to bypass Afghan government channels and is mostly distributed by international multilateral institutions.

U.N. agencies on Tuesday asked donors for $4.4 billion in humanitarian aid for Afghanistan in 2022, calling the funds an “essential stop gap” to ensure the country’s future.

(Writing by Charlotte Greenfield; Editing by Alexandra Hudson)

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.

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

World food prices hit 10-year high in 2021

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

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

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

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

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

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

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

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

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

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

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

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

(Reporting by Gus Trompiz; Editing by David Clarke)

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

By Karl Plume

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

‘WANT TO DO IT’

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

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

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

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

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

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

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

Cover crop seed shortages are also likely.

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

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

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

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

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

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

By Naveen Thukral and Florence Tan

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

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

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

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

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

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

ENERGY

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

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

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

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

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

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

METALS

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

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

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

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

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

RALLYING AGRICULTURE MARKETS

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

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

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

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

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

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

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

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

Commodities Back on Track for a Strong 2021 Finish

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

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

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

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

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

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

Annual outlooks and price forecasts from major banks with a commodity operation have started to roll in, and while the outlook for energy and agriculture is generally positive, and precious metals negative, due to expectations for a rise in US short-term rates and long-end yields, the outlook for industrial metals is mixed. While the energy transformation towards a less carbon intensive future is expected to generate strong and rising demand for many key metals, the outlook for China is currently the major unknown, especially for copper where a sizable portion of Chinese demand relates to the property sector.

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

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

Gold

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

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

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

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

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

Crude oil

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

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

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

Natural gas

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

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

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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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

Indian farmers receive new government offer, may call off protest

NEW DELHI (Reuters) – India’s protesting farmers have received a revised proposal from the government addressing some of their pending demands such as a new law to secure government prices for crops beyond rice and wheat, farm union leaders said on Wednesday.

Tens of thousands of farmers have staged their long-running protests to persuade Prime Minister Narendra Modi to repeal three agriculture laws from late 2020. Last month, Modi made a surprise u-turn, saying he would roll them back.

Despite Modi’s climbdown, farmers have continued to press the government to meet other demands such as Minimum Support Prices (MSPs) for all produce.

“We’ve received a revised proposal from the government. We’ve accepted the proposal, and a consensus has emerged,” Samyukta Kisan Morcha, or United Farmers’ Front, a coalition of farmers unions, said in a statement.

Farm union leaders will meet again on Thursday to take a call on calling off the protest, the statement said.

(Reporting by Rajendra Jadhav and Mayank Bhardwaj, Editing by Louise Heavens)

OPEC+ Surprise in a Week Driven by Omicron Angst

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

Agriculture

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

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

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

Natural gas

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

Crude oil

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

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

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

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

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

Gold

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

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

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

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

Industrial metal sector

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

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

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

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

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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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

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

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

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

The October figure was previously given as 133.2.

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

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

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

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

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

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

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

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

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

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

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

(Reporting by Crispian Balmer)

Analysis-Drop in global output of bread-making wheat sparks hunt for supplies

By Naveen Thukral and Gavin Maguire

SINGAPORE (Reuters) – A leading Middle Eastern flour miller paid over $23 million in October for a high-grade Australian wheat cargo and is willing to pay 10% more now for a similar consignment, but is unable to seal a deal as exporters can’t find enough food-grade grain.

The miller is one of dozens of global importers scrambling to get hold of high-protein wheat, used in making bread, noodles and other foodstuff, after a series of production issues clipped output and potential exports from the world’s largest producers.

Traders who sold high-quality wheat are now trying to cover supplies through alternative sources while buyers, worried about food security, are helping push prices to multi-year highs.

The latest output miss has come in Australia, which is on course to harvest a record 34.4 million tonnes of wheat this season, but was hit by late rains that sapped protein levels.

“The global wheat market has changed dramatically over the last few weeks,” said a trader who ships grains to the Middle East and North Africa, which are heavily reliant on purchases from top exporters Russia, the United States and Australia.

“If you booked high-quality wheat, you are not sure about what you get.”

Reflecting the uneven quality ratings as harvest season wraps up, the price spread between lower quality Australian Standard White (ASW) wheat and Australian Premium White (APW) wheat has widened to $47 a tonne, from just about $8-$10 a tonne a few months ago, traders said.

ASW was quoted this week at $318 a tonne, free on board, Western Australia, compared with APW that sold for $365 a tonne.

GLOBAL RIPPLES

The tensions in the wheat market are being felt around the world.

Benchmark wheat traded in Chicago climbed to a nine-year peak late last month, while prices at ports in Russia, the world’s No. 1 supplier, and Australia, typically the fourth largest exporter, are at all-time highs.

World food prices rose for a third straight month in October to reach a new 10-year peak, led by increases in cereals and vegetable oils, the UN food agency said.

The dizzying price levels are alarming buyers who are still suffering from the economic impact of the coronavirus pandemic, with decade-high freight costs compounding their problem.

Many large wheat millers are also holding lower inventories than normal after having scrimped on pricey purchases earlier this year in the hopes that Australia’s wheat crop would be large and of high quality.

At the same time, key exporters Russia, United States and Canada have less than normal supply of high-quality wheat following adverse weather.

“As usual, Russia is selling wheat with average protein of 12.0-12.5% this season,” Andrey Sizov the head of Sovecon agriculture consultancy said.

    However, Russia’s wheat production is expected to fall this year, and exports are down 34% so far in the 2021/22 marketing season.

In Germany, a key European wheat producer, traders say main importers including Saudi Arabia and Iran had been hoping for large volumes of high-protein wheat from Australia.

“These high supplies are now threatened, and importers may have no option but to seek other sources,” said one German trader.

“There could be a scramble with the EU and Russia the first option followed by the U.S.”

ON THE HOOK

A second German trader said there was speculation in the market about where Saudi Arabia was sourcing the 1.27 million tonnes wheat purchase it announced on Nov. 1.

“If Australia was among the planned sourcing, this will have to be changed quickly to fulfil arrival starting in January. Our demand calculations for EU wheat may need fundamental changes.”

In Canada, drought shrank the spring wheat harvest to a 14-year low, but the hot, dry conditions boosted protein content.

However, high prices have lately paralysed sales of high-protein North American wheat, with exporters having almost no sales on the books for January delivery or later, said a Canadian exporter, who was not authorised to speak publicly and therefore declined to be identified.

Total U.S. wheat plantings are expected to climb next season, according to the U.S. Department of Agriculture, but supply worries over top quality wheat may persist.

“U.S. hard wheat stocks are likely to decline even further next year, based on seedings and what we see as the demand profile,” said Dan Basse, president of AgResource Co in Chicago.

(Reporting by Naveen Thukral and Gavin Maguire in Singapore; Additional reporting by Polina Devitt in Moscow, Michael Hogan in Hamburg, Rod Nickel in Winnipeg and Julie Ingwersen in Chicago; Editing by Muralikumar Anantharaman)

Speculative Positioning Ahead of Fridays Omicron Dump

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

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

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

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

Commodities

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

Energy

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

Metals

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

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

Agriculture

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

UPDATES from today’s Market Quick Take

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

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

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

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

Forex

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

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

What is the Commitments of Traders report?

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

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

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

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

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

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

Exclusive – Russia’s VTB could consider IPO for grains business in a few years’ time

By Katya Golubkova

MOSCOW (Reuters) – Russia’s No. 2 bank VTB will remain the controlling shareholder of grains business Demetra for at least another three years and could then consider floating it in an IPO, Chief Executive Andrey Kostin told Reuters.

The state-controlled bank became the largest operator of Russia’s grain export infrastructure and a major grains trader after a series of acquisitions https://www.reuters.com/article/us-russia-grains-vtb-exclusive-idUKKCN1VD123 in recent years. It said in 2019, it planned to expand its grains business further and then exit.

Once the development stage is complete, VTB could consider various options for selling its stake, including an initial public offering of Demetra’s shares, its CEO said.

“I think it will take us three years, at least, before we create such a value that we would be interested in selling. Eventually, maybe we will go out through an IPO, but not now – there is still a lot of work to be done,” Kostin said in an interview conducted for publication on Monday.

VTB’s Demetra holds stakes in several Russian Black Sea grain export terminals and Russia’s largest grain railcar owner Rustranscom. It is also Russia’s third largest wheat exporter, supplying Algeria among other markets.

“We have at least three more projects (at Demetra) to expand existing or build new port capacity, to develop other logistics, digital development,” Kostin said.

The current shareholder structure at Demetra, in which VTB owns a controlling stake and two Russian investors – Agronova and Marathon – share the rest https://www.reuters.com/article/russia-grains-vtb/russias-vtb-sells-half-of-its-grain-business-to-two-russian-firms-idUSR4N2C500Z, is stable, and VTB is fine with it, the CEO said.

However, a good offer from a foreign fund or a portfolio investor could still be considered, he added.

“We once had talk about a possible entry of foreign funds – and that is not a bad thing when you bring a serious foreign investor into a company and then go for an IPO, it can have a positive effect on the share price,” Kostin said. “I would be flexible here.”

“If a good portfolio investor comes along, why not? But this is purely my general thinking, this issue has not been discussed – if suddenly there is a good offer at a good price, we will sit down with partners at the negotiating table and make a decision,” he added.

(Reporting by Katya Golubkova; writing by Polina Devitt; editing by Susan Fenton)

India’s parliament passes bill to repeal controversial farm laws

By Nigam Prusty

NEW DELHI (Reuters) – India’s parliament on Monday passed a bill to repeal three laws aiming at deregulating agricultural markets, bowing to pressure from farmers who have protested for over a year to demand that the laws be rolled back.

Prime Minister Narendra Modi’s administration introduced the farm bills last year through an executive order, traditionally reserved for emergency legislation, triggering India’s longest-running farmers’ protest. Parliament then passed the legislation via a voice vote, drawing widespread criticism that it had rushed through the laws without proper debate.

In a bid to end the protests ahead of the state assembly election in India’s most populous Uttar Pradesh state early next year, Modi said this month his government would repeal the laws in the new session of parliament.

As parliament reconvened for its winter session on Monday, both the lower and upper houses passed the bill to withdraw the laws meant to deregulate and open up agricultural markets to companies. Farmers have said the laws would leave them with scant bargaining power against big private purchasers.

The controversial laws saw tens of thousands of people, including many elderly growers and women farmers, brave extreme weather and a severe second wave of coronavirus infections to camp out on the outskirts of New Delhi over the past year.

In addition to their repeal demand, protesting farmers are also asking that Modi’s administration introduce a law to secure government prices for produces beyond just rice and wheat.

The government currently buys rice and wheat at state-set Minimum Support Prices (MSPs), but the subsidies only benefit about 6% of India’s millions of farmers.

Protesters are demanding MSPs for all crops – a move that has galvanised growers across the country and taken the protest beyond India’s grain-growing states of Punjab and Haryana.

The government has not yet made any comment on the protesters’ demand for MSPs.

Farmers celebrated the development but said the protest would only be called off when the government promised legislation on MSPs for all produce.

(Writing by Mayank Bhardwaj; Editing by Ana Nicolaci da Costa)

Commodities Challenged by Fresh Covid Concerns

The commodity sector traded lower for a sixth straight week with continued losses in energy and metals, both precious and industrial, being only somewhat offset by another week of gains across the agriculture sector. Apart from recent dollar strength, renewed Covid-related lockdowns in Europe and the risk of a slowdown in China, the world’s top consumer of raw materials, markets were rocked on Friday on the discovery of a new variant of the coronavirus.

The new Covid variant, with a scientific description of B.1.1.529 but no Greek letter yet designated, has been identified in South Africa and observers fear that its significant mutations could mean that current vaccines may not prove effective, leading to new strains on healthcare systems and complicating efforts to reopen economies and borders.

These fears helped send a wave of caution over global markets on Friday with stock markets around the world slumping and US Treasury yields reversing course after rising earlier in the week on increased risk that central banks would speed up their normalization efforts to combat surging inflation. In forex, the Japanese yen jumped and the dollar, which had reached a 16-month high earlier in the week, reversed lower thereby challenging recently establish long positions.

Gold recovered after taking a 70-dollar tumble earlier in week when a break below the key $1830 technical level triggered selling from recently established hedge fund longs. Crude oil slumped following a week of high drama in the energy market which started with the US-led coordinated release of oil from strategic reserves. A move that raised concerns about a counterstrike from the OPEC+ group of nations who are due to meet on December 2 to set production targets for January and potentially beyond.

The agriculture market stayed relative immune to these developments with the Bloomberg Agriculture index hitting a fresh seven-year high led by continued gains in coffee and the key crops of wheat, corn and soybeans. There are individual reasons behind the strong gains recently, but what they all have in common has been a troubled weather year, and the prospect for another season’s production being interrupted by La Niña developments, a post-pandemic jump in demand leading to widespread supply chains disruptions and labour shortages, and more recently, rising production costs via surging fertilizer prices and the rising cost of fuels, such as diesel. On December 2, the UN FAO will publish its monthly Food Price Index, and following gains during November, the index is expected to reach a fresh ten-year high.

The top performing commodity, apart from coffee, was iron ore which despite weakness on Friday had managed to recover from a recent slump on signs the Chinese steel industry was picking up speed again, thereby driving demand for the most China-centric of all commodities. Over in Europe, the energy crisis continued with punitively high gas and power prices driven up the cost of the benchmark EU emission futures contract rising to a record high, both in an attempt to support demand for cleaner-burning fuels such as currently-in-short-supply gas and to offset increased demand for higher polluting fuels like coal. With gas flows from Russia not yet showing any signs of picking up, the market did find some comfort from the inflows of LNG reaching a six-month high.

Crude oil

Crude oil was heading for a fifth straight week of losses, with the move primarily driven by worries that the new South African virus strain could once again led to lockdowns and reduced mobility. The Stoxx 600 Travel and Leisure Index has lost 16% during the past three weeks with renewed lockdowns in Europe potentially spreading to other regions. Before then, the US coordinated release of crude oil from strategic reserves had driven prices higher in anticipation of a countermove from OPEC+.

The OPEC+ alliance called the SPR release “unjustified” given current conditions and as a result they may opt to reduce future production hikes, currently running near 12 million barrels per month. The group will meet on December 2, and given the prospect for renewed Covid demand worries adding to the assumption of a balanced oil market early next year, OPEC+ may decide to reduce planned production increases in order to counter and partly offset the U.S. release.

With these developments in mind, the only thing oil traders can be assured of is elevated volatility into the final and often low liquidity weeks of the year. Having broken below the July high at $77.85, little stands in the way of a revisit to trendline support from the 2020 low, currently at $74.75.

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

Gold

Gold dropped below support in the $1830-35 area following Jerome Powell’s renomination as Fed Chair which, combined with speculation the White House, has forced a change in focus at the Federal Reserve. Faced with the prospect of more than 200 million people with a job getting hurt by the Fed’s passive action on inflation in order to support job creation for 8 million without, possibly led President Biden and his team to decide to keep Powell on board while at the same time reading him the riot act, demanding a change in focus.

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

Gold was hurt by these comments as they gave the dollar an additional boost while sending the number of 25 basis point rate hike expectations for 2022 up to three. At the long end, the yield on ten-year notes began challenging key resistance around 1.7%. Adding fuel to the sell-off in gold was data from the US CFTC highlighting the level of speculative gold long positions in the futures market had seen a tripling to a 14-month high before and especially after the early November CPI shock.

These developments saw a sharp reversal on Friday when the virus news broke, thereby supporting a strong recovery in gold back above $1800. Apart from long liquidation having created the space for new longs to enter, the initial recovery was clearly driven by safe-haven demand with crypto currencies slumping by more than ten percent while silver and platinum, given their industrial metal credentials, could be found at the bottom of this week’s performance table. A development that could see gold struggle to make further progress.

From a technical perspective, gold will need to climb through a band of resistance starting at $1816, and only a break above $1840 will signal momentum has recovered enough to trigger a move to a fresh cycle high above $1877. Much will depend on whether current vaccines will prove effective against the new strain, thereby potentially avoiding a bigger economic fallout.

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

Indian farmers reinforce protest sites to mark year of demonstrations

By Mayank Bhardwaj

NEW DELHI (Reuters) – Tens of thousands of Indian farmers marched overnight to reinforce protesting colleagues camping on the outskirts of the capital New Delhi to mark a year of sustained demonstrations against three farm laws introduced last year.

Seeking to end the longest-running farmers’ protest that galvanised growers across the country, Prime Minister Narendra Modi last week bowed to the protesters’ demand to repeal the controversial laws introduced in September 2020.

Modi, striking a conciliatory note, promised his government would repeal the laws in the new session of parliament, starting next week.

Farmers celebrated the retreat but said the protest would only be called off when parliament repealed the laws and the government promised legislation that would ensure state-set Minimum Support Prices (MSPs) for all produce, not just rice and wheat.

“Farmers from across the country have reached the campsites to celebrate one year of our historic protest,” said Rakesh Tikait, a prominent leader of Bharatiya Kisan Union, one of the largest farmers’ unions.

“We thank the government for its decision to repeal the laws, but our protest will continue until there’s a decision on MSPs for all crops. We also demand a committee that should look into our other demands like taking back legal cases against the farmers.”

Currently, the government mainly buys rice and wheat at MSPs, but the safety net benefits barely cover 6% of India’s millions of farmers.

Tikait said nearly 700 farmers lost their lives during the protest and the government must announce compensations for their families.

Tens of thousands of protesters, including many elderly growers and women farmers, have been sitting in encampments for the last one year, braving a scorching summer, frigid winter and severe second wave of coronavirus infections.

Over the months, the main protest sites have come to resemble semi-permanent settlements, replete with community kitchens, barbershops and a reasonably well equipped hospital with an onsite doctor.

(Reporting by Mayank Bhardwaj; Editing by Michael Perry)

Solid Gold Buying Raising Short Term Concerns

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

This summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, November 16. A week where the market responded to the US inflation shock on November 11 by sending  the dollar up by 2% to fresh high for the cycle while 10-year breakeven yields jumped 20 basis point a decade high. While bond market volatility jumped, stocks held steady with the VIX showing a small decline. The commodity sector was mixed with gains in precious metals and not least grains and soft commodities helping offset weakness across the energy sector.

Commodities

Hedge funds raised their total commodity exposure, measured in lots, across 24 major futures contracts by the most since July. Driven by continued strong price action across the agriculture sector and more recently also precious metals in response to surging inflation. These sectors saw all but one market being bought while the energy sector were mixed with continued selling of crude oil only being partly offset by demand for gasoline and natural gas.

Energy

Crude oil’s four week slide resulted in the biggest weekly reduction since July, and this time, as opposed to recent weeks, it was WTI that led the reduction with a 10% cut to 307k apart from a deteriorating short-term technical outlook also being driven the prospect of a US stockpile release to dampen domestic gasoline prices. Brent meanwhile saw its net long slump to a one-year low at 221.5k lots, and during the past six weeks the net length has now slumped by one-third, a reduction which gathered momentum after the late October failure to break the 2018 high at $86.75, now a double top.

Crude oil comment from our daily Market Quick Take

Crude oil (OILUKJAN22 & OILUSDEC21) opened softer in Asia after Friday’s big drop but has so far managed to find support at $77.85, the previous top from July. The market focus has during the past few weeks shifted from the current tight supply to the risk of a coordinated reserve release, fears about a renewed Covid-driven slowdown in demand and recent oil market reports from the EIA and IEA pointing to a balanced market in early 2022. Having dropped by around 10% from the recent peak, the market may have started to conclude that a SPR release has mostly been price in by now.

Metals

Another week of strong gold buying has now raised the alarm bells given the risk of long liquidation should the yellow metal fail to hold onto its US CPI price boost above $1830. Last week the net long in gold reached a 14-month high at 164k lots and the speed of the accumulation, especially the 70% jump during the past two weeks alone carries, will be raising a red flag for tactical trading strategies looking for pay day on short positions should support give way.

Gold extended Friday’s drop below $1850 overnight, before bouncing ahead of key support in the mentioned $1830-35 area. The risk of a quicker withdrawal of Fed stimulus supporting real yields and the dollar has for now reduced gold’s ability to build on the technical breakout. However, the price softness on Friday helped attract ETF buying with Bloomberg reporting a 10 tons increase, the biggest one-day jump since January 15.

A second week of silver buying lifted the net to a four-week high at 35.9k lots, but still below the May peak at 47.8k lots. Copper’s rangebound trading behavior kept the price and the net long unchanged. The latter due to an even size addition of both new long and short positions.

Agriculture

Broad gains across the grains market lifted the combined long across the six most traded contracts to a six-month high at 560k lots. Buyers returned to soybeans after the net long recently hit a 17-month low, the corn long was the biggest since May while the KCB wheat long at 60.6k lots was the highest since August 2018. Supported by an increasingly worrying supply outlook, coffee speculators lifted their net long by 16% to a five-year high at 55k lots. Cotton and sugar longs also rose while short-covering helped halve the cocoa net short.

More on the reasons behind the current strength in wheat and coffee, and agriculture in general can be found in may recent update: Agriculture rally resumes led by coffee, wheat and sugar

Forex

In a surprise response to the US inflation shock on November 11 speculators ended up making a small reduction in their overall dollar long against ten IMM futures and the Dollar index. Selling of euro in response to the 2.4% drop and a 161% increase in the sterling short to a 17 month high ended up being more than off-set by the buying of all other major currencies, most notably JPY and CHF. The result being a fifth weekly reduction in the dollar long to $21.3 billion, now down by 17% reduction from the near 30-month high reached during October.

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

Column-Funds ejected from soymeal shorts as futures surge

By Karen Braun

FORT COLLINS, Colo. (Reuters) – Speculators were forced to abandon short positions in Chicago-traded soybean meal last week as tightness in the U.S. market catapulted futures to the highest levels since July.

Soybean meal was the only grain or oilseed in which funds recently began building sizable shorts, but they started easing up last month as supply issues began to surface. In the week ended Nov. 16, most-active futures surged 7.3% after what had been a steadier climb from the mid-October low.

Money managers in that week increased their net long in CBOT soybean meal futures and options to 37,488 contracts from 9,299 in the previous week. That marked their biggest round of short covering in meal since August 2020, and gross shorts thinned to a three-month low.

Data from the U.S. Commodity Futures Trading Commission on Friday also showed that commercial end-users added more than 31,000 gross soybean meal shorts through Nov. 16, their largest weekly add since early 2020. Crush margins are unusually high for the time of year.

Soybean meal futures tacked on another 1.2% between Wednesday and Friday, and Friday’s settle of $371.80 per short ton is 20% above the Oct. 13 low.

Recent strength in soybean meal may have prevented commodity funds from flipping to the short side in CBOT soybeans for the first time since early 2020. Money managers increased their soybean net long to 29,488 futures and options contracts through Nov. 16 from the previous week’s 12,137 contracts, which had been the lowest since June 2020.

Most of that stemmed from short covering, as most-active soybean futures rose 3.2% during the week. Futures on Wednesday touched their highest point since Sept. 30 but drifted 1% lower in the last two sessions with global soybean fundamentals still leaning slightly bearish.

Soybean oil had recently been considered the leader in the soy complex, though most-active futures have largely steadied off, trading around 60 cents per pound for the last few months. That is the highest level for the time of year.

Money managers through Nov. 16 increased their net long in CBOT soybean oil futures and options to 76,212 contracts from 72,605 a week earlier.

Most-active soyoil was up 1.2% that week but eased nearly 2% in the last three sessions, mostly on Friday. U.S. crude oil fell to more than one-month lows on Friday though rival vegoil palm oil continued to trade last week near all-time highs on the Malaysian exchange.

GRAINS

Money flow into commodities amid inflation anxiety was very apparent in the corn market last week with index traders’ total number of CBOT corn futures and options contracts jumping 9% through Nov. 16, reaching the highest levels since early August.

Most-active corn futures rose nearly 3% that week on strong U.S. ethanol production, high global grain costs and soy complex strength. Money managers increased their net long in corn futures and options to 341,135 contracts from 319,609 a week earlier.

That was largely based on an increase in gross longs, and the net long reached its highest point since early May. Funds’ corn net long was around 279,000 contracts in the same week a year ago, and the 2021 low was set in mid-July around 209,000 contracts.

Index funds’ interest in Chicago wheat also rose last week, though to a lesser degree than in corn, and futures hit nine-year highs on tightness in the global wheat market. Most-active CBOT wheat gained 4.1% in the week ended Nov. 16, and it added another 3% in the latest three sessions.

Through Nov. 16, money managers increased their net long in CBOT wheat futures and options to 15,258 contracts from 3,328 in the prior week. The new stance is their most optimistic in three months and is nearly identical to the year-ago position.

Money managers’ net long in Kansas City wheat through Nov. 16 reached its highest point since August 2018 at 60,560 futures and options contracts, up from 57,382 a week before. The hard red winter wheat contract also reached multiyear highs late last week, and futures were up another 1.9% between Wednesday and Friday.

Minneapolis wheat continues to trade above $10 per bushel, record strong for the date, but futures on Friday finished well off the month’s high. Money managers through Nov. 16 reduced their spring wheat net long by more than 1,500 to 14,963 futures and options contracts.

Karen Braun is a market analyst for Reuters and the opinions expressed above are her own.

(Editing by Cynthia Osterman)