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The Weekly Review of Soft Commodities

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Brasidas

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The purpose of this thread is to establish some discussion on soft commodities.

People like Jim Rogers reckon this will be the next big thing. We have heard all this before, but when I heard a report on the UK news today about the effects of global warming on Africa - more drought and more rain in tropical areas resulting is less crops in the former or destroyed crops due to excess rain in the latter - you have to ask what is the effect going to be on prices. We get so much of our food in Europe from Africa, and what about the people of Africa themselves?
 
A good weekly review of what is happening in the sector

That Was The Week That Was … In Soft Commodities

By Sally White

Growing biofuels may be easy, but ensuring a balance and resolution of the issues of food versus energy use is going to take a lot of (unusually) good management at government level. The rich mix of investors, speculators, producers and such radical change as Asian urbanisation is going bring a lot of price swings. At a time when major new crop stories are lacking, there is plenty of market talk about these crucial problems. Lessons have been taken from this year’s soaring sugar price, followed by the 40 per cent reversal as a surplus materialised.

At the London Grain Market Outlook conference of the Home-Grown Cereals Authority, Rabobank’s Steve Jesse warned that while biofuels were the exciting new growth sector, these crops were not immune from the normal market rules of supply and demand. He cautioned against over-estimating the momentum of biofuels, and noted that Europe and the US were a long way behind Brazil, where 70 per cent of the cars were flexi-fuel.

Another key point, from Clare Wenner, head of transport fuels at the Renewable Energy Association was need to stretch “long-term planning” beyond 2010. Others raised the need to reform the EU’s grain intervention post its expansion, with politics still getting in the way of sensible economics. Another complaint was lack of good cheap East-West transport, such canals.

Producers blame government that ethanol production targets in Italy will be missed this year. Around 1.3 million hectolitres are expected, up from last year’s 1 million, but well below the 3.1 million needed to reach the goal posts. Italy has pledged that bioethanol and biodiesel components in petrol would rise by one per cent a year as it seeks to reach EU standards.

Producers are lobbying hard for tax-reliefs, which they say might help producers catch up. Delia Francese, vice president of Italy’s industry body, Assobiodiesel, has admitted that Italy will find it hard to meet 2010 targets as it has not the necessary raw materials. At present domestic oils, sunflower and soya oil, account for only 20 per cent of Italian biodiesel output, the rest coming from imported European rapeseed and soya. There are plans to increase the area devoted to oilseed crops from the current 30,000 hectares to 400,000.

Biodiesel taxes, not incentives, are the unpleasant experience of biodiesel producers in Germany. The government has said that it could not afford the revenue loss as motorists switch from conventional diesel to biofuels. So an €0.09 per litre tax has been introduced. Although demand has been stable so far, producers are extremely worried. Given the lack of impact on sales, the government plans to increase the tax by €0.06 a litre each year until the full level of fossil diesel tax is reach in 2012.

In China the current concern is possible ethanol overcapacity with a large number of existing producers ramping up production and new players entering the market. There are now dozens of private ethanol and at least 30 biodiesel producers in China. The obvious danger is that too many producers will lead to a shortage of feedstock supplies. This has already happened with the cornstalk used in ethanol production. Cornstalk prices in China have jumped 500 per cent to US$30 per tonne since 2005, according to a report in China Daily.

Soaring supplies of palm oil, and record-high stockpiles are causing futures market concern in Malaysia, the world’s largest producer, although producers are saying they are not worried. Output was up by 4.7 per cent last month and at 1.432 million tonnes were 12.4 per cent higher than a year earlier. Stocks are up 6.8 per cent on a month ago, and exports last month were down by 1.31 per cent. . Alarmed by this, futures traders sold palm oil futures on the Bursa Malaysia Derivatives exchange, taking prices down by M$5 a tonne to M$1,553 a tonne. Palm oil prices have been slipping in line with crude oil prices as well as mounting stocks.

However, producers say that production will come down this and next month in a number of Asian countries because of the Diwali and Eid religious festivals. Plus, biofuel demand, particularly from Pakistan and India, is on a strong underling upward trend. Malaysia’s exports so far this month are up 35 per cent on September.

On the commodity markets wheat prices – still at US and Australian drought-induced ten year highs - dipped on profit-taking following record gains the previous week, while soya prices rose on increased buying interest. On the Chicago Board of Trade, the price of wheat for December delivery decreased to US$5.08 per bushel, from US$5.32 a week earlier. Maize for December delivery gained to US$3.14 per bushel, from US$3.07. November-dated soyabean meal for used in animal feed advanced to US$6.07, from US$5.89 the previous week. On the LIFFE, the price of a tonne of wheat for November delivery slid to £95.25 from £98.10.

Delight was reported from among UK malting barley producers, following an unprecedented urgent appeal from the Maltsters’ Association of Great Britain for them to keep on growing the crop. Malting barley production is down 12 per cent this year after farmers, complaining of too many years of being squeezed, failed to win a campaign for forward contracts at £100 a tonne last year. Now, due to a combination of world shortage, better yields from wheat and demand for oilseeds for biodiesel, the maltsters face shortages. The reports continue that two year contracts at £100 a tonne are now being offered.

Coffee prices slid as speculators sold their holdings on news of rain forecasts for major producer Brazil. Rainy weather weakens prices as forecasters expect it to lead to increased supplies on the market. On LIFFE, Robusta quality for November delivery stood at US$1,494 per tonne, from US$1,498 a week earlier. On NYBOT, Arabica for December delivery edged down to 101.85 US cents per pound on, from 104.50 US cents.

Rubber prices firmed as traders tracked the rainy season in major producing Asian nations. "The main underlying problem is still the rains that are keeping prices on the simmer and the availability of latex isn't quite coming through," Corrie MacColl rubber analyst Rashid Ahmed said. The rainy season, which began in October, makes it harder for farmers to collect latex. On TOCOM, Tokyo's commodity exchange, natural rubber for February delivery rose to 230.40 yen per kilogramme on Friday, from 222.10 yen a week earlier. Singapore's RSS 3 January contract gained to 192.25 US cents per kilogramme from 183 US cents a week earlier.

Cocoa prices were mixed, supported partly by simmering tensions in major producer Ivory Coast, but traders shrugged off news of a strike. "Market participants said it is possible that some support came from political tensions in Ivory Coast but news about the growers' strike there had little impact on the market," Sucden analyst Michael Davies believes. On the LIFFE, London's futures exchange, the price of cocoa for December delivery dipped to £816 per tonne on Friday, from £818 a week earlier.

Sugar prices remained under pressure because of the forecasts of oversupply in 2006/7. Many more crops have been planted following record price levels last May. By Friday on LIFFE, the price of a tonne of white sugar for March delivery changed hands at US$358.10, compared with US$352.70 dollars a week earlier. On NYBOT, the price of unrefined sugar for December delivery stood at 11.53 US cents per pound, from 11.19 US cents the previous week.

Cotton prices remained close to their lowest levels since August 2005 as Chinese buyers remained notable by their absence. On the NYBOT, the December contract fell to 48.70 US cents per pound on Friday, from 49.03 US cents a week earlier. The Cotton Outlook Index of physical cotton dropped to 56.20 US cents, from 56.50 cents the previous week.

Wool prices jumped thanks to strong Chinese demand. "The demand was widespread, but led by buyers for China," said the Australian Wool Industries Secretariat. The Eastern index rose to A$ 7.55 per kilo on Thursday, from A$7.41 the previous week. But the British Wooltops index stood at 391p, down 4p.

World tea production could suffer the first decline this decade, according to commodity traders, FO Licht. The reason for this forecast, which Licht warns is a preliminary one, is the impact of drought on the major African producer, Kenya, as well as a number of smaller origins. Plus, the rise in crude oil prices has raised the cost of leaf processing and of fertilisers. Last year world production was up 3.3 per cent at 3.47 million tonnes, and it has risen by an average 2.9% a year over the last six years as a result of rising output in China, India, and to a smaller extent, Sri Lanka, Kenya, Vietnam and Turkey. This year India, however, produced 466,847 tonnes in the first eight months, up 1.8 per cent.

http://www.agriprods.com/storyFull5.php?storySeq=39
 
Final part of that article ..

Gourmet’s corner:

Olive oil – connoisseurs conversant with the subtle peppery or fruity differences in Italian, Greek, French, Spanish, etc, olive oil flavours according to their origin, will have to tune their palates into a new one. China plans to step up its production of olive oil – which it calls olive tea. The State Forestry Administration (SFA) plans construction of 50 oil tea high-yield demonstration bases as part of its the 11th Five-Year Program period (2006-2010), sources attending a National Oil Tea meeting held in East China's Jiangxi Province have reported. The SFA is apparently to publish proposals on promoting development of an oil tea industry in the near future, aiming to have 30 leading oil tea processing enterprises in operation. It wants to establish 30 oil tea name brands and to bring the proportion of quality tea oil up to over 70 per cent by the end of 2010.

Vanilla – formerly one of the favourite ice cream and confectionery flavours -has gone into oversupply, and world prices are down by 10 per cent at around US$20.50 a pound cif Europe. At a time when use is only just beginning to recover from a decline of 50 per cent over the last five years, the major producer, Madagascar, has announced a large crop. It is expecting a harvest of around 1,400 tonnes. Other producers include Papua New Guinea, which is expecting 250 tonnes, India’s crop could reach 100 tonnes and Comoros could see 80 tonnes. As a result, global oversupply could reach around 1,000 tonnes. Replacing vanilla has been a cheaper natural vanilla-flavoured bio-tech extract from other plants.

http://www.agriprods.com/storyFull5.php?storySeq=39
 
Brasidas said:
The purpose of this thread is to establish some discussion on soft commodities.

People like Jim Rogers reckon this will be the next big thing. We have heard all this before, but when I heard a report on the UK news today about the effects of global warming on Africa - more drought and more rain in tropical areas resulting is less crops in the former or destroyed crops due to excess rain in the latter - you have to ask what is the effect going to be on prices. We get so much of our food in Europe from Africa, and what about the people of Africa themselves?
Click to expand...

Yo

Good one Brasidas, I trade softs. Next big thing? Well maybe, but good trading vehicles nevertheless.

Grains have just had a nice trend upwards....weather related.

I'm away from home atm but will be in on this thread for sure.
 
how's everyone's soft commodities trading going?

thought I'd raise this thread again and ask whats on everyone's radar now that some of the grains have soared.

been looking at July cotton, Citibank think it might eventually head to 60

any thoughts on softs / grains at the moment in general?


cheers
dodgers
 
Regarding biofuels:

The potential consumption for motor fuels vastly exceeds that of human food consumption. The biofuels industry could easily take ALL the food grown on this planet many times over. Thus there is in practice no upper limit to demand for feedstocks for ethanol production as long as that production remains below the cost of petrol produced from crude oil.

The energy content of the food you eat is roughly equivalent to two litres of petrol per WEEK. Now, consider how much petrol you actually use and you'll soon realise that switching to ethanol even on a modest basis means a truly massive expansion in demand for agricultural commodities. Then add in all the oil used by aviation, trains, industry, trucks, ships... Even replacing 10% of your share of that total would vastly exceed the amount of food you eat.

Just running your electric oven (without the hotplates) for an hour requires far more energy than you ate today. If you took every scrap of food eaten by people in Victoria and burnt it in power stations, we'd end up producing a mere 3% of the state's electricity.

Even with all the fat they contain, you need the equivalent of 1800 bags of potato chips to get the same energy as a 50 litre tank of petrol. Take out the fat component and you're looking at an awful lot of potatoes, corn, wheat, apples or whatever else is used to make ethanol. And that's without even counting energy to run the ethanol plants or grow the crops in the first place.

Botom line is biofuels potential demand vastly exceeds food for human consumption. Given the long term scarcity of oil relative to expected demand, the world has effectively tied the food price to that of an increasingly scarce fossil fuel if we go down the ethanol track.

Financially, this would seem to represent another way to profit from declining oil supplies and potentially massively so if one can ride out the inevitable corrections. :)

Ethically, we're quite likely to see people in poor countries (and perhaps even the poor in our own country) literally starve as agricultural commodities go to whoever pays the highest price in a world where there is in practice unlimited demand from the industrialised countries up to the point of ethanol price parity with increasingly expensive crude oil. :(
 
In "Investment Implications of Abrupt Climatic Changes" (you can google the article, very intersting), it states that when comparing energy input vs energy output:

- Corn requires 29% more fossil energy in its production than the fuel it produces

- Soybean plants require 27% more fossil energy in growing them than the fuel produced.

i.e. perhaps at some point we'll realise that ethanol / biodiesels aren't a viable alternative...

I don't think that this is the forum to get into a full discussion of this here but thought you'd find it interesting anyway


anyone else looking at the grains / softs commodities - what are you long / short in...?
 
I believe there will be great demand for some soft commodities including emerging food related commodities in the coming decade. Just like stocks time to time there will be volatility due to change of supply and demand, over speculation and commodity derivatives. It is time to identify hidden gems in the commodity market. These hidden commodity gems will outperform other commodities in the coming decade.

Corn market was very beautiful in 2012. We cannot see beautiful market for corn in 2013 and 2014.Corn prices will go down further. Only surprise climate threat can change the direction of corn market in the short run. . I believe there will be good demand for USA based corn this year when compare with 2012 due to attractive corn prices.

http://www.cnbc.com/id/100853267

GRAINS- Fall-harvest corn plunges as USDA shocks with acres jump

http://www.supplymanagement.com/news/2013/price-of-premium-tea-rises-as-lack-of-rain-damages-crops/

Price of premium tea rises as lack of rain damages crops

http://www.businessweek.com/news/20...akening-real-spurs-brazil-exports-sugar-drops

Coffee Falls as Weakening Real Spurs Brazil Exports; Sugar Drops

http://www.bloomberg.com/news/2013-...nth-low-as-rains-seen-aiding-canada-crop.html

Canola Tumbles to 16-Month Low as Rains Seen Aiding Canada Crop

My ideas are not a recommendation to either buy or sell any security, commodity or currency. Please do your own research prior to making any investment decisions. Please note that I do not endorse or take responsibility for material in the above hyper-linked sites.
 
http://www.stuff.co.nz/nelson-mail/features/primary-focus/8896033/Apple-growers-confidence-on-up

Apple growers' confidence on up

http://www.reuters.com/article/2013/07/09/kenya-tea-idUSL6N0FF3TX20130709

Kenya tea prices rise even while Egyptian buyers absent

http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=148036

Global cotton prices will moderate during 2013-20: Report

http://www.thehindubusinessline.com...gri-biz/maize-prices-may-ease-from-august-on-
global-supply/article4833251.ece

Maize prices may ease from August on global supply | Business Line

http://articles.economictimes.india...ews/40443735_1_fresh-export-demand-guar-ncdex

India sugar, soybean, guar end down; spices up

My ideas are not a recommendation to either buy or sell any security or currency. Please do your own research prior to making any investment decisions. Please note that I do not endorse or take responsibility for material in the above hyper-linked sites.
 
 

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