Hedge-Fund Managers Miss Biggest Rally in Prices in 10 Weeks: Commodities (Source: Bloomberg)
Hedge funds reduced bets on higher commodity prices to the lowest level since 2009 just as raw materials headed for their biggest weekly rally in two months. Money managers cut their combined net-long position across 18 U.S. futures and options by 15 percent to 454,512 contracts in the week ended Dec. 20, the lowest since March 2009, data from the Commodity Futures Trading Commission show. The Standard & Poor’s GSCI gauge of 24 commodities climbed 4.5 percent last week, erasing this year’s declines and pushing the index toward its third consecutive annual advance.
While the S&P GSCI is 15 percent below the 32-month high reached in April, prices gained last week on signs the U.S. economy is proving resilient. Durable-goods orders rose in November by the most in four months, and jobless claims unexpectedly fell to the lowest in more than three years. Concern that shortages will emerge in commodities from copper to crude oil spurred Goldman Sachs Group Inc. to stick with a bullish outlook this month even as funds cut their holdings.
Commodities Seek A Few Blessings in 2012 (Source: CME)
Commodities face a test of faith in 2012. The tenets that have underpinned the asset class in recent years, strong growth in emerging countries allied to steady demand in the developed world, are under pressure from the euro-zone crisis and signs of a slowdown in China. Investors are worried already: Hedge funds cut commodities exposure by 50% from May to December, Barclays Capital says, during which time the Dow Jones-UBS Commodity Index has fallen 19%. Some strong signals will be needed to lure back the faithful in 2012. Europe's troubles don't only have an impact through the Continent's weaker demand for commodities. As European banks deleverage, they are pulling back on providing trading finance, the grease that keeps the commodities engine chugging along. Lower European demand for imports also means weaker export activity in countries like China, where manufacturing activity shows signs of contracting.
Meanwhile, China's faltering property market -- prices are falling in half its cities -- could damp construction growth there and hence demand for metals. The accumulating risks have already made a mark. Industrial metals have fallen 25% since late July; agricultural products are down 21% since late August. If the macro backdrop worsens, some commodities may have further to fall than others. Copper, for example, is still 85% above the cost of production for the industry's highest-cost producers, according to Barclays Capital. By contrast, the price of aluminum is 22% below the industry's marginal cost. That already is causing some producers to cut supply, meaning aluminum could be close to its price floor. Similarly, any crude-oil price declines may be arrested by supply cuts in producing countries. Governments like those in Saudi Arabia and Russia need solid oil prices to balance their fiscal positions.
The complicating factor will be internal divisions within the Organization of Petroleum Exporting Countries, with Saudi Arabia and Iran locked in a contest for regional supremacy and all members having to make way for rising Libyan and Iraqi oil output. Among agricultural commodities, soybeans could benefit as more land is given over to corn production. Demand could exceed supply by 1.2%, J.P. Morgan forecasts, the first soybean deficit since 2009. Unpredictable factors will continue to buffet individual commodities. A repeat of last winter's harsh weather could push grain, coal and iron-ore prices higher. Strikes at two of the world's largest copper mines helped support that metal in 2011. And oil will still move to the rhythms of geopolitics and threats of war. But a more sustained rise for commodities will require a swift resolution of the euro-zone crisis and evidence that Beijing is managing a soft landing for the Chinese economy.
Hopes of this fuel optimism for perennial commodities bulls. Goldman Sachs sees Brent crude closing 2012 at $127.50 a barrel, up 18%, and copper at $9,500 a metric ton, up 28%. Such high expectations may be the domain of the true believers for some time.
Corn (Source: CME)
US corn futures jump to 6-week highs on worries about South America's crop. Hot, dry weather--particularly in Argentina--fuel gains. "I think we're getting to the point now where you start worrying about it," says Jack Scoville at Price Futures. The market surged above its 50-day average in early trading, which attracted more buying. Crude oil's strength today added further support, but gains were limited by farmer selling, traders say. They also warn that with thin holiday trade, the market could be prone to other wide swings this week. CBOT March corn ends up 2.2% at $6.33 1/4 a bushel.
Wheat (Source: CME)
US wheat futures surge amid strength in other grains and short-covering. Prices were supported by corn and soy, which were aided by weather threats to South America's crop. But wheat outgained its peers amid funds' net-short position. Fundamentally, traders say the market remains hindered by weak export demand and abundant world supplies. Prices hit 6-week highs, with CBOT March wheat climbing 3.7% to $6.44 3/4 per bushel as KCBT March jumped 3.1% to $6.95 3/4 and MGEX March added 2.1% to $8.62 1/2.
Rice (Source: CME)
US rice futures sag, ending lower for the third session in a row amid weak demand and despite strength in other grains. Lack of demand for US rice is looming over the market, analysts say. CBOT January rice ends down 10 1/2c at $13.80/bushel.
A third of Ukraine '12 winter grains in poor state
KIEV, Dec 26 (Reuters) - A third of Ukraine's winter grain crops are in poor condition due to a severe drought that hit the country during sowing, the Farm Ministry said on Monday.
The ministry said 79.7 percent of the sown area had sprouted as of Dec. 26 against 93 percent at the same date in 2010.
Russia AgMin sees average 11/12 winter grain losses
MOSCOW, Dec 26 (Reuters) - Russian Agriculture Minister Yelena Skrynnik said on Monday that winter grain losses in the 2011/12 crop year are expected to be average, meaning farmers may reap a good winter cereals harvest.
Russia has sown 16.1 million hectares with winter grains for the 2012 crop, up from 15.9 million a year ago following a severe drought, but down from 18.9 million hectares in 2009.
Vietnam's 2011 rice exports hit record 7.19 mln T
HANOI, Dec 26 (Reuters) - Vietnam's rice exports this year jumped 4.36 percent from 2010 to a record high of 7.19 million tonnes, the Agriculture Ministry said on Monday, beating previous industry projections.
Rice export revenue rose 14 percent from last year to an estimated $3.7 billion, the ministry said in its monthly report.
Ukraine grain exports 1.4 mln T Dec 1-23
KIEV, Dec 23 (Reuters) - Ukraine exported about 1.4 million tonnes of grain, mostly maize, between Dec. 1 and Dec. 23, analyst ProAgro said on Friday, citing data from Ukrainian sea ports.
The consultancy said the volume included 1.03 million tonnes of maize, 324,000 tonnes of wheat and 39,000 tonnes of barley.
India May Review Grain Export Policy (Source: CME)
India's rice exports have moved briskly since a ban was lifted in September, but uncertainty about further exports has gripped the market as the government is set to review the open export policy with some fearing further export may be limited to ensure sufficient domestic stocks. The government had not specified any limit on the quantity exported when the ban was lifted in September, but Food Minister K.V Thomas has said no more than 2 million tons each of wheat and rice may be exported as the government needs sufficient stocks to introduce a food security law which is currently being debated in parliament. "We will hold an internal meeting in the next few days on whether to continue with the exports. Thereafter, we will request the trade ministry to seek further directions from a panel of ministers," a senior food ministry official, who didn't want to be identified, told Dow Jones Newswires.
India's rice exports, which have already touched 1.4 million tons since September, is expected to hit 2 million tons by February, traders said. On the other hand, wheat exports stalled quickly due to higher local prices. No more than 300,000 tons of wheat has been exported after the ban was lifted. Traders are lobbying with the government to allow rice exports to continue, arguing that the poor wheat offtake leaves scope for more rice shipments from the country's granaries. The food ministry official said the government was open to the idea, "if the situation permits." India currently has nearly two times the foodgrain stocks it needs under buffer stock requirements and has been finding it difficult to store grains as the new crop comes in, leaving large quantities stored in fileds, at the mercy of weather. The government allowed exports partly to ease the pressure on storage facilities.
Further exports, however, will likely hinge on whether the government feels it would have enough stocks left to meet a proposed food security law that guarantees cheap foodgrains to the majority of the population. "We are worried that the government may suddenly stop all exports. It could jeopardise contracts and exporters may have to suffer the losses," said a senior executive with one of India's top commodities trading companies. "Frankly, we are not very hopeful," he said. India is currenly selling common grade rice in the export market at prices between $385/ton and $450/ton, free on board. That's is well below the $540/ton-$570/ton being offered by Thai exporters, leaving sufficient demand for Indian rice in the global market. Thailand, the biggest exporter of rice in the world, raised prices after flooding earlier this year damanged some of that country's rice crop.
The prospect for wheat exports has faded as local prices are currently around $300/ton, slightly above the $280/ton-$290/ton in the international market. "The prospect of Indian wheat exports, except for some leftover quantities in Gujarat, doesn't seem bright," said M.K. Dattaraj, former president of the Roller Flour Millers Federation of India.
Corn Pops on Southern Heat (Source: CME)
U.S. corn futures have rallied recently on concern that hot, dry weather could persist in South America as the crop enters a critical phase of development. Corn futures had slumped for much of the last three months as the U.S. crop came out of the field and export demand dried up amid increased competition. But the focus is now shifting to South America to see if production there will fall short of expectations, leaving the U.S. to fill the gap. Corn for March delivery at the Chicago Board of Trade climbed 6.3% last week, settling at $6.1950 a bushel. Soybean futures continued to gain on the same weather concerns, rising 2.9% on the week to close at $11.63 a bushel. "The situation in South America bears watching," said Shawn McCambridge, senior grains analyst for Jefferies Bache. "It could become a larger issue if conditions continue to deteriorate."
The heat of the Southern Hemisphere's summer has been compounded by La Nina, a phenomenon in which tropical waters in the Pacific Ocean turn unusually cold, causing dry conditions in South America. Intense heat and dry weather in Argentina, coupled with parched conditions in Brazil, have gotten the attention of traders who had for weeks been primarily taking cues from investor sentiment on the European debt crisis. The corn crops in Argentina and Brazil are entering their pollination phase. Both countries are key global producers, so any reduction in output would reduce corn buyers' options and could shift export demand back to the U.S. While the region received some rain last week, traders are worried that it won't be enough to offset the longer-term trend. Forecasts call for dry weather this week and a drier-than-normal January.
"The problem is there's been quite a break between shower systems, and the coverage area hasn't been as good as you'd like," said David Streit, a meteorologist with Commodity Weather Group in Bethesda, Md. Analysts said last week's surge in corn prices wasn't driven solely by the weather. Mr. McCambridge said the market has pulled back too sharply, touching a one-year low earlier this month. Investors also have been exiting short positions, speculating sharp price declines are over for the near term. Traders also note that export demand, which was lackluster in recent months, has lately shown some signs of picking up. Still, they said that despite the hot weather, it is too soon to assume any yield loss to corn or other crops. Trading markets driven by weather is "tough enough here in the U.S., when I'm seeing the rain," said Jim Riley, an analyst with the Linn Group, a Chicago brokerage. "They're that much tougher in South America."
Corn Posts Longest Rally in Year on Adverse Weather; Soy Gains (Source: Bloomberg)
Corn rose, capping the longest rally in a year, and soybeans jumped the most in 11 weeks on speculation that adverse weather threatens to reduce output in South America, bolstering demand for U.S. supplies. About 50 percent of the crops in Argentina will be dry in the next 10 days after weekend rain stayed north of the main growing regions, Commodity Weather Group LLC said in a report. As much as a third of Brazil’s crops face a lack of rain, the forecaster said. “Current weather trends are raising the odds that the South American crops will be reduced,” Dave Marshall, a farm- marketing adviser at Toay Commodity Futures Group LLC in Nashville, Illinois, said in a report. “Odds favor continued gains into the end of the year, as long as the South American weather forecasts don’t change.”
India cotton arrivals drop 25.3 pct to 8.81 mln bales
MUMBAI, Dec 27 (Reuters) - Cotton arrivals in India till Dec. 25 in the 2011/12 season fell by a quarter to 8.81 million bales of 170 kg each, the state-run Cotton Corp of India said on Tuesday, as farmers in the key Maharashtra state were holding back their produce.
In the year-ago period, the arrivals stood at 11.79 million bales, the agency said in a statement. The Indian cotton year runs from October to September.
Vietnam's Dec coffee exports drop 26.8 pct y/y
HANOI, Dec 26 (Reuters) - Vietnam's coffee exports in December fell an estimated 26.8 percent from a year ago to 120,000 tonnes, or 2 million bags, in line with market expectations, the Agriculture Ministry said on Monday.
Coffee exports in 2011 are estimated at 1.22 million tonnes, or 20.33 million 60-kg bags, up only 0.2 percent from 2010, the ministry said in its monthly report.
Rains damage Costa Rica coffee in the fields
SAN JOSE, Dec 23 (Reuters) - Heavy rains in Costa Rica last week caused a loss of about 1 percent of the coffee crop in the field, the national coffee institute said on Friday.
Officials at the institute, known as ICAFE, said at least 15,333 60-kg bags worth of coffee were lost. That tally does not include a spat of torrential rain in October that cut the institute's 2011/12 crop estimate down to around 1.54 million bags from the 1.58 million last season.
Cotton 2011/12 ending stocks expands, demand weak
Dec 23 (Reuters) - Influential cotton publication Cotlook said Friday that estimates of world 2011/12 cotton ending stocks rose 14.9 percent in December from last month as consumption weakened further due to the shaky world economic outlook.
In its December report, Cotlook said world cotton 2011/12 ending stocks were forecast at 4.088 million tonnes, up 14.9 percent from its November forecast that stocks would show a surplus of 3.556 million tonnes.
Diamonds to Outpace Gold as Spending in Asia Rises: Commodities (Source: Bloomberg)
Diamonds prices are poised to rise for the next four years, outpacing gold, as increased spending on luxury goods in China, India and the Middle East outpaces supplies of the precious stone, analysts said. The average price of rough, or uncut, diamonds will probably rise 9 percent to $145 a carat next year, 1.4 percent in 2013 and 4.8 percent in 2014, BMO Capital Markets analyst Edward Sterck said. The gem should gain 2.6 percent in 2015 and 3.2 percent in 2016, he said. Gold is forecast to decline for three years starting 2013, following a 19 percent gain in 2012, according to the median of seven analyst forecasts compiled by Bloomberg News. Demand for diamonds may grow at double the pace of supply through 2020 because of an expanding middle class in China and India, Bain & Co. said this month in a report that didn’t give price forecasts.
The two nations, and the Middle East, will account for 40 percent of global diamond demand by 2015, compared with about 8 percent in 2005, said Anglo American Plc. (AAL), which agreed to boost its stake in De Beers, the world’s largest diamond miner, to 85 percent last month.
Brent above $108 on supply worries, US data supports
SINGAPORE, Dec 27 (Reuters) - Brent crude rose slightly to trade above $108, supported by supply disruptions in Syria and Iranian naval exercises in a key shipping lane, while improved U.S. home sales data and year-end short-covering also supported prices.
"Syria could be a support factor for the time being, but we will not see a big climb or rocket high prices because of that," Ken Hasegawa, a derivatives manager with brokerage Newedge in Tokyo, said.
Petronas in talks with oil majors for petchem tie-up -sources
KUALA LUMPUR, Dec 23 (Reuters) - Petronas is in talks with several global oil majors including Shell and Exxon Mobil to develop petrochemical plants within its $20 billion refinery complex in southern Malaysia, two sources with direct knowledge of the matter said.
Malaysia's national oil company is also talking to Japanese firms Itochu Corp and Mitsubishi Corp as well as to Dow Chemical Co -- the largest U.S. chemical maker -- as it seeks to tap surging Asian demand and diversify its earnings, the sources told Reuters.
Oil Trades Near Six-Week High on Iran Threat to Strait of Hormuz Shipping (Source: Bloomberg)
Oil traded near the highest in six weeks after Iran threatened to block crude transportation through the Strait of Hormuz and U.S. consumer confidence in December beat expectations. Futures were little changed after settling at the highest level since Nov. 16 yesterday. Iran’s official Islamic Republic News Agency cited Vice President Mohammad Reza Rahimi as saying the country would bar shipments through the strait if sanctions are imposed on its oil exports. The Conference Board’s index of consumer sentiment reached the highest level since April. Oil for February delivery was at $101.17 a barrel, down 17 cents, in electronic trading on the New York Mercantile Exchange at 7:48 a.m. Singapore time. It rose $1.66, or 1.7 percent, to $101.34 a barrel yesterday, the highest settlement since Nov. 16 and the sixth consecutive advance, the longest rally since November 2010. Futures have climbed 11 percent this year after increasing 15 percent in 2010.
Oil Extends Longest Rally Since 2010 (Source: Bloomberg)
Oil capped its longest rally in more than a year as Iran threatened to block transportation through the Strait of Hormuz and confidence among U.S. consumers beat expectations in December. Crude settled at the highest level in six weeks after Iran’s official Islamic Republic News Agency cited Vice President Mohammad Reza Rahimi as saying the country would bar shipments through the strait if sanctions are imposed on its oil exports. Futures also rose as the Conference Board’s index reached the highest level since April. “The Iranian threats are getting increasingly bold,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “The threat doesn’t have to be likely to have an impact on the market, because if it were to be carried out it would potentially be huge.”
Japan Nov copper exports to China double yr/yr
TOKYO, Dec 27 (Reuters) - Japan's exports of copper cathode to China doubled in November from a year earlier, pushing its up total exports of refined copper during the month by 34 percent, data from the Ministry of Finance showed on Tuesday.
Japan's exports of cathode to China, the world's top consumer of the metal, rose to 28,542 tonnes in November, up from 14,165 tonnes a year earlier. That follows a 57 percent jump in October.
Japan Jan-Mar crude steel demand seen -6.2 pct y/y
TOKYO, Dec 27 (Reuters) - Japan's demand for crude steel is expected to fall 6.2 percent in the January-March quarter from a year earlier, the trade ministry said on Tuesday.
Total crude-steel demand is seen at 26 million tonnes during the quarter, based on a government survey of steelmakers and looking at inventory levels at the end of December, the ministry said.
Italy 2011 steel output seen up, flat in 2012
MILAN, Dec 23 (Reuters) - Steel output in Italy, the second-biggest producer in the European Union after Germany, is expected to rise 11 percent in 2011 and remain at the same level in 2012 as unfolding euro zone crisis hits demand, a senior industry official said on Friday.
"We expect to close this year with an increase of about 11 percent (of steel output) ... to about 28.5 million tonnes," Giuseppe Pasini, chairman of Italy's steel industry body Federacciai, told Reuters confirming his earlier forecast.
METALS-Shanghai copper steady, investors eye US data
KUALA LUMPUR, Dec 27 (Reuters) - Shanghai copper was steady on Tuesday, after dropping more than 1 percent in the previous session in its biggest one-day decline in a week, while investors kept an eye on U.S. data for clues on the health of the world's largest economy.
Workers at Freeport McMoran Copper & Gold Inc's mine in Indonesia may delay returning to work, despite a deal to end a three-month strike, in the absence of a decision on the removal of about 100 workers at a local unit, a union official said on Monday.
PRECIOUS-Gold hovers around $1,600; US data, Europe eyed
SINGAPORE, Dec 27 (Reuters) - Gold hovered around $1,600 an ounce on Tuesday, as investors stayed on the sidelines in the final week of the year with lingering concerns about the euro zone debt crisis.
Recent upbeat U.S. economic data spurred a rally in riskier assets including equities and industrial metals, and sent gold prices up about half a percent last week.
