Commodity Blog

Archive for August, 2009

Copper tumbled the lowest in two months with recession of global equity markets, showing lowering demand for industrial metals. China’s stocks tumbled to the lowest since June 2008 on speculation that a slowdown in lending growth may stall economic recovery in the world’s third-largest economy causing some panic in copper and zinc markets. A record credit expansion this year have led to overcapacity in some industries, including steel and cement, forcing policy makers to rein in investment growth, as China’s cabinet stated. Copper futures slid $0.124 (4.2 percent) to $2.8265 per pound on the New York Mercantile Exchange’s Comex unit.

Crude oil dropped to the lowest in two weeks with fall of Chinese equities. Chinese equities fell on concern a slowdown in lending may stall a recovery in the economy of the world’s second-largest energy consuming country. October delivery for crude oil dropped $2.81 (3.9 percent) to $69.93 per barrel by 14:30 on NYMEX.

Latest commodity prices (ICE, NYMEX, CME) as of 19:32 GMT:

Oil (Brent) — $69.27
Gold — $950.20
Silver — $14.87
Palladium — $289.00
Platinum — $1,239.59
Copper — $281.40
Aluminum — $92.75
Cocoa — $2,782.00
Sugar — $24.30
Corn — $325.00
Soybean — $34.95

Corn and soybean prices went up as slower than normal development of the crops in the U.S. cause concern that an early freeze may inflict damage on the crops. About 18 percent of the corn crop was beginning to mature by August 23rd, compared average of 43 percent in the previous five years. About 85 percent of the soybean plants were setting pods and beginning to fill them with beans, down from average of 92 percent in the previous five years. Temperatures the next five days will be 16 degrees Fahrenheit below normal in the Midwest, which is not cold enough to affect plants. Estimated yield of a corn is 12.761 billion bushels (up to 5.5 percent in the previous year) and soybeans production expected to be 3.199 billion bushels (up to 8.1 percent from 2.959 billion in the previous year), as reported by the USDA. December futures for corn delivery went up $0.02 (0.6 percent) to $3.3125 per bushel as of 10:18 on CBoT. November futures for soybean delivery gained $0.18 (1.8 percent) to $10.14 per bushel in Chicago.

Copper reached the highest price in 11 months as the global economy recovers and demand in China increased. Consumer spending in the U.S. rose for the third straight month in July and European confidence in the economic outlook increased this month to the highest since October. High expectations for economic recovery lead to speculation that demand for the metal may increase. Chinese imports of refined copper more than doubled in the first half of the year with support by the government’s 4 trillion yuan ($585 billion) spending plan for stimulation of the local economy. China is the world’s largest metals consumer. December futures for copper delivery gained $0.102 (3.6 percent) to $2.974 per pound by 11:07 on the New York Mercantile Exchange’s Comex division.

Sugar-cane yield in Brazil is decreasing because of severe rains in parts of the Center South, the world’s biggest producing region. Center South provides more than 80 percent of Brazil’s sugar. Dry weather in the first half of August allowed growers to speed up harvest but rains forced to delay harvest. Previously sugar has doubled this year because of worries that a drought will diminish cane yield in India.

Latest commodity prices (ICE, NYMEX, CME) as of 16:03 GMT:

Oil (Brent) — $73.02
Gold — $956.03
Silver — $14.76
Palladium — $287.50
Platinum — $1,235.83
Copper — $6,480.00
Aluminum — $1,900.00
Nickel — $19,007.00
Zinc — $1,879.00
Cocoa — $2,800.00
Sugar — $23.46
Corn — $321.00
Soybean — $36.25

Wheat tumbled because of expectation that favorable weather will spur production and supplies in the U.S., the biggest exporter of the grain in the world. About 72 percent of U.S. wheat in spring was in good condition by August 23d, compared to 55 percent in a previous year. Global production may reach 659.3 million metric tons in the year ending May 31. December futures for wheat delivery dropped $0.13 (2.6 percent) to $4.9375 per bushel as of 10:42 on CBoT.

Copper prices drop as the dollar rebounded against euro, causing decline in demand for commodities as an alternative investment. Another reasons for copper fall is declining demand in China, the world’s biggest metal user. December futures for copper delivery fell $0.0275 (1 percent) to $2.8495 per pound by 11:06 on the Comex division of the New York Mercantile Exchange.

Latest commodity prices (ICE, NYMEX, CME) as of 17:54 GMT:

Oil (Brent) — $72.05
Gold — $946.97
Silver — $14.24
Palladium — $283.50
Platinum — $1,231.50
Copper — $6,315.00
Aluminum — $1,885.00
Nickel — $19,100.00
Zinc — $1,837.80
Cocoa — $2,787.00
Sugar — $22.52
Corn — $320.75
Soybean — $36.11

Wheat gained because of worries that dry weather will cause decline in production of Australia, the fourth- biggest exporter of the grain in the world. El Nino climate pattern causes abnormal weather that may curb grain yield. Australian growers may harvest 23 million metric tons in the year ending on May 31 compared to 21.5 million tons in the previous year. December futures for wheat delivery gained $0.0775 (1.6 percent) to $5.065 per bushel as of 10:04 on CBoT.

Gold dropped as result of a rebound in the dollar and decline of oil reducing attractiveness of the precious metal as a hedge against inflation. The dollar climbed after reports from U.S. about increase in the sales of new houses and rising orders for goods. December delivery for gold futures fell $0.9 (0.1 percent) to $945.10 per ounce by 13:05 on the New York Mercantile Exchange’s Comex division.

Argentine farmers are going to halt grain and beef sales after the government vetoed a law about tax breaks to Buenos Aires growers experiencing the worst drought in a century. The government claimed that it vetoed parts of the bill because of concern that farmers would claim their goods came from drought- afflicted areas of Buenos Aires to evade taxes. Argentine farmers harvested 13.2 million tons of corn this year compared to 22 million tons harvested previous year.

Latest commodity prices (ICE, NYMEX, CME) as of 17:45 GMT:

Oil (Brent) — $71.41
Gold — $944.88
Silver — $14.30
Palladium — $282.50
Platinum — $1,244.15
Copper — $6,297.00
Aluminum — $1,860.00
Nickel — $19,050.00
Zinc — $1,844.80
Cocoa — $2,941.00
Sugar — $22.34
Corn — $319.50
Soybean — $36.36

Today I offer two commodity trading videos for watching. They both describe the ”cost of carry” pricing model, which is a part of fundamental analysis for commodity futures valuation. The theory of ”cost of carry” states that the forward prices on the commodities are driven by four time-based factors: risk-free interest rate, storage cost, income and convenience yield. The first two factors are driving the forward price up because they add cost to keeping the actual commodity over the time. The last two factors are driving the forward price down because they reduce the cost of keeping the physical commodity for its owner. The first video explains the theory in general, while the second video presents an example of ”cost of carry” model calculation for the corn futures price. In that video the problems of this model become obvious — it doesn’t count in the seasonality of the commodities and the technical factors (like speculation).

Corn futures fell today on the outlooks for better crops, following the rains in the American Midwest. The traders expect larger crop yield with a big portion of it being in a rather good condition. The forecasts for the average bushel-per-acre yield went up from 159.5 to 162.5 in less than two weeks. Analysts point out the fact that the improved weather conditions for crops in August have always meant better yield and thus have always pushed certain agricultures’ prices down. December corn futures declined by $0.0225 (0.7 percent) to $3.3325/bushel as of 10:53 at Chicago Board of Trade.

Latest technical analysis from Barclays Capital suggests a highly probable break through $1,000/ounce mark for the gold quite soon. The patterns similar to those, that managed to push the gold up last year, are currently showing up on the charts, while the 200-day moving average suggests that the gold is still in an uptrend. Today gold fell from $953.03 to $944.64 (losing 0.9%) as of 17:13 GMT.