Commodity Blog

Posts Tagged ‘Europe’

Cattle futures slid today on signs that the stronger dollar will cut appeal of  the U.S. beef. The dollar rose 0.9 percent against a basket of six major currencies to a record level since July. The rising dollar makes purchases of beef from the U.S. unprofitable for overseas traders. April futures for cattle delivery slid $0.003 (0.3 percent) to $0.9125 per pound by 12:06 on the Chicago Mercantile Exchange.

Cocoa prices dropped after the dollar rebounded versus the euro and equities declined, decreasing appeal of some commodities for investors as safe haven. The dollar jumped on speculation that a European Union plan to aid Greece avoid default will fall. Analysts say that downward trend for cocoa can be short-term. May futures for cocoa delivery fell $17 (0.5 percent) to $3,099 per ton at 12:11 on ICE.

Wheat tumbled to a weekly low after U.S. producers increased sales of grain after a price rally. Earlier wheat slid on declining demand for inventories from the U.S. and growing global stockpiles. March futures for wheat delivery slid $0.075 (1.5 percent) to $4.8925 per bushel by 10:30 on the Chicago Board of Trade.

Cocoa advanced to the highest in five weeks in New York on speculation that global consumption may exceed world output. Holidays, like Valentine’s Day, create more demand for the chocolate ingredient. May futures for cocoa delivery added $58 (1.9 percent) to $3,098 per ton at 11:20 on ICE.

Gold rose to a weekly high in New York as economic recovery spurred appeal of commodities as an alternative investment. Demand for the precious metal as a safe haven was also boosted after the European Union meeting hadn’t provide details about helping Greece with its debt crisis. April futures for gold delivery rose $18.50 (1.7 percent) to $1,094.80 per ounce as of 11:50 on NYMEX.

Gold rose in New York and London after the dollar declined, boosting appeal of precious metals as an inflation hedge. The U.S. Dollar Index dropped 0.9 percent on speculation that European Union officials will agree to assist Greece to tackle its budget deficit. Gold have tendency to gain when greenback falls.

As concern for European woes is decreasing, the demand for gold and other investment assets rebound. China’s passenger-car sales more than doubled in January with government economic stimulus measures. High automobile sales in China helped the prices for precious metals.

April delivery for gold futures gained $15.10 (1.4 percent) to $1,081.30 per ounce by 12:02 on the Comex division of the New York Mercantile Exchange. Previous decline was considered as ”a buying opportunity” and have increased bullion purchases.

Cocoa futures dropped after the dollar gained, causing an equity decline and, as a result, the investment attractiveness of commodities to wane. Decline is also caused by concerns that jobless rate in the U.S. and rising debt in Europe will stall economic revival. Analysts say that “equities can very easily break cocoa”. May futures for cocoa delivery fell $55 (1.7 percent) to $3,125 per metric ton on ICE Futures U.S. in New York.

Coffee price tumbled to the four-month low. Analysts say that this drop caused by the dollar’s rebound, not fundamentals. The dollar’s advance may convince investors and funds to take money out of commodities. March futures for Arabica-coffee delivery waned $0.0145 (1.1 percent) to $1.3155 per pound today.

Sugar went down in New York to the two-week low as the dollar rebounded against the euro, curbing investment appeal of the commodity. The U.S. currency gained 1.2 percent versus the euro, putting commodities under pressure. Some analysts say that sugar will be traded in a range of $0.27–$0.29 in the next couple of months if it wouldn’t fall below $0.27 now. March futures for raw-sugar delivery slid $0.0062 (2.2 percent) to $0.28 per pound by 13:08 on ICE.

Cocoa rose to a highest level in 21 years in London on speculation that demand will be boosted by a rebounding global economic. Restocking is taking place as consumer confidence returns and business conditions improve. Cocoa consumption jumped 0.6 percent in Europe in the fourth quarter. March delivery for cocoa rose 1 percent to $3,770 per metric ton on Liffe today.

Copper prices tumbled to the four-week low as the rising dollar cut buying of commodities as an inflation hedge and a decline in equity markets curbed demand outlook. Yet some analysts think that the outlook for copper over the longer term is quite positive as demand rises in Asia, including China. March futures for copper delivery dropped $0.06 (1.8 percent) to $3.295 per pound on NYMEX.

Soybeans rose on expectations that demand from China will rebound after prices from the U.S. fell 9.4 percent this month. China’s demand for soybeans grown in the U.S. to produce cooking oil and livestock feed rose as drought harmed crops in South America last year. March futures for soybean delivery gained $0.04 (0.4 percent) to $9.54 per bushel on CBoT.

Cotton prices dropped on speculation that the U.S. economy may be slow to rebound, cutting demand for the fiber. Retailer sales in the U.S. unexpectedly declined in December and unemployment is expected to average 10 percent in 2010, indicating that a pace of an economic rebound is slow. March futures for cotton delivery fell $0.0082 (1.1 percent) to $0.7261 per pound as of 11:22 on ICE.

Crude oil tumbled as retail sales fell and jobless claims increased, signaling that the economic recovery is slow. Weekly jobless claims rose as much as 2.5 percent, to the highest level in five weeks. Analysts think that fundamentals may force crude prices down to the $70 per barrel level after the end of the winter. February delivery for crude oil slid $0.26 (0.3 percent) to $79.39 per barrel by 14:30 on the New York Mercantile Exchange.

Cocoa reached the record in almost a month in London on outlook that demand will be supported by increasing usage in Europe. Cocoa usage in the Europe jumped 0.6 percent to 351,316 tons in the fourth quarter and indicator of demand, cocoa grindings, rose as much as 9.4 percent to 95,834.2 metric tons in Germany in the period. March delivery for cocoa added 0.4 percent to $3,403 per metric ton at 17:39 on ICE.

Gold is a hot topic nowadays, experiencing high volatility, yet remaining primary investment medium. Precious metals have always been attractive to investors because of their tendency to keep their value. In times of economic crisis or inflation, for example, the value of paper money might fluctuate, but a hard asset will always be worth something. As a result, traditionally precious metals have been considered a ”safe haven” in times of crises of confidence and economic and financial instability. The question is: can gold keep on its rally? Or buying today would be buying high and selling low?

To answer this question we must consider factors influencing the precious metal. First, let’s look at two major factors on which gold depends: inflation and fear. Inflation usually occurs while the economy is growing. And, as result of growing economy, there’s little fear among trader and investors. Inflation makes investors to diversify, increasing gold appeal. In case when fear prevails, gold serves as a hedge against the unreliability of other kinds of financial assets. As you can see, the two conditions of gold’s performance are quite exclusive: if there’s inflation, there’s little fear, and if investors are fearful, inflation is likely to be subdued. If these two factors (fear and inflation) can somehow come together an optimal conditions for very sharp appreciation will be created. If dollar begins to decline uncontrollably, inflation would be inevitable, causing widespread panic and fear leading to the complete destabilization of the system. If the U.S. currency fails to inspire confidence as a source of value, gold could easily skyrocket to astronomical levels of many thousands of dollars. The problem with this scenario is that it is very difficult to expect the dollar lose its status as the global currency in the next five ten years except if a catastrophic economic cataclysm would destroy the international financial system.

Now we should consider other factors influencing gold. As side note, we should remember that all financial markets are mainly driven by the expectations of the events that may take place in the future, not by events themselves. And most expectations are either negative to the greenback (which is therefore positive for gold) or directly positive for the metal. Some of possible factors that are bullish for gold are: China is going to continue or even increase gold purchases; UAE, Saudi Arabia and other Arab banks are expected to fail, and they are stuffed with U.S. debt; U.S. is expected to have a double-dip recovery, which means another run from stocks and into gold soon; tension in the Middle East is growing; oil prices are expected to climb with the global economic recovery, causing the dollar to tumble; the Comex gold exchange in New York is expected to get in trouble as European countries demand return/delivery of their physical gold in masses; start of wedding season in India.

China is a very illustrative example of country, stockpiling gold on concern that falling dollar will shake the global economy. This country, being the largest gold producer expected to produce over 300 metric tons of the precious metal, does not export any. What’s more, it is going to build up its hold reserves to 10,000 tons over the next decade.

So, what conclusions can be made and what advices can be given? As you can clearly see gold is definitely bullish, remaining a reliable safe haven. Analysts estimate $850-$1,400 as a trading range in 2010. Instead of investing directly into the commodity at this late point in the game, many traders are purchasing future option contracts that allow them to speculate with leverage while managing risk. If you want to participate in the gold market, you have to decide what type of investor you are going to be. A long-term investor who thinks that gold will eventually reach $2,000 should not panic and may want to buy more on a correction. A short-term trader should have already been stopped out. Gold should not be purchased alone as an investment asset. Gold itself is speculative and is susceptible for highly volatile moves. That makes it too risky for the average individual investor. Taking all this into account we can say that gold should only be part of a diversified portfolio which includes other commodities (such as oil). While gold we talked about gold as a ”safe haven”, one shouldn’t think about this commodity as an investment only for troubled times. One of the greatest advantages of precious metals exists regardless of economic and market conditions. Therefore, investing in precious metals looks like a good diversification strategy for a portfolio comprised mainly of bonds, stocks and real estate.

Sugar rallied in 2009 amid tight supplies, becoming the top performing commodity in the past six months. Adverse weather conditions damaged crops in Brazil and India, the two largest producers in the world, causing sugar prices to double this year. And how the commodity is going to perform in 2010?

Fundamentals can be considered bullish for the sweetener. Investment funds, limited production in India and a weak dollar are major supporting factors for sugar prices. The commodity also helped by demand for ethanol from Brazil’s flex fuel car fleet.

Global supplies of sugar will remain low for the first half of 2010. The world is using more sweetener than it is producing, causing a deficit for two consecutive years. The global sugar supply deficit is estimated as much as 13.5 million metric tons in the 2009–2010 season. There is some pending dryness in regions including India and Australia, curbing the commodity productions in these countries. On the other side, a favorable weather conditions are expected in Brazil’s Center-South, where increasing production may start to ease the current global deficit.

Beet growers in France and Germany, the two largest producers in the Europe, expect the greatest harvest since 2006. But EU regulations state that farmers may produce no more than 13.3 million metric tons of sugar for food for the domestic market, and surplus beet is considered out-of-quota and turned into export sugar or products such as ethanol. For the foreseeable future the European Commission is not going to authorize the export of out-of-quota sugar in excess of the fixed quantitative limit. Beet harvest of French growers is highest in 50 years, adding to this year’s EU oversupply of 550,000 tons. In case European growers will convince Commission to loose regulation the commodity deficit can be significantly reduce by European sugar.

Considering all factors, the outlook for sugar is rather optimistic. Most analysts agree that next target price for the commodity should be about $0.30. Yet some analysts argue that price as low as $0.13 more realistic. They point that such factors as possibility that mills will produce more sweetener than previously predicted and probability for unloading of funds positions in case if sugar prices will fall may put downward pressure on sugar. Even considering this factors its price is not likely to fall below $0.10. As always caution is advised when dealing with commodities.

Oil price reached the record level in a week after reports that Iranian forces invaded Iraqi territory yesterday and surrounded a well by tanks in a region south of Baghdad. Iraq’s National Security Council will hold a meeting to discuss the situation. Iranian forces crossed the border into Iraq without violent incidents.

Oil price is also aided by stronger equities in the U.S. and Europe. European stocks rose as business confidence in Germany went up.

Oil prices may rise next week on expectation that increasing fuel demand in the U.S. will cut stockpiles. Some analysts forecast that “futures will increase through December 24th, the most bullish response since July”.

January delivery for crude oil added $0.97 (1.3 percent) to $73.62 per barrel by 10:40 on the New York Mercantile Exchange.

Gold may climb to $1,000 per ounce as a declining dollar increases the metal’s attractiveness as a hedge against inflation. The dollar dropped 0.4 percent against the euro as confidence of investors in Europe increased for a second month in September. Gold tends to gain when the dollar falls. Immediate-delivery bullion gained $0.79 (0.1 percent) to $995.19 per ounce by 16:52 in London.

Drought in India is ending with reviving of monsoon rains, aiding crops. India is the world’s second-biggest producer of rice, wheat and sugar. The monsoon will help to replenish water in reservoirs, which will be used by farmers to grow wheat and oilseeds planted between October and December. The impact on winter crops expected to be limited with increase of the water reservoir levels. October futures for soybean delivery fell 2.9 percent to 1,948 rupees per 100 kilograms. September delivery for corn dropped 0.7 percent to 954 per 100 kilograms. Sugar prices at Vashi, the nation’s biggest wholesale market for the commodity, slipped 2 percent to 3,188.35 rupees per 100 kilograms.

Sugar prices, which reached their 28-years highest level last week, are likely to be supported by a global supply deficit. Prices may rise, but not much. Futures for raw sugar last week jumped to $0.2485 per pound, the highest price since February 1981.