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SEB Jordbruksprodukter, 6 september 2012

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SEB Veckobrev Jordbruksprodukter - AnalysDet har varit en händelsefattig vecka. Priserna har rört sig ”sidledes” till stor del. Nästa vecka släpper USDA WASDE-rapporten för september och det lär vara en flau marknad till dess. Den 4 september meddelade den tyska terminsbörsen EUREX att man startar handel i vasslepulver. Handeln startar den 28 september. Terminskontrakten avser 5 ton, dvs samma storlek som de tidigare terminskontrakten på smör och skummjölkspulver. Underliggande index, som terminerna avräknas kontant mot, är Tendens på jordbrukspriser den 5 september 2012”European Whey Powder Index”, som publiceras av Agrarmarkt Informations- Gesellschaft GmbH, i Bonn. De befintliga terminskontrakten på smör och skummjölkspulver noterades i maj 2010. Samtidigt ökar nu EUREX antal terminskontrakt som går att handla. Det kommer att finnas terminskontrakt för varje månad de närmaste sex månaderna. Därutöver kommer det att finnas terminskontrakt för varje kvartal med cykeln januari, april, juli och oktober.

Odlingsväder

ENSO fortsätter att surfa på gränsen till ett riktigt El Niño. SOI ligger nu på -4.7, men låg förra veckan på – 9.1. Gränsen för El Niño ligger på -8. Klimatmodeller prognostiserar att ENSO kommer att fortsätta ligga på gränsen fram till slutet av året eller in i början på 2013, för att sedan återgå till normala ENSO-förhållanden.

Diagram över odlingsväder

Kanada är helt utan nederbörd den här veckan och skörden fortskrider snabbt. Europa har också varmare och torrare väder än normalt – utom här i norra Europa. Kina har just fått en tyfon, förra veckan och har fått mer regn än normalt. Monsunen i Indien fortsätter att förbättras. Indien har nu skörd nummer två på gång och den gynnas. Vi skrev förra veckan att den förbättrade monsunen har fått läget att ljusna för grödor som majs, ris och sojabönor. Arealen sådd med ris har ökat till 32.9 miljoner hektar från 30.8 förra året. Förra årets skörd var rekordhöga 91.5 mt, enligt det indiska jordbruksministeriet.

Argentina har god nederbörd över alla väsentliga odlingsområden. Parana i södra Brasilien, där vete odlas, har också fått del av den här nederbörden. Däremot är det torrt i typiska sojaområden i centrala och norra Brasilien. Region Centro-Oeste har fått 50% av normal nederbörd. Nedanför ser vi en ögonblicksbild av vädret där.

Nederbörd i Centro Oeste

Med utsikter om att El Niño blir ganska mild, alltså med ett ENSO som ligger på ”nästan” El Niño, kan nederbörden i Brasilien och Argentina bli mindre än vad vi trodde under våren, när det såg ut att bli en starkare El Niño. Australien har ytterst lite nederbörd – vilket är i enlighet med vad som vanligtvis sker vid ett El Niño.

Vete

Tekniskt har Matif:s novemberkontrakt fortsatt att röra sig ”sidledes” och vi tror fortfarande att nästa större rörelse blir uppåt. Den som vill ta en position redan nu, köper terminen och lägger en stop-lossorder på 258 euro. Den som placerar på lite längre sikt kan lägga stoppen på 253.90. Kursen ligger i skrivande stund på 261.50.

Diagram över utveckling av vetepriset - 5 september 2012

Det börjar ju dra ihop sig till att byta år, och då kan det vara bra att se kursutvecklingen för Matifs november 2013-kontrakt. (Kan kanske också vara ett lämpligt tillfälle att börja handla hos SEB?) Priset för nästa års skörd har som vi ser inte rört sig sidledes som november 2012, utan segat sig uppåt.

Teknisk prognos på vetepris (Matif) den 5 september 2012

Nedan ser vi Chicagovetet med leverans i december. Den tekniska bilden indikerar samma sak här – förestående brott uppåt (förmodligen).

Teknisk prognos på vetepriset i Chicago den 5 september 2012

I diagrammet nedan ser vi terminspriserna framåt i tiden för Chicago och Matif och förändringen från 7 dagar sedan. Vi ser att backwardation har minskat i USA. Priset för leverans nästa november (2013) är nästan 20 euro per ton högre i Chicago än i Paris. Förra veckan var det 20 euro. Nu har skillnaden minskat ett par euro.

Terminspriser på vete, Matif och Chicago, den 5 september 2012

Nedan ser vi medias intresse för nyckelorden Wheat+Export+Ban. Som vi ser lite mindre intresse och också lite lägre priser. Frågan om exportstopp i Ryssland har mycket stor effekt på priset i den oroliga situation som nu råder.

Diagram över vetepris i relation till skriverier om exportförbud

Det ryska jordbruksministeriet har uppdaterat hektarskördeestimaten och de visar att hektarskörden för vete är 32% lägre än förra året. Det innebär en skörd av vete på ca 38 mt. Hektarskörden för spannmål inklusive majs är, enligt det ryska jordbruksministeriet, 27% lägre än förra året. Minns att vi i det här brevet för ca en månad sedan gjorde kalkylen 94 x 0.7 = 66 mt. 94 mt var förra årets skörd. 27% lägre skörd blir 68.6 mt. Detta är lägre än vad ministermötet i fredags resulterade i, en sänkning från 75 mt till 70. Vi har skrivit att vi tror att 70 mt är en allt för optimistisk siffra och att den kommer att följas av ytterligare nedjusteringar vid följande ministermöten. Samtidigt sänks exportpotentialen, tror vi. Det kommer en GASC-tender för novemberleverans. Om de accepterar några erbjudanden på ryskt vete eller inte, kommer att säga en hel del om hur det egentligen står till med rysk export. Sådden av höstvete i Ryssland rapporterades vara avklarad till 15%.

Vi nämnde under ”odlingsväder” att El Niño gör det torrt i Australien. Västra Australien har fått ungefär hälften av normal nederbörd. Vetet sätter ax just nu och börjar skördas i oktober. Så lite regn är naturligtvis inte bra för skördens storlek. Vi har även vad gäller Australien gjort egna El Niño-baserade beräkningar och kommit fram till att skörden ”borde” bli lägre än de 26 mt som USDA förutspådde i senaste WASDE-rapporten. Det ”borde” komma en nedjustering i WASDE-rapporten nästa vecka.

Maltkorn

Novemberkontraktet på maltkorn har funnit stöd och ser ur teknisk synvinkel ut att kunna stiga den närmaste tiden. Det är samma vy som förra veckan. Ingen förändring.

Graf över pris på maltkorn och prognos den 5 september 2012

Potatis

Potatispriset tycks stabilisera sig mellan 20 och 24 euro per deciton. Det återstår att se om det är en konsolidering inför ytterligare prisuppgång över 24 euro, eller en toppformation i väntan på att se vad som händer med konsumtionen.

Potatispriset tycks stabilisera sig - Prognos den 5 september 2012

Majs

Vi skrev förra veckan, att ett brott nedåt inte skulle vara bra och skulle innebära att vi skulle gå ur alla positioner och rentav kanske gå kort. Nu har priset faktiskt i skrivande stund gått under stödlinjen i triangelformationen och det är en klart negativ signal.

Graf över pris på majs - Prognos den 5 september 2012

Nedan ser vi terminskurvan framåt i tiden för majs. Vi ser att de korta kontrakten har fallit. De längre har stigit.

Terminskurva för majspris - 5 september 2012

Måndagens crop ratings för majs var kom in med 22% i good/excellent condition, vilket är på samma nivå som förra veckan. 41% är moget. Förra året så här års var det bara 15% som var moget. 10% är skördat. Förra året var det 3%.

Sojabönor

Priset steg som väntat upp från den lilla konsolideringen i veckan som gått sedan förra veckobrevet. Den teoretiska målkursen enligt skolboken i teknisk analys ligger på 1879 cent / bu. Uppgången verkar förlora kraft och övertygelse, vilket är naturligt när det börjar närma sig målkursen. Trenden uppåt är bruten, men det är möjligt att det kommer in mer säljare vid de här nivåerna på 1800 cent.

Prisutveckling och prognos för sojabönor

Crop conditions var oförändrade från förra veckan. 30% är i good eller very good condition, med 38% är i poor eller very poor condition. 9% har tappat löven; det är långt över genomsnittet för de senaste fem åren, som ligger på 5%.

Brasiliens skörd ligger åtskilliga månader framåt i tiden och när det nu är torrare än normalt i sojadistrikten, framförallt i region Centro-Oeste, kan vädret där få en stor effekt. Det är viktigt att det regnar i september och framförallt i oktober för att det ska bli en god skörd. Världen behöver en rekordskörd från Brasilien efter årets missväxt i USA.

Raps

Ett brott uppåt rycker allt närmare, när trycket ökar i marknaden. Att det finns övertygade säljare på 520- nivån är dock helt klart och det kan också komma ett brott nedåt. Nästa stöd finns då på 490 euro. Man kan fortsätta ligga lång (osäkrad) och behålla en stop-loss-order på en nivå under 55-dagars glidande medelvärde. Det är det medelvärde som är inritat i nedanstående diagram.

Prisutveckling och prognos för raps

Gris

Grispriset befinner sig i en tydlig bear market. Men tycks ha kommit till en konsolideringsfas. 70 cent per pund ser ut att vara golvet på konsolideringsområdet.

Grispriset i tydlig bear market

Mjölk

Priset på mjölkpulver i Nordeuropa ligger på samma prisnivå som förra veckan. Det är den första veckan sedan juli när priset inte har stigit. Priset på smör har däremot gått upp från 3150 euro per ton till 3300 euro per ton.

Prisutveckling på mjölkpulver 2011 och 2012

Nedan ser vi priset på smör, också oktoberkontraktet såsom handlat på EUREX. Priset är angivet i euro per ton.

Prisutveckling på smör handlat på Eurex under 2011 och 2012

På den amerikanska börsen CME i Chicago har priset faktiskt gått ner något för decemberleverans, som vi ser i diagrammet nedan. Priset har ändå gått upp med nästan 30% sedan bottenoteringen i maj månad.

Mjölkpris på CME i Chicago under 2011 och 2012

Vad säger då marknaden just nu om priserna för leverans av mjölk i USA i framtiden? Nedan ser vi terminspriserna som kurva som de ser ut idag och hur de såg ut för 7 dagar sedan.

Framtida mjölkpris i USA

Vi rapporterade även i inledningen av brevet att EUREX noterar terminskontrakt på vasslepulver nu i september. Det händer onekligen mycket på mjölkmarknaden just nu.

Socker

Priset på socker, som handlades ett tag kring 20 cent, började i måndags falla igen. Det ser ut som om bottennoteringen på 18.86 cent som noterades den 4 juni ska testas igen.

Kommande sockerpris - Graf

EURSEK

EURSEK fortsatte som vi trodde förra veckan upp mot 8.50. Prisuppgången har fått mer och mer kraft. Kanske kommer den här uppgången att gå ända till 8.55 kr per euro.

Valutaprognos på EURSEK den 5 september 2012

USDSEK

Dollarn har svarat på supportområdet och hoppat upp från det. Stödet ligger vid 6.60 kr. Priset kan i första hand gå upp till 6.80. Kraften i uppgången tyder på att det kan komma en lite kraftigare uppgångsfas.

Valutaprognos på USDSEK den 5 september 2012

[box]SEB Veckobrev Jordbruksprodukter är producerat av SEB Merchant Banking och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]

Disclaimer

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”).

Opinions contained in this report represent the bank’s present opinion only and are subject to change without notice. All information contained in this report has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of this document is urged to base his or her investment decisions upon such investigations as he or she deems necessary. This document is being provided as information only, and no specific actions are being solicited as a result of it; to the extent permitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this document or its contents.

About SEB

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic and other European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets) for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange, Deutsche Börse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden; it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designated investment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEB conducts operations. SEB Merchant Banking. All rights reserved.

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Analys

Metals price forecast: Lower Before Higher

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SEB - analysbrev på råvaror

Lower before higher

SEB - Prognoser på råvaror - Commodity

The world is slowing down along with fiscal and monetary tightening. The rapid rise in interest rates this year will work with a lag so the slowdown in the real economy is likely to continue. We expect metals prices to ease along with that. The continued deterioration in the Chinese property market is likely structural with growth shifting towards higher value sectors including green energy and EVs. Chinese credit expansion has started. Stronger demand for metals like copper, nickel and aluminium is likely to emerge in H2-23. Strong prices for metals over the coming decade due to sub-par capex spending over the past decade is likely.

Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Weakening macro and weakening demand. The world is now in the grip of a tightening craze amid inflation panic which was the result of the stimulus boom ignited by Covid-19 panic. The US expanded its M2 monetary base by 30% of GDP during the stimulus boom. Donald Trump earlier clamped down on immigration from Mexico/Latin America. Rampant consumer spending on capital goods together with an ultra-tight labor market then led to intense inflation pressure in the US. But also, in many other countries which also stimulated too much. The US is ahead of the curve with respect to interest rate hikes. The USD has rallied, forcing many central banks around the world to lift rates to defend their currencies as well as fighting their own inflationary pressures. The Japanese central bank has refrained from doing so and has instead intervened in the yen currency market for the first time since 1998. The year 2022 will likely be the worst selloff in global government bonds since 1949 as interest rates rise rapidly from very low levels. This is taking place following a decade where the world has been gorging on ultra-cheap debt. There is clearly a risk that something will break apart somewhere in the financial system as the world gallops through this extreme roller coaster ride of stimulus and tightening. On top of this we have and energy crisis in Europe where natural gas prices for year 2023 currently is priced at 700% of normal levels. War in Ukraine, risk for the use of nuclear weapons, an enduring cool-down of the Chinese property market and continued lock-downs in China due to Covid-19 is adding plenty of uncertain elements.

Downside price risks for metals over the coming 6-9 months. The significant rise in rates around the world will work with a lag. There can be up to a 12-month lag from rates starts to rise to when they take real effect. Continued economic cool-down in the economy is thus likely. Chinese politicians seem unlikely to run yet another round of property market-based stimulus. As such there are clearly downside risks to global economic growth and industrial metals prices over the coming 6 months.

China may be a “White Swan Event” in H2-23 onward. LME’s China seminar in London on Monday 24 October this year was very interesting. The brightest spot in our view was Jinny Yang, the Chief China economist at ICBC Standard Bank. She stated that China may turn out to be a “white swan event” in H2-2023. Further that the Chinese economy now is on a decade long type of transition period. Away from property focused growth. With a shift instead to technology and innovation, telecoms and energy transition, consumer demand side economy and higher value and more advanced sectors. The property market will be a fading sector with respect to growth. Chinese politicians are fully committed to the energy transition. No slowdown in there. Credit expansion has already started. The real effect of that will emerge in H2-23. The new growth focus will be different from before. But it will still imply lots of metals like aluminium, copper, nickel, zinc, cobalt, manganese, and other special metals. There will be less copper for pipes and wiring for housing but there will be more copper for EVs, Solar power, Wind power and power networks etc.

Copper: Struggling supply from Chile, rising supply from Africa while Russian exports keeps flowing to market. The Chinese housing market normally accounts for 20% of global copper demand. So, slowing Chinese housing market is bad for copper. Russian exports keep flowing to SE Asia where it is re-exported. Good supply growth is expected from Africa in 2023. Supply from Chile is struggling with falling ore grades, political headwinds, and mining strikes. Demand is projected to boom over the coming decades while investments in new mines have been sub-par over the past decade. So strong prices in the medium to longer term. But in the short-term the negative demand forces will likely have the upper hand.

Nickel: Tight high-quality nickel market but surplus for low-quality nickel. There is currently a plentiful supply of low-grade nickel with weak stainless-steel demand and strong demand for high quality nickel for EV batteries. The result is a current USD 5-6000/ton price premium for high-quality vs. low-quality nickel. High-quality LME grade nickel now only accounts for 25% of the global nickel market. Over the coming decade there will be strong demand growth for high-quality nickel for EV batteries, but high-quality NiSO4 will take center stage. The price of high-quality nickel over the coming decade will depend on how quickly the world can ramp up low-grade to high-grade conversion capacity.

Aluminium: Russian production and exports keeps flowing at normal pace to the market through different routes. Supply from the western world set to expand by 1.3 m ton pa in 2023, the biggest expansion in a decade. Demand is projected to grow strongly over the decade to come with energy transition and EVs being strong sources of demand. Western premiums likely to stay elevated versus Asian premiums to attract metal. Increasing focus on low carbon aluminium. But weakness before strength.

SEB commodities price forecast:

SEB commodities price forecast

Chinese credit cycle vs industrial metals. Chinese credit expansion has already started.

Chinese credit cycle vs industrial metals
Source: SEB calculations, data from Blberg

This report has been compiled by SEB´s Commodity Research, a division within Skandinaviska Enskilda Banken AB (publ) (”SEB”), to provide background information only.

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Analys

Europe’s energy policy unravels a potential advantage for US energy over Europe

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WisdomTree
WidsomTree

The clock is ticking for Europe to shield its economy amidst the current energy crisis. The cost of electricity across the European bloc is nearly 10 times the 10-year average in response to Russia cutting back natural gas supplies in retaliation to sanctions. There has been a substantial increase in the share of supply of Liquidifies Natural Gas (LNG) and alternative suppliers as a direct replacement of waning Russian gas supply.

Figure 1: Natural gas flows in the European market, first half 2022 versus first half 2021

Karta hur importen av naturgas till Europa har förändrats
Source: Bruegel, WisdomTree as of 6 September 2022. Please note: Arrows width indicates size of 2022 flow.

European leaders are racing to come up with a plan on energy intervention in the power markets. One of the measures being touted is imposing an energy windfall tax on oil and gas profits to help households and businesses survive this upcoming winter season. The plan is to re-channel these unexpected profits from the energy sector to help domestic consumers and companies pay these high bills. The windfall tax on the oil and gas companies should be treated as a “solidarity contribution,” according to European Commission (EC) President, Ursula von der Leyen.

Imposing a windfall tax on those profiting from the war

A windfall tax would impose a levy on the revenues generated by non-gas producing companies when market prices exceed €200 per megawatt hour (Mwh) and redistribute excess revenues to vulnerable companies and households. There has been greater consensus among other European Union (EU) countries on the windfall tax compared to other parts of the European Commission’s 5-point plan. This includes – setting a price cap on Russian gas, a mandatory reduction in peak electricity demand, funding for ailing utility companies, a windfall tax on fossil fuel companies and changes to collateral requirements for electricity companies. The EC’s plan will need to meet the approval of the bloc before being enforced. The most controversial issue remains the Russian price cap – aimed at penalising Russia for weaponising energy.

Coordinated energy policy needed despite different energy mix across EU bloc

There are major differences between member states based on those that rely on coal, nuclear or renewable power owing to which imposing a one energy policy will be challenging. Austria, Hungary, and Slovakia, known to import large amounts of Russian gas are against the price cap on Russian gas. On the other hand, a number of  EU countries including France, Italy, and Poland, support a cap, but argue it should apply to all imported forms of the fuel, including LNG. Germany is undecided but fears the disagreements on the price caps risk spoiling EU unity. Spain, a big generator of wind and solar power was quick to draw criticism of the proposed €200/Mwh as it does not correspond to the real costs and fails to support electrification and the deployment of renewables.

In the US, various Senators including Senate Finance Chair Ron Wyden, have proposed legislation that would double the tax rate of large oil and gas companies excess profits. However, given the current political climate it seems increasingly unlikely that these proposals would gain any traction in Congress.

Europe’s energy policy likely to put a strain on capex in the near term

Since the oil price plunge from 2014 to 2016 alongside climate change awareness and Environmental Social and Governance (ESG) mandates, the energy sector saw a sharp decline in capital expenditure (capex). Since then, capex in the global energy sector has failed to attain the levels last seen at the peak in 2014. While capex trends in Europe’s energy sector had begun to outpace that of the US, driven mainly by a rise in the share of spending on clean energy, we believe the impending energy crisis and energy policy including the national windfall levies in Europe are likely to disincentivise capex in Europe compared to the US over the medium term. High prices are encouraging several countries to step up fossil fuel investment, as they seek to secure and diversify their sources of supply.

Source: Bloomberg, WisdomTree as of 31 August 2022.

The divergent energy policies and prevalent supply situations in the US and Europe opens up a potential opportunity in the energy sector. The energy sector has been the unique bright spot in global equity markets in 2022 posting the strongest earnings results in H1 2022. Despite its strong price performance, the US energy sector trades at a price to earnings (P/E) ratio of 8x and has a dividend yield of 3%. In September 2008, the energy sector had a 12.5% weight in the S&P 500 and was the fourth largest sector by market capitalisation in the world’s largest economy and equity market. Fast forward to today, the energy sector accounts for only 4% of the S&P 500 Index. While the future trajectory is greener, the world has come to terms with the fact that we will require oil and gas in the interim in order to fulfil our energy requirements. Investment is increasing in all parts of the energy sector, but the main boost in recent years has come from the power sector – mainly in renewables and grids – and from increased spending on end-use efficiency. As Europe plans to reduce its reliance on Russian energy supply, it will become more reliant on US LNG imports. This should fuel further investment in the US energy sector in the interim.

Aneeka Gupta, Director, Macroeconomic Research, WisdomTree

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Analys

Agricultural commodities could offer a hedge against inflation

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WisdomTree
WidsomTree

Agricultural commodity prices have been buoyed higher by rising grain and oilseed prices. At a time, when global equities have sold off by nearly 13.88% amidst soaring inflation and tightening liquidity conditions, agricultural commodities are up 26.8%. There are a plethora of supply side issues emanating from the war that are likely to continue to drive prices higher – the rise of protectionism, higher fertiliser costs, changing biofuel mandates and adverse weather conditions to name a few. The Russia-Ukraine war has had ripple effects from disrupting supply chains to raising fertiliser costs.

Rising protectionism buoys agricultural commodities higher

The war-related disruptions have also given rise to protectionism. To cite a few examples in 2022– India, the world’s third largest wheat producer, announced it would restrict wheat exports to manage domestic supplies of the grain, which led to a sharp rise in wheat prices. Indonesia also announced an export ban on palm oil on April 28, but the ban was lifted on May 19 after hundreds of farmers rallied to protest the move. In a tight oil-seeds markets, the initial announcement led soybean oil, an alternative to palm oil, sharply higher.

Source: WisdomTree as of 7 June 2022

Higher biofuel blending mandates to bolster demand for corn and soybean oil

Changes in the biofuel blending mandates are also poised to increase demand for agricultural commodities. The US is home to the world’s largest biofuel market. The Biden administration is ordering refiners to boost the use of biofuels such as corn-based ethanol. The US Environmental Protection Agency (EPA) is requiring refiners to mix 20.63 billion gallons of renewable fuels into gasoline and diesel this year, marking a 9.5% increase over last year’s target. This will put pressure on refiners to blend more biofuel into their gasoline production this year, resulting in a net positive impact on the biofuels industry. Grains such as corn stand to benefit owing to their high starch content and relatively easy conversion to ethanol. Amidst waning stockpiles of diesel, Brazil is also considering increasing the biodiesel blend to 15% from 10% (i.e. the amount of soybean oil blended into trucking fuel). This has the potential to bolster demand for soybeans at a time when soybeans are already in short supply due to droughts in South America and US plantings trail last year’s pace.

Rising fertiliser costs are weakening demand, in turn lowering yields

The Russia-Ukraine conflict has caused disruptions in fertiliser production and material price increases, which has put farmer margins and agricultural yields at risk elsewhere, driving the prices of most agricultural commodities higher. Russia and Ukraine account for a significant share of the global fertiliser trade. Russia produces 9% of global nitrogen fertiliser, 10% of global phosphate fertiliser, and 20% of global potash fertiliser. It exports more than two thirds of its production of each product. Belarus produces an additional 17% of global potash and exports most of it.

Owing to its high soil quality, Argentina tends to use less fertilisers, but Brazil (the world’s largest importer of fertilisers) of which 85% of its needs are imported, is likely to feel the impact more. Russia alone accounts for 25% of Brazil’s total fertiliser imports. Farmers can also plant more soybeans, which require less fertilisers than corn. The US and global corn balance are set to continue to tighten, which suggests that the current high price environment is set to linger. The high prices and low availability of fertilisers is making farmers reduce usage and is also resulting in lower fertiliser prices similar to the trend witnessed back in 2008.

Ammonia prices
Source: Bloomberg, WisdomTree as of 27 May 2022.

Speculative positioning garnering momentum among agricultural commodities 

According to data from the Commodity Futures Trading Commission (CFTC), net speculative positioning in agricultural commodities has risen considerably since the covid pandemic. Tighter supply coupled with stockpiling by national governments concerned about food security has led to a rise in agricultural commodity prices. Not only has net speculative positioning on agricultural commodities risen versus its own history but also in comparison to other commodity subsectors, as illustrated in the chart below:

Speculative positions
Source: WisdomTree, CFTC, Bloomberg as of 25 May 2022.

Adverse weather conditions impact agricultural commodities

El Niño and La Niña are the warm and cool phases of a recurring climate pattern across the tropical Pacific—the El Niño-Southern Oscillation, or “ENSO” for short. The pattern shifts back and forth irregularly every two to seven years, and each phase triggers predictable disruptions of temperature, precipitation. The current La Niña has been around since October 2021. It has been responsible for the South American droughts, milder weather in Southern parts of US and heavy rainfalls across the Pacific Northwest. There is a 51% chance La Niña could continue into the December to February period, with those odds down from last month’s forecast of 58% according to the US climate prediction centre. The waters across the equatorial Pacific Ocean are expected to stay cool or be close to normal between June and September, which means the influence on weather patterns won’t be enough to disrupt tropical storms and hurricanes in the Atlantic.  

Conclusion

Agricultural commodities have posted a strong performance in 2022. Yet there remain plenty of factors that could drive the performance of this commodity subsector even higher. Agricultural commodities are unique owing to their high dependence on weather conditions that make them volatile but also offer diversification benefits.

Aneeka Gupta, Director, Macroeconomic Research, WisdomTree

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