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SEB – Råvarukommentarer vecka 21 2012

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Sammanfattning: Föregående vecka

  • Analyser - Prognos på priser för råvarorBrett råvaruindex: -1,75 %
    UBS Bloomberg CMCI TR Index
  • Energi: -1,12 %
    UBS Bloomberg CMCI Energy TR Index
  • Ädelmetaller: -2,22%
    UBS Bloomberg CMCI Precious Metals TR Index
  • Industrimetaller: -0,98 %
    UBS Bloomberg CMCI Industrial Metals TR Index
  • Jordbruk: -3,09 %
    UBS Bloomberg CMCI Agriculture TR Index

Kortsiktig marknadsvy:

  • Guld: Neutral/köp
  • Olja: Sälj
  • Koppar: Sälj
  • Majs: Sälj
  • Vete: Neutral

Guld

Guldpriset - Utveckling januari 2011 till maj 2012

Guldet föll 1,9 procent under veckan. För första gången på länge ser vi ett betydande utflöde ur fysiska guld ETF: er. Samtidigt kan nämnas att under samma period som guldpriset sjunkit 20 procent sedan toppen 2011 har innehaven i världens största ETF, SPDR, stigit med tre procent.

Efterfrågan på guldsmycken i Indien förväntas sjunka för tredje kvartalet i rad efter att rupien försvagats till rekordlåg nivå mot dollarn.

Greklands f.d. premiärminister Papademos sa i veckan att det finns en betydande risk för att landet kommer att lämna euro-samarbetet. EU:s ledare blir allt mer medvetna om att försöken att rädda kvar Grekland i euron håller på att misslyckas. Helst ser man att Grekland behåller euron, så den politiska viljan finns, men fortsatt stöd förutsätter att Grekland följer överenskommelser om budgetmål. Allt görs nu för att få de grekiska väljarna att förstå att de i valet den 17 juni i praktiken kommer att rösta om euromedlemskapet snarare än om fortsatta åtstramningar. Guldet har alltså fortsatt stöd av Eurozon stress.

Skolbokens gamla ”sanningen ”ökad finansiell oro – guldpriset stiger”, ter sig alltmer avlägsen.

Den starkare dollarn har också bidragit till prisfallet i guld. Euron har letat sig ned mot den svagaste nivån mot dollarn sedan sommaren 2010.

Teknisk analys: Som tidigare gäller att så länge inte C vågens botten, 1521, bryts ligger vi i startblocken för nästa uppgångsfas. Givet närheten till huvudstödet krävs en noggrannare bevakning. Dessutom anser vi att nuvarande läge är ett intressant köptillfälle för den mer spekulativt lagde. Ett köp på nuvarande nivå med en stopp loss under 1521 ger också en angenäm chans/riskprofil, om man är positiv till guldet dvs.

Analys av guldpriset den 25 maj 2012

Olja

Oljepriset - Utveckling januari 2011 till maj 2012

Oljan backade 0,29 procent och spekulativa långa positioner föll till fyra månaders lägsta. Oljan befinner sig fortfarande i en ”soft spot” pga. överproduktion (Saudiarabien försöker pressa ner oljepriset för att öka trycket på Iran) och ett negativt makrosentiment.

Chefen för International Atomic Energy Agency (IAEA) har sagt att han förväntar sig att teckna ett avtal med Iran om att få inspektera landets kärnenergianläggningar. Onsdagens möte i Bagdad där Iran och FN:s sex permanenta medlemmar i säkerhetsrådet + Tyskland möttes blev tämligen resultatlöst och resulterade främst i en sammanfattning av läget och inget nytt för framtiden. Förhoppningar fanns om en lösning på Irankonflikten efter mötet i Bagdad. Enlig API steg råoljelager med 1,5 miljoner fat och är nu på den högsta nivån sedan 1990.

Enligt onsdagens statistik från DOE steg råoljelagren med 0,8 miljoner fat.

Enligt SEB:s analytiker kommer överskottet på olja att minska redan under det tredje kvartalet i år när efterfrågan ökar säsongsmässigt.

Orkansäsongen i USA börjar nu återigen utgöra ett hot mot oljeproduktionen i Mexikanska golfen.

I USA är det långhelg och Memorial Day firas på måndag och inleder amerikanska ”driving season” vilket vanligtvis leder till en ökad efterfrågan på drivmedel. På kort sikt anser vi emellertid att mycket talar för ett fallande oljepris.

Teknisk analys: I och med brottet av 233dagars medelvärdet utlöstes en ny medelsiktig säljsignal. Sedan dess har marknaden fortsatt att falla ned till 105.15-stödet där i alla fall en mindre rekyl bör uppkomma. Väl avklarad (sälj tillfälle) ska marknaden fortsätta falla ned emot 100/101 området där nästa huvudstöd återfinnes.

Analys av framtida oljepris den 25 maj 2012

Koppar

Kopparpriset - Utveckling från januari 2011 till maj 2012

Kopparpriset föll 0,44 procent under veckan och handlade som lägst på 7500 dollar. Spekulativa långa positioner föll till ringa fem tusen kontrakt. Positiva data från amerikansk husförsäljning påverkade inte kopparpriset. Försäljningen steg till en säsongsjusterad pristakt på 343 000 enheter vilken var mer än vad analytiker räknat med.

Igår påvisade kinesiskt preliminärt inköpschefsindex för tillverkningsindustrin för maj, ett index som HSBC publicerar, en kontraktion till 48,7 från 49,3 i april. Tillverkningsindustrin gick tillbaka mot bakgrund av svagare export. Kopparn faller i takt med den europeiska krisen eftersom Europa är Kinas största handelspartner

I Kina fortsätter fastighetspriser att falla. Enligt premiärminister Wen Jiabao kommer Kina fokusera framöver på att öka fokus på tillväxt igen. Detta skulle innebära en lättad penningpolitik, något som är positivt för koppar men på kortsikt är osäkerheten stor och vi tror att priserna kan sjunka något ytterligare.

Världsbanken sänkte utsikterna för Kinas BNP till 8,2 procent 2012 från 9,2 procent 2011. Siffran är högre än Kinas egen prognos som hamnade på 7,5 procent. Landet är nu på väg mot ett sjätte kvartal med fallande tillväxt.

Kopparn har fått visst stöd av uttalande från Codelco, som bekräftade att produktionen under första kvartalet är 10 procent lägre jämfört med förra året p.g.a. låga metallhalter i malmen.

Rykten säger att JP Morgan ska lansera en ETC med fysiskt koppar som underliggande vilket skulle kunna driva upp priset. Samtidigt har vi noterat att produkter med fysiska industrimetaller (alltså inte terminskontrakt) inte varit en kommersiell framgång än så länge.

Teknisk analys: Marknaden har nu också brutit under 7885 stödet och därigenom utlöst ytterligare försäljningar. Vi kan inte se annat än att fortsatt nedgång är att vänta och att vi härnäst tar sikte på nacklinjen, 6940, på den stora huvud skuldra topp formationen.

Koppar - Analys den 25 maj 2012

Majs

Majs - Prisutveckling januari 2011 till maj 2012

Även jordbruksprodukterna drogs med ner av det negativa marknadssentimentet och krisen i Europa.

Majspriset föll 7,5 procent under veckan efter prognoser om nederbörd vilka gett förhoppningar om att den nyplanterade amerikanska skörden kommer att bli god. USA är världens största producent och konsument av majs.

Fokus är på väderförhållanden de närmaste veckorna och enligt Global Weather Monitoring förväntas regn i flera amerikanska delstater där man odlar majs vilket alltså är behövligt och positivt för skörden.

Enligt USDA var 77 procent av amerikansk majs i ”good or excellent condition” den 20:e maj vilket är den högsta nivån sedan 2007. Sådden i USA är nu i princip avklarad, rekordtidigt. Kortsiktigt står vi fast vid vår negativa syn men skulle torkan istället hålla i sig är det onekligen ett riskmoment.

Teknisk analys: Reaktionen från botten in kanalen renderade en mycket kraftig studs, vilken, i alla fall kortsiktigt, förhindrat det potentiella ras vi tidigare varnat för. Dock gäller även framgent att dessa kraftiga svängningar gör kortsiktiga vyer utmanande varför vi rekommenderar stor försiktighet och en mer eller mindre neutral vy.

Analys pris på majs den 25 maj 2012

Vete

Prisutveckling på vete - mars 2011 till maj 2012

Vi har sett stora rörelser i vetemarknaden och vetepriset föll 1,16 procent under veckan som gått.

Föregående veckas prisuppgång berodde på torrt väder i Ryssland och USA. Det är även torrt i Kina, Europa och Ukraina. Den långdragna torka som varit hotar att orsaka en sämre skörd än förväntat. Matifvetet med novemberleverans steg med tio procent på rapporterna.

Nu innehåller nya prognoser regn i USA och Europa (även om t ex Tyskland, utom de södra delarna, blir utan regn) vilket fått vetepriset att falla tillbaka. Egentligen borde risken för torka avta eftersom omfattande väderstörningar (ENSO) är neutrala och onormala väderförhållanden (La Niña- Sydostasien och Oceanien får betydligt mer nederbörd än vanligt medan delar av Sydamerika får torka) borde klinga av.

Regn förväntas nu även i Ryssland och Ukraina vilket förbättrar förutsättningarna för skörden även där.

Kvalitén för höstvetet i USA, som rapporterades i måndags, ligger på 58 procent “good /excellent” och det är två procent lägre än förra veckan. Kvalitén har alltså fallit under 60 procent “good/excellent”. Det är en nedrevidering på veckobasis men betydligt bättre än förra årets siffror.

Skörden av höstvete är nu redan klar i Louisiana, vilket är rekordtidigt. Skörden är väsentligt mindre än förväntat.

Frågan är om priset på Matif vetet kommer att falla tillbaka i spåren av mer nederbörd, eller kommer nya rapporter om torka att få priset att vända uppåt. Vi förhåller oss neutrala till vetet under kommande vecka.

Teknisk analys: Den senaste uppgången (som tog sin början ifrån strax ovanför 233dagars bandet) gick lite väl fort varför vi nu befinner oss i en kortare konsolidering. Väl avslutad, vilket vi tror att den redan kan vara, bör vi se marknaden åter stiga upp till nya toppar (och till slut också kliva upp över toppen från förra våren).

Analys på vetepriset den 25 maj 2012

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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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