Capital Press | Report: Investors pulling money from commodities

After a decade of blistering growth, global commodity prices have generally been declining since 2012, and the financial sector has begun withdrawing its sizable investments from commodities markets, according to a new economic report by Washington, D.C.,-based Worldwatch Institute.

However, the independent research organization’s report finds agricultural goods have fared better than most other commodity classes.

Though commodities traded on public exchanges saw a combined 6 percent decrease in prices during 2012, agriculture — helped by limited supplies due to a severe drought — energy and precious metals were the exceptions, making price gains, according to the report.

“If the drought hadn’t hit, I think agricultural prices would have been maintained or in line with other commodities and dropped a little bit,” Konold said, acknowledging population growth and increasing variability in weather could help buffer agriculture from future sharp declines.

Prior to 2002, Konold explained, commodities were demanded primarily by developed nations, and prices were in a gradual decline. Konold said that’s when developing economies in countries such as China, Brazil and Russia began entering the fray, with insufficient capital expenditures in equipment and production capacity constraining supply.

Commodity prices surged by an average of 9.5 percent per year over the next decade and investment poured in, a phenomena the report describes as the Commodity Supercycle. The exception to the rapid growth was 2008-2009, when the start of the recession hurt prices of the major commodity classes, except precious metals.

Global investment in commodities, which totaled $10 billion at the start of the 2000s, increased to $460 billion by the end of 2012.

Konold believes demand for commodities cooled in 2012 because the largest developing nation, China, took steps to curb inflation after years of record-setting growth largely driven by a construction boom.

Furthermore, large investment banks that turned to commodities for safe harbor during the recession have begun pulling out their money to balance their portfolios as the economy has improved. This year, through the end of April, commodities lost $63 billion in investment.

“So far in 2013, we’re seeing a continued slow-down of commodity prices and a continued exodus of finance,” Konold said. “It will be interesting to watch if that reduction continues and at what pace. That will give us an idea of if it’s a full-on mass exodus or if prices will stable out, and this is the modern commodities market.”

University of Idaho Extension economist Paul Patterson noted the Chinese “can’t produce enough of their own food, so they’re still the majority player in agricultural commodities.”

Prices of major agricultural commodities are declining this year, and economists were predicting declines in 2012, prior to the drought. Rather than a broader trend, Patterson believes the fundamentals of supply and demand have affected agricultural prices.

Patterson agrees investment banks will continue pulling funding from agriculture and other commodity classes to invest in stocks and other options in an improving economy.

But he insists that’s not necessarily a bad trend, provided that the money is taken out gradually so the market has time to adjust. Patterson believes over-investment in commodities tended to drive “high prices higher and low prices lower,” and the volatility increased market risk.

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Today grain future

Corn futures closed 5 to 6 cents higher on the day. The Dec ’13 contract traded as low as $4,41 before finding firm support intraday and closing on the highs of the session with gains of over a nickel. Harvest delays in major production areas provided a positive influence to start the week. The latest Bloomberg survey pegged trade average corn production for the 2013/14 marketing year at 13.837 billion bushels and an average yield of 157 bpa. The Buenos Aires Grain Exchange pegged corn acres planted for 2013/14 at 3.46M hectares, which is down from a previous estimate of 3.56M hectares. The decrease is attributed to dry conditions. The DTN National Corn Index was up $0.04 from the previous day at $4.25. USDA has now confirmed it will not be releasing the October Crop Production and WASDE reports due out on Friday.

Dec 13 Corn closed at $4.49 1/4, up 6 cents,
Mar 14 Corn closed at $4.61 3/4, up 5 3/4 cents,
May 14 Corn closed at $4.69 3/4, up 5 1/4 cents
Jul 14 Corn closed at $4.77, up 5 1/4 cents

Soybeans closed 1 to 6 cents higher on the day. The Nov 13 contract traded as high as $13.05 but was unable to hold onto all of its gains and finished up a penny. Heavy rainfall over the weekend which will delay harvest in many areas to start the week is providing a positive influence, particularly in the cash market. The latest Bloomberg survey has average Soybean production for the 2013/14 marketing year at 3.161 billion bushels with an average yield of 41.6 bpa. Wires reported that that soybean planning in Mato Grosso is currently 1.4% completed compared to 8.6% completed at this time last year. The DTN National Soybean Index was up $0.07 from the previous day at $12.48.

Nov 13 Soybeans closed at $12.96 1/2, up 1 1/2 cents,
Jan 14 Soybeans closed at $12.97, up 2 cents,
Mar 14 Soybeans closed at $12.84 1/4, up 5 cents,
May 14 Soybeans closed at $12.64 1/4, up 6 1/2 cents,
Oct 13 Soybean Meal closed at $433.70, up $2.40,
Oct 13 Soybean Oil closed at $39.65, down $0.34

Wheat futures closed 4 to 7 cents higher on the day. The front month CBOT Dec 13 contract gained nearly 8 cents on the session and posted its highest daily close since July 11th. Comments from the Russian Ministry of Agriculture regarding the 2014 Wheat harvest declining to 13 million hectares from 16 million hectares the previous year is providing a positive influence. Heavy rains which have delayed planning were the main catalyst for the comments. Ukrainian acreage will also be reduced for the same reason. Wires have reported that 24% of the Argentine wheat crop is in the fair to poor category and 55% is in the good to very good category for conditions. Fair to poor increased by 2% while good to very good increased by 5%. On the other hand, some Australian production estimates are now above 25 MMT.

Dec 13 CBOT Wheat closed at $6.94 3/4, up 7 3/4 cents,
N/P KCBT Wheat closed at $7.56 1/2, up 6 1/4 cents,
Dec 13 MGEX Wheat closed at $7.50 1/4, up 4 cents

Grain futures – Weekly review: Sept. 30 – Oct. 4 By Investing.com

U.S. grain futures ended Friday’s session mixed, with wheat prices easing down modestly as investors locked in gains from a rally that took prices to a three-month high on Thursday.

On the Chicago Mercantile Exchange, wheat for December delivery shed 0.35% on Friday to settle the week at USD6.8700 a bushel. CBOT December wheat prices advanced 0.5% on Thursday to settle at USD6.8920 a bushel.

The December wheat contract ended the week with a gain of 0.6%, the third consecutive weekly advance.

Wheat prices rallied to USD6.9787 a bushel on Thursday, the strongest level since June 24, amid indications of robust demand for U.S. wheat and concerns over tightening global supplies.

Meanwhile, soybeans for November delivery rose 0.5% on Friday to settle the week at USD12.9500 a bushel by close of trade. The November contract climbed 1.15% on Thursday to settle at USD12.8820 a bushel.

Despite Friday’s gains, prices of the oilseed lost 1.85% on the week.

On Friday, influential industry group Informa Economics cut its forecast for U.S. soybean production to 3.176 billion bushels, 1.5% lower from a previous estimate.

According to the U.S. Department of Agriculture, approximately 11% of the U.S. soy harvest was completed as of last week, improving from 3% harvested in the preceding week.

The USDA also said that 53% of the soy crop was in ‘good’ to ‘excellent’ condition as of last week, up from 50% a week earlier.

Elsewhere on the Chicago Board of Trade, corn futures for December delivery added 0.9% on Friday to settle the week at USD4.4320 a bushel. The December contract settled 0.05% higher on Thursday at USD4.3920 a bushel.

For the week, the December corn contract dropped 2.45%, the largest weekly decline in three weeks.

Prices of the grain fell to a three-year low of USD4.3512 a bushel on October 2. Futures have been on a downward trend in recent weeks as investors monitored improving crop prospects in the U.S. Midwest.

According to the USDA, the U.S. corn crop will total 13.84 billion bushels this season, 28% larger than last year’s harvest and the largest crop on record.

In the week ahead, corn and soybean traders will continue to pay close attention to weather forecasts for grain-growing regions in the U.S. Midwest, while wheat traders will monitor temperatures in the Great Plains-region.

The USDA’s weekly crop progress report scheduled for Monday will likely be postponed due to the U.S. government shutdown, as well as the agency’s highly-anticipated supply and demand report on October 11.

Corn is the biggest U.S. crop, followed by soybeans, government figures show. Wheat was fourth, behind hay.

Today grain futures

Corn futures closed 4 cents higher across the board. The Dec ’13 contract closed down 2.37% on the week. Private analyst Informa pegged US Corn Production at 14.10 Bil Bushels, and a yield of 158.8 bpa. Earlier this morning, wires reported that South Korea’s Major Feedmill Group cancelled a tender for 140,000 MT of corn due to what it considers high prices. Analysts in Argentina are reporting corn planting at 8% done compared to 17% at this time last year. Stats Canada pegged national corn production at 12.9MMT, down 0.1% from the previous year

Dec 13 Corn closed at $4.43 1/4, up 4 cents,
Mar 14 Corn closed at $4.56, up 4 cents,
May 14 Corn closed at $4.64 1/2, up 4 1/4 cents
Jul 14 Corn closed at $4.71 3/4, up 4 1/4 cents

Soybeans closed 6 to 8 cents higher on the day. The Nov 13 contract closed down 1.88% on the week. After trading as low as $403 on Tuesday, the Oct 13 meal contract posted a sharp reversal higher to finish the week up 2.71%. Informa pegged US Soy Production this morning at 3.176 Bil Bushels, and used a yield of 41.7 bushels per acre. The number was smaller than expected. Stats Canada pegged national soybean production at 4.8 MMT, down 3.9% from the previous year. Canola production was smaller than expected at 16 MMT, up 15.9% from last year. Yield was up 31.3% over last year.

Nov 13 Soybeans closed at $12.95, up 6 3/4 cents,
Jan 14 Soybeans closed at $12.95, up 6 cents,
Mar 14 Soybeans closed at $12.79 1/4, up 8 1/2 cents,
May 14 Soybeans closed at $12.57 3/4, up 7 1/4 cents,
Oct 13 Soybean Meal closed at $431.30, up $3.50,
Oct 13 Soybean Oil closed at $39.99, down $0.02

Wheat futures closed 2 to 5 cents lower on the day. The front month Dec 13 KCBT contract was the weakest on the session, but still notched an impressive 2.53% gain on the week! Stats Canada pegged total wheat production up 22% from the previous year to 33 MMT (new record high). Average yield was pegged at 48bpa, which is up from the previous figure of 42.6. The Ukrainian Ag minister is reporting up to a 20% reduction in the likely 2014 wheat crop due to wet planting conditions.

Dec 13 CBOT Wheat closed at $6.87, down 2 1/4 cents,
Dec 13 KCBT Wheat closed at $7.50 1/4, down 5 1/4 cents,
Dec 13 MGEX Wheat closed at $7.46 1/4, down 4 cents

[tas Future]

Inside Futures: Relevant trading-focused information authored by key players in the futures, options and forex industries

Is the USDA going to have to Raise Yield Projections?

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.

Over the last few days we have been getting a lot of feedback on harvest results. The overwhelming majority of storys sing a similar tune – Better then expected corn yields and much better then expected soybean yields. If this really is the case on a national scale is the USDA going to have to increase yield projections? That is when or if the USDA is back in business…

Earlier today I was speaking with a producer in North East Indiana and he was telling me about how his harvest was going. They had been combining soybeans for 4 days so at this point they felt their yield estimates were fairly accurate. Going into harvest they were expecting soybean yields in the low 40s, as it turns out they were actually averaging well over 60 bushels an acre! That is 20 bushels or about 30% better then expected. And this is not a unique story. We have been hearing much more of the same from all over the map. Plants seem to look small but have a lot of pods. About the only complaints I have heard were about bean size and have been few and far between. Maybe soybeans fared better then we expected through the warm and dry August.

So does this mean that the USDA was wrong to lower yield estimates on the August USDA WASDE report? Maybe, maybe not. It still might be too early to tell. The real question will be answered late harvest. It is the later planted acres that may be the key. Late planting due to the cold wet spring meant that some fields were planted later in key areas such as Iowa, Western and Northern Illinois, Wisconsin, Minnesota and parts of the Dakotas. The later planted fields may have sustained much more damage during the hot and dry period in August.

Also, the USDA did not lower yield estimates by nearly as much as some people were thinking they should at the time. Maybe they got something right, maybe they got lucky. But I think that if there is an October USDA report they should hold tight on yield estimates until the harvest is complete.

Either way it certainly seems that yields are going to be much better then what the market was pricing in during the hot and dry spell in August. At this point I really do not think a 39 bushel national average yield for soybeans that we heard so much about during the sharp rally in August is possible. If anything the USDA may have to raise yield numbers for soybeans but I think it is too early to tell for sure. Corn yields have been better so far, but I do wonder if things get worse as the harvest moves North.

December Corn Daily chart:

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November Soybeans Daily chart:

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December Wheat Daily chart:

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All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.

In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!

Ted Seifried (312) 277-0113 or tseifried@zaner.com

[tags Charts, Corn, Soy Bean