AfkInsider Commodities Report: Gold Loses Its Grip; Cocoa Bucks Trend

AfkInsider Commodities Report: Gold Loses Its Grip; Cocoa Bucks Trend

Abundant supplies continue to weigh on sentiment for many agricultural commodities such as sugar, coffee and grains.

Excellent growing conditions in the U.S. have raised expectations of a bumper harvest of key crops such as corn and wheat.

Cocoa is bucking the trend as worries about potential weather-related damage to the main crops in top-producing Ivory Coast and parts of Ghana pushed futures prices to more than three-month highs this week.

Oil and base metals prices remained mixed, but gold lost its grip on $1,300 an ounce as its investment appeal faded further. Physical demand for the precious metal from key buyer China has also fallen off of late.

Following July’s rebound in prices, gold dipped back below $1,300 an ounce on Aug. 5, with the spot price slipping to $1,281 by midweek. The most actively traded contract for December delivery on the Comex division of Nymex had fallen to $1,284.50 by midday Aug. 7. This compared to its week-earlier position of $1,313 an ounce.

The precious metal’s investment appeal has been fading amid strong economic data from the U.S. and Europe and subdued physical demand. Gold buying by China, traditionally the world’s second biggest buyer of the yellow metal after India, soared earlier this year as prices fell. However, demand from China has fallen off in recent weeks. India’s buying also has been subdued of late on account of government restriction on imports.

In contrast to gold, which saw prices decline around 23 percent this year to date, platinum and palladium have performed rather better as labor disputes and supply concerns continue to underpin prices of the two sister metals. Platinum is down around 6 percent this year while palladium is up 4 percent, largely because platinum and palladium both are expected to experience supply deficits in 2013.

Earlier this summer, HSBC forecast a supply deficit of some 844 ounces for platinum this year while the world’s biggest producer of palladium, Norilsk Nickel, anticipated a 1 million ounce-deficit in palladium. Some of the other forecasters anticipate an even bigger supply deficit for palladium.

The supply situation is seen as potentially bullish for palladium. Some 70 percent of palladium is used in catalytic converters, an essential component in the automotive industry, where sales are buoyant. Global car sales advanced 4 percent in the first half of 2013 and are expected to climb to a record high this year, according to Toronto, Canada-headquartered Scotiabank’s latest Global Auto Report.

Spot platinum was at $1,433.25 an ounce on Aug. 7 while spot palladium was at $731.52. This compares to $1,444 and $738 an ounce respectively a week earlier.

Copper prices dipped below $7,000 a tonne on the London Metal Exchange (LME) again early this week amid a firm U.S. dollar and a tepid market response to the latest round of economic data from China. China’s services sector recorded a small expansion in July but the composite index, weighed down by a slowing manufacturing sector, contracted further, a HSBC survey, released on Aug. 6, showed. This has raised further doubts about the pace of growth in the country.

Three-month copper on LME finished at $6,965 a tonne on Aug. 5, $65 down on Aug. 2 close before recovering to $7,044 a tonne in late trade on Aug. 7. Traders are now eyeing the release of further economic data from China later this week.

Crude oil prices remained mixed this week as investors awaited the latest U.S. crude stockpiles data from the U.S. Energy Information Administration (EIA) due late Aug. 7. The data provides an indication of demand from the world’s biggest oil consumer. The EIA last week reported an unexpected rise in U.S. crude inventories for the week ending July 26 after five weeks of declining U.S. stockpiles.

The benchmark U.S. contract, West Texas Intermediate (WTI) on the New York Mercantile Exchange (Nymex) for delivery in September, was trading at $105.04 a barrel late morning, while Brent North Sea crude for September was $107.60 a barrel in late trade on ICE Futures Europe on Aug. 7.  WTI had settled 16 cents short of a 16-month high at $107.89 a barrel Aug. 1 while Brent settled at a four-month high of $109.54. Both contracts finished lower on Aug. 2, down 95 cents and 59 cents respectively.

Crude oil prices have found support in recent days on growing worries about supply disruptions in Iraq and Libya, as well as maintenance outages in the key Forties North Sea field.

Soft commodities remain mixed this week. Arabica coffee futures prices advanced as traders anticipated an impending announcement from Brazil’s government to help the country’s struggling coffee producers. The announcement, initially scheduled for Aug. 5, finally came on Aug. 7.  Brazil’s President Dilma Rousseff said the government will launch two programs to buy as many as six million bags of coffee to help support grower’s incomes, according to news agency Agência Estado. Brazil’s government will offer producers options contracts with a delivery date of March to sell as many as three million 60-kilogram bags of coffee at 343 reais ($149), according to a Reuters report. The government also will buy as many as another three million bags at 307 reais each if producers buy all the options on offer and coffee prices are below 343 reais per bag in March, Reuters reported. Brazil is the largest producer and exporter of coffee.

Arabica coffee futures moved up on the news with the September contract on ICE Futures U.S. touching $1.2075 a pound in late morning trade, up from $1.965 a pound on Aug. 5. Arabica prices had slumped to a four-year low of $1.1547 a pound on Aug. 1.

Cocoa futures on ICE Futures U.S. by midweek rose to their highest level in more than three months on ICE Futures U.S. amid continuing concerns that dry weather in top producing countryIvory Coast and part of Ghana will damage the two countries’ main crops. September cocoa futures on ICE had climbed to $2,448 a tonne by midday Aug. 7, the highest level in more than three months. Cocoa for September delivery on London’s NYSE Liffe reached £1,644 a tonne in late trading Wednesday.

Raw sugar futures turned lower after last week’s rally on the back of concern that rain would slow the harvest and delay shipments. October raw sugar on ICE Futures U.S. was trading at 16.7 cents a pound at midday on Aug. 7, 13 cents up on the Aug. 6 settlement. October raw sugar had touched 16.98 cents a pound on July 31, the highest for the most actively traded contract since July 1.

White or refined sugar futures prices were also a tad lower this week, with October white sugar on Liffe at $492.75 a tonne near close on Aug. 7.

Cotton futures, meanwhile, remain underpinned by uncertainty over 2013-14 supplies in the U.S., the world’s largest exporter, where drought is taking its toll in Texas, the country’s largest cotton-producing state. However, worries over China’s demand continue to be a counter influence.

The benchmark December cotton contract on ICE Futures U.S. was up at 87.66 cents a pound in midday trading on Aug. 7, up 1.97 cents on Aug. 6 close and 2.48 cents higher than the prior Wednesday’s settlement of 85.18 cents a pound.

Elsewhere in soft commodities, improving U.S. weather and crop prospects continue to weigh on U.S. corn and wheat futures. Futures prices fell again following the latest U.S. Department of Agriculture crop progress report. The USDA said Aug. 5 that 64 percent of the country’s corn crop is in good or excellent shape as of Aug. 4, up from 63 percent for the preceding week and significantly improved on the 23 percent reached in the same week last year. The USDA said just 11 percent of the U.S. corn crop is rated very poor or poor. The corn price for September delivery on the Chicago Board of Trade (CBOT) fell to $4.6563 a bushel on Aug. 6, the lowest price for the contract since early October 2010, before recovering a tad to $4.7263 a bushel in late morning trading on Aug. 7

The USDA reported that 87 percent of the country’s winter wheat crop was harvested as of the week ending Aug. 4, up from 81 percent a week earlier. Wheat for September delivery on CBOT fell to $6.4238 a bushel, a 13-month low on Aug. 7.

While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author, Lynda Davies, can accept no responsibility for any errors or any consequence arising from the information provided.