AFKI Commodities Report: Arabica Rallies On Renewed Brazilian Crop Worries
Among soft commodities, arabica coffee is retracing towards earlier two-and-a-half year highs on renewed Brazilian crop worries. Platinum and palladium markets are tightening although this is yet to show through in price gains. Crude oil futures found support from renewed tensions in eastern Ukraine although the prospect of Libyan exports rebounding limited Brent’s gains.
Among soft commodities, arabica coffee futures made their biggest rally in six weeks early this week as the market once again focused on the size of this season’s Brazilian crop. The extent of the crop losses as a result of extreme dry weather in January and February in the country’s key southern growing regions is still uncertain. The arrival of rain brought some relief in the past three weeks but many believe it came too late.
Estimates of Brazil’s 2014/15 coffee production range from as low as 40.1 million 60-kg bags up to 56.6 million bags. But the full impact of the drought-damage on output will not be known until the harvest is completed in September. The prospect of a lower crop from Brazil, the world’s top coffee producer and exporter, has been compounded by smaller harvests in Central America, analysts say.
Arabica coffee for May delivery on ICE Futures U.S. in New York climbed to 202.80 cents a pound on Apr. 4, the highest for the most-active contract since Mar. 14, before settling at 196.5 cents a pound. By midweek, arabica finished at 199.05 cents. Arabica futures reached a two-year high of 208.90 cents a pound on Mar. 11 but dipped to a five-week low of 166.0 a pound on Mar. 24.
Robusta coffee futures in London rose on arabica’s coattails as well on low stocks of robusta beans in Liffe-certified warehouses. July robusta on NYSE Liffe hit a three-week high of $2,180 a tonne on Apr. 8 before settling at $2,166 a tonne.
It was a mixed week for cocoa, however. Futures in both London and New York initially rose on expectations that upcoming cocoa grind data would show a continued strengthening of demand for the key chocolate-making ingredient. May cocoa futures on ICE Futures U.S. rose above $3,000 a tonne on Apr. 9 to settle at $3,017 a tonne, a three-week high and just $10 off the two-and-a-half year peak of $3,027 reached on Mar. 11.
July cocoa on NYSE Liffe finished at £1,881 a tonne at midweek, only £7 below the two-and-a-half year high touched by the Liffe second-position contract, also on Mar. 11
However, the Brussels-based European Cocoa Association (ECA) on Apr. 10 reported that European cocoa grindings for the first quarter ended Mar. 31, were up just 0.4 percent year-on-year at 340,735 tonnes, a much smaller increase than the three percent rise at least the market had been expecting.
The market is now looking to North American first quarter grindings data, which are due to be released by the National Confectioners Association in Washington, DC on April 17, for further demand direction. The Cocoa Association of Asia has yet to indicate when it will publish its quarterly data.
Cotton recovers some last week’s losses
Cotton futures this week initially recovered some of last week’s losses which followed a higher-than-expected U.S. plantings’ forecast by the U.S. Department of Agriculture (USDA). The most-active May cotton contract on ICE Futures U.S. slipped to settle at 90.98 cents a pound on Apr. 3. But expectations that the USDA would reveal that it had cut its forecast of U.S. ending stocks for the fiber for 2013/14 (Aug. 1-Jul. 31) pushed ICE May cotton to 92.30 a pound during trade on Apr. 9 prior to the release of the agricultural department’s report.
The USDA did cut its forecast of U.S. ending stocks, projecting a 2013/14 year-end stock level of 2.5 million 480-pound bales due to lower output. If the forecast proves accurate, this would mark the country’s smallest ending stock level since 1990/91.
Bizarrely, ICE cotton futures fell following the USDA report, with the May contract settling at a two-week low of 90.44 cents a pound. The fall was blamed mainly on profit-taking, according to traders.
Sugar futures were largely trading flat this week. May raw sugar on ICE Futures U.S. settled at 17.06 cents a pound on Apr. 9, only 0.3 cents above its close a week earlier. Refined, or white, sugar futures on NYSE Liffe finished at $454.75 a tonne at midweek, up only a $1 on the prior week.
Platinum, Palladium prices fall
Meanwhile, platinum prices by midweek finished more than $12 lower than where they had closed last week while palladium prices also fell. The price lethargy is despite the ongoing strike at platinum mines in South Africa which is now entering its eleventh week with no sign of any immediate resolution.
The industrial dispute is costing the three affected producers – Anglo American Platinum, Impala Platinum and Lonmin – around 9,900 ounces of platinum and some 5,000 ounces of palladium daily in lost production since the walkout began.
South Africa accounted for some 72 percent of global platinum mining production or 4.12 million tonnes and 37 percent of palladium mining output (2.35 million tonnes) in 2013, according to data from London-based Johnson Matthey. The muted price reaction to date to the strike is in part because producers built up stockpiles ahead of the stoppage while end-users also stocked up.
Palladium markets are being dominated more by concerns about how Russia might react if the U.S. and European Union were to impose further sanctions on the country, and in late March prices climbed to their highest since August 2011 on fears of how Russia might retaliate to Western sanctions.
At the same time, demand for both metals is strong, being driven by the automotive industry which uses the metals in the manufacture of catalytic converters.
Commerzbank was among the analysts in the past week to note a noticeable tightening in both platinum group metals.
“In our opinion, risks to supply in conjunction with robust demand point to higher platinum and palladium prices,“ the bank said in an Apr. 3 report on platinum and palladium.
“According to data from Johnson Matthey, the supply-demand situation was already tight on both markets last year. Assuming the supply problems are not resolved in the near future and demand remains robust, the situation on both markets will doubtless tighten further,” Commerzbank said.
The bank envisages a platinum price of $1,600 an ounce by the end of this year, while it expects palladium likely to be trading at $825 an ounce.
July platinum futures on the Comex division of Nymex closed at $1,438.30 an ounce on Apr. 9, some $12 down on last week’s finish. Comex palladium futures for June reached $802.45 an ounce on Mar. 24, a level not seen for the most-active contract since Aug. 3, 2011. On Apr. 9, June palladium settled at $782.55 an ounce, down $8.2 on last week’s finish.
U.S. gold futures also slipped lower again this week after touching a one-week high on Apr. 3. June gold climbed to $1,306.55 an ounce on Comex following the release of the latest U.S. nonfarm payrolls report. The data showed the country added slightly fewer jobs than expected in March.
But the precious metal slipped back below $1,300 an ounce on Apr. 8 with June gold settling at $1,298.30 an ounce but still more than $18 off the seven-week low of $1,280.30 recorded by the most active contract on Apr. 1. June gold finished at $1,305.90 on Apr. 9.
Comex gold prices have been under heavy selling pressure in recent weeks as upbeat U.S. economic data fuelled expectations that the Federal Reserve will begin to raise rates sooner than previously thought.
Oil climbs higher on renewed Ukraine concerns
U.S. crude futures climbed to their highest in a month after a government report showed rising gasoline demand reduced the country’s stocks of the fuel. U.S. oil prices were also underpinned by stronger equities and a weaker dollar after minutes from the Federal Reserve’s last meeting, released on April 9, eased concern about the timing of future interest rate hikes.
Worries that fresh tensions in eastern Ukraine could impact the flow of oil from Russia also supported prices.
West Texas Intermediate (WTI) crude, the U.S. crude benchmark, for May delivery rose $1.04 to $103.60 a barrel on the New York Mercantile Exchange (Nymex) on Apr. 9, the highest settlement since Mar. 3.
The government’s Energy Information Administration (EIA) said gasoline demand averaged 8.8 million barrels a day in the week to Apr. 4, up by 4.4 percent from the same period last year. Inventories of the fuel fell by 5.2 million barrels to 210.4 million barrels.
U.S. commercial crude stocks increased by 4.0 million barrels from the previous week, reversing the prior week’s inventory fall, EIA data showed, but crude inventories at the key Cushing, Oklahoma storage hub showed another decline in the week to Apr. 4.
However, the decline of 300,000 barrels to 27.3 million barrels was one of the smallest since TransCanada Corp.’s Gulf Coast pipeline began commercial lifting on Jan. 23. The pipeline runs from the Cushing hub to Nederland, Texas. Much of the 14.5 million barrels stock drawdown at Cushing since late January has been attributed to the start-up of the pipeline.
Brent crude futures, the European benchmark, moved up to near $108 a barrel by midweek on the rising tensions in eastern Ukraine and their potential to impact Russian oil supplies. These geopolitical concerns overshadowed the hefty unexpected rise in U.S. crude stocks.
Brent crude for delivery in May on London’s ICE Futures Europe exchange settled at $107.98 a barrel on Apr. 9, having touched $108.08 earlier in the day. May Brent finished last week at $106.72 a barrel. However, traders said Brent’s gains are being capped by the possibility that Libyan oil flows would rebound following the surrender of control of two oil terminals by Libyan rebels to the government.
Bloomberg reported the ports of Hariga and Zueitina were surrendered to the government after an Apr. 6 deal. However, the opening of the two other ports held by the rebels, Ras Lanuf and Es Sider, depends on agreement on revenue sharing and development measures still to be reached, according to the Bloomberg report, which quoted a Libyan lawyer mediating between the two sides.
While care has been taken to ensure that the information contained in this report is accurate, it is supplied without guarantee. The author can accept no responsibility for any errors or any consequence arising from the information provided.