Investors Head for Exit as Commodities Extend Slump – Bloomberg 09-30-14

Salient to Investors:

  • Investors pulled the most money from US ETPs backed by raw materials since April.
  • US corn and soybean crops are the biggest ever, global stockpiles of nickel are at an all-time high, the US is producing the most oil since 1986, while China is headed for its slowest expansion in two decades.
  • The Bloomberg Commodity Index is set for a fourth straight annual loss, the longest slide since data began in 1991.
  • Societe Generale lowered its price forecasts for more than half of the 43 raw materials it tracks, and recommended shorting gold on rising US interest rates and a rising dollar, target below $1,000 over the medium-term.
  • Citigroup pared its outlook on crude oil, gold, corn and wheat.
  • Goldman Sachs still expects losses in copper and gold.
  • In August, Citigroup forecast the Arabica-coffee crop shortfall may leave a global production deficit lasting into 2016. Citigroup is bullish on palladium, copper, nickel, lead, coking and thermal coal, cocoa and coffee.
  • Deutsche Bank forecast commodities will end 2014 in a positive run with nickel, zinc and lead outperforming.
  • Donald Selkin at National Securities said certain markets are bullish because of supply issues, including cattle, nickel and coffee, while the worst may also be over for the big three – gold, crude oil and grains.
  • Jeffrey Currie at Goldman Sachs expects gold to fall to $1,050 by year-end, copper to fall to $6,200 a metric ton over 12 months due to a major increase in stockpiles.
  • The IEA said global oil demand will weaken because of weaker growth in China and Europe, rising exports from Libya, and booming US output, all outweighing potential output disruptions in Iraq.
  • Economists expect China to grow 7% in 2015, the slowest rate since 1990.
  • Quincy Krosby at Prudential Financial said you need growth in China to support a rally in raw-material prices.

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Gold to Coffee Drive Bullish Bets to 17-Month High – Bloomberg 02-25-14

Salient to Investors:

Hedge funds’ net-long positions of 18 US-traded commodities rose 18 percent last week to the highest since September 2012. Investors tripled the net-long position in arabica coffee this month to the most bullish since May 2011

Barclays said weather is the big driver of commodities.

EPFR Global data show commodity funds are headed for the first monthly inflows since September 2013.

Brazil is having its weakest rainy season in decades, just when moisture is needed the most for coffee tree roots to absorb soil nutrients.

Rabobank Intl said yields and quality for arabica beans will be constrained during this season and the next, and prices will be supported by longer-term concern that output will be limited.

Rabobank said soybean production in Brazil and Argentina is still projected to climb 10 percent, even with the dry weather. The USDA said corn and soybean harvests in the US in 2014 will be the biggest ever, meaning an increase in stockpiles before 2015’s harvest.

Dan Cekander at Newedge USA said grain fundamentals themselves do not suggest a bull story – not without a significant Northern Hemisphere problem in 2014.

Goldman Sachs said the S&P GSCI Enhanced Commodity Index will fall 4.3 percent in the next 12 months, agriculture will decline 9 percent, and precious metals will fall 14 percent.

Gold bets climbed 31 percent to the highest since October 29.

David Mazza at State Street Bank & Trust said assets in the SPDR Gold Trust are heading for the first monthly inflow since December 2012.

Cameron Brandt at EPFR Global said commodity funds are heading for their first monthly inflows since September.

Mark Luschini at Janney Montgomery Scott said the decline in prices last year has helped re-establish equilibrium between supply and demand, so better growth should pull industrial commodities higher, though we are not back in the middle of a commodities super cycle yet.

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Death in Parched Farm Field Reveals Growing India Water Tragedy – Bloomberg 05-22-13

Salient to Investors:

The loss of water rights to heavy industry, the worst drought in four decades and the rise in debt that follows is causing farmers to take their own lives – more than 2,200 farmers in India committed suicide in the past 4 years.

Mandar Sathe at Prayas said a lot of the drought is man-made, like inefficient distribution for irrigation.

The Central Water Commission said 8 of 12 of Maharashtra’s main reservoirs have water levels below the 10-yr average.

Naina Lal Kidwai at HSBC said water shortages have prevented construction of 30,000 MW of power plants throughout India, 13 percent of current capacity.

IEA said India and China alone plan to build $720 billion of coal-burning power plants in two decades, or more than twice the total power capacity in the US. Coal-powered plants on average consume 3 times as much water as natural gas-fired stations per unit of power produced. 400 million of India’s 1.2 billion people are without power.

Richard Manley at Goldman Sachs said the situation is more acute in India than in China and at a point where it’s quickly going to become a real business risk in Asia.

HSBC said India is the most vulnerable of G-20 to future water stress with supplies dangerously near extreme scarcity levels by 2030.

Jai Krishna at Greenpeace says conflicts between industry and farmers will worsen as water becomes scarcer, and prioritization for farmers over industry is essential especially in an area where irrigation has been neglected for years.

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Goldman Bullish With Hedge Funds Amid Citi Warning: Commodities – Bloomberg 12-18-12

Salient to Investors:

EPFR Global said the increase in inflows into commodity funds in 2012 was 92 percent higher than the increase in 2011. The S&P GSCI, of which energy comprises 70 percent, fell 0.9 percent in 2012, the MSCI All-Country World Index  rose 13 percent, the Dollar Index fell 0.9 percent, Treasuries returned 2.3 percent. Barclays says commodity assets under management rose 8.6 percent in the first 10 months of 2012, gold-backed ETP holdings rose 12 percent.

Hedge funds’ reduced bullish bets in Q4 2012, which are 51 percent higher than a year ago. 131 traders, investors and analysts expect precious metals to rise as much as 25 percent in 2013, grains to rise 18 percent, and industrial metals to rise 16 percent, and other commodities at least 9.9 percent.

Edward Morse at Citigroup says price rises in 9 of the past 10 years are creating supply gluts. Citigroup says the super cycle of returns has ended because China is growing more slowly and supply has caught up. Citigroup sees grain and soybean prices being supported in half1 2013 by tight supplies.

Barclays and Rabobank Intl say output will exceed demand next year in 10 commodities.

Goldman Sachs expects gold to peak in 2013 due to rising U.S. growth. Jeffrey Currie at Goldman Sachs says accelerating economic growth in half2 2013 will increase demand, and sees a 7 percent return in commodities over 12 months. Currie says increasing consumption will curb available supply, boost near-term prices relative to longer-dated contracts.

Peter Jankovskis at Oakbrook Investments said the disparity in outlooks is due to uncertainty about the economy and government policies over the next year.

Hussein Allidina and Peter Richardson at Morgan Stanley say demand for energy and grains will be resilient and delayed harvests in South America will limit corn and soybean supplies, while economies will accelerate in half2 2013 if central banks extend stimulus. Morgan Stanley said central-bank stimulus will cause investors to continue to buy gold, which will average $1,853 an ounce in 2013,

Jack Ablin at BMO Private Bank said commodities tend to be victims of their own success – we have unprecedented inventories in industrial metals.

The IMF expects world growth to rise to 3.6 percent in 2013. The median economist expects China to accelerate in Q4.

James Paulsen at Wells Capital Mgmt says there’s a good undertow for commodities, which will trend higher the next few years.

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Drought No Obstacle to Record Income for U.S. Farms: Comm – Bloomberg 11-20-12

Salient to Investors:

US farmers are having their most-profitable year ever because of record-high prices and insurance claims and despite the worst drought in a half century.

The government predicts food inflation will accelerate next year, led by meat, dairy and baked goods.

The UN said says the global cost of food imports will drop 10 percent in 2012 – world food prices are 10 percent below the record in February 2011.

The government predicts an 8.6 percent drop in US wheat, soy and corn exports next year. Informa Economics says global corn production may jump 14 percent next year as wheat output gains 7.5 percent.

Bullish bets by hedge funds et  al across 11 U.S. farm goods declined in 9 of the past 10 weeks.

Richard Pottorff at Doane Advisory Services said insurance payouts will surge because most policies were linked to prices at the harvest.

Farm income has more than doubled since 2006, and 3 consecutive years of record profit left US farmers with a ratio of debt to assets of 10.2 percent,  a record low.

Farmland in Iowa rose 18 percent in the year that ended Oct. 1. Alex J. Pollock said the surge in farmland prices signals the market may be in a bubble, vulnerable to higher interest rates and lower crop prices.

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Traders Eye Grain Prices Rebound as Supply Set to Tighten – Bloomberg 10-08-12

Salient to Investors:

Grain demand is robust and global stockpiles are tightening – USDA data shows world corn and soybean stockpiles as a percentage of consumption may drop to a 37-year low after dry weather in the US, South America and Europe.

Hussein Allidina at Morgan Stanley said wheat prices will be supported as livestock farmers substitute more of the grain in feed for high-cost corn. Allidina said inventories are the tightest they’ve been in his lifetime, and there’s no spare capacity.

Sudakshina Unnikrishnan at Barclays expects CBOT soybean prices to rally to $18 a bushel.

David Sheppard at Gleadell Agriculture said the markets will rebound as we’re in the calm before the storm with world grain markets – Russia and Ukraine are running out of exportable surpluses, France is selling quite aggressively into recent tenders.

Roger Baker at CHS said Russia is unlikely to ship much grain after the end of 2012 because prices are climbing. Corn has the highest potential for gains, while wheat prices will likely only follow moves in corn.

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Global Food Reserves Falling as Drought Wilts Crops – Bloomberg 08-09-12

Salient to Investors:

Stockpiles of the biggest crops will decline for a third year on drought in three continents.

U.S. crops are in the worst condition since 1988, heat waves are battering European crops and India’s monsoon rainfall is 20 percent below normal.

Goldman Sachs, Macquarie Group and Credit Suisse say crops will continue to be the best-performing commodities this year.

The U.S. drought in June was the widest since December 1956, while the past 12 months were the hottest on record.

U.S. nuclear plants’ output on July 27 was the lowest for the day since 2001 because water was too hot to be an effective coolant.

Global food prices are still 10 percent below the record reached in February 2011.

Barclays  is “modestly overweight” in grains and soybeans, but recommended investors reduce bullish bets as improving weather, declining demand or an easing of U.S. requirements for ethanol in gasoline may send prices lower

Goldman predicted $9 corn, $20 soybeans, $9.80 wheat in three months.

Danske Bank predicts global food prices will jump 25 percent this year .

Gates Foundation says U.S. households spend 6 percent of their total expenditures on food versus 35 percent in India and 45 percent in Kenya. The USDA says with less than 5 percent of the world population, the U.S. consumes 31 percent of global corn production, 18 percent of soybeans, 32 percent of cheese and 20 percent of beef and veal.

The National Intelligence Council says nations reliant on food imports, including Egypt, Pakistan, Bangladesh and Sudan, are especially vulnerable to unrest. More than 60 food riots erupted worldwide from 2007 to 2009 as prices surged, the U.S. State Department estimates, while the U.N. says production will need to expand 70 percent by 2050 as 2 billion people are added to the population.

Professor Tim Hagle at the University of Iowa says retail-food costs keeps the economy in a fragile position, the big issue in this election.

Steve Hatz at Bank of the West said U.S. farmers are less likely to feel the pinch because about 85 percent of crops are insured.

Ron Plain at the University of Missouri said livestock ranchers lost $260 a head in June versus a $156 loss a year earlier.

Steve Shafer at Covenant Global Investors said global beef inventories are dropping in part because rising incomes in emerging markets mean consumers want to eat more meat, causing a rising supply/demand imbalance.

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Bulls Proven Wrong as Prices Slump Into Bear Market: Comm – Bloomberg 06-25-12

Salient to Investors:

Hedge funds et al raised net-long positions across 18 U.S. futures and options last week, the highest in four weeks and the first consecutive gain since the end of February. Commodities slumped into a bear market June 21.

Jeffrey Sherman at DoubleLine Capital expects volatility in commodities as people seek a driver for growth.

Janna Sampson at Oakbrook Investments said any Fed action implies the economy is weak, which is bad for commodities, the outlook is very dependent on Europe.

Speculators raised bullish bets in agricultural commodities by 13 percent last week, the most since May 22. 

Cameron Brandt at EPFR said investors added $1.16 billion to commodity funds in the week ended June 20, all attributable to gold and precious-metals funds, which took in $1.2 billion, the most in 20 weeks.

Bets on rising gold prices gained 5 percent, the highest since May 1 and the fourth straight gain, the longest bullish streak since early February.


Jeffrey Sica at SICA Wealth Management said a cash injection by policy makers would make commodities attractive as alternative assets amid the threat of accelerating inflation. Sica sees tremendous demand for certain raw materials, such as grains, and expects prices to rise.

Chad Morganlander at Stifel Nicolaus is on the sidelines until he sees a committed fiscal thrust from China and renewed interest by the Fed to monetize debt.

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