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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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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Dust Bowl Wilting U.S. Wheat as Funds Turn Bearish – Bloomberg 01-03-13

Salient to Investors:

The worst US drought since the 1930s is damaging wheat crops at a time when hedge funds are the most bearish on prices in 7 months. The median analyst expects global inventories to record a third annual drop, and Chicago futures to rise up to $9.50 a bushel in 2013.

Tom Neher at AgStar Financial Services sees no fundamental reason why wheat should be falling, given Argentina, the Black Sea area and Australia with smaller-than-normal crops, and the US crop not ideal going into the winter stretch.

Lane Broadbent at KIS Futures said wheat is a hardy plant, so can look pretty bad and turn into a crop.

Hedge funds et al held a net-short position by Dec. 24.

The Dust Bowl in 1934, 1936 and 1939 was the result of farming practices that left soil unprotected from sustained drought.

Jeffrey Currie at Goldman Sachs said the USDA is underestimating the drought damage to crops in Argentina and Australia, and global inventories will be smaller than forecast, partly because wheat remains an affordable alternative to corn for feeding livestock.

Abdolreza Abbassian at the UN said investors may not realize the potential problems with wheat supply, with concern over growing conditions in Russia, the US and Europe, and grain harvests in Argentina in its worst dry spell in 85 years and unusually wet weather damaged wheat crops and delayed corn planting.

Doane Advisory Services said crop insurance claims for 2012 may more than double to a record, and with so much of the winter crop lost, claims may not subside any time soon.

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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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