COMMODITIES NOW
a differential of about US$2.30 under the futures market. Why the break? At this same time the Chicago futures market had rallied above US$13.00 at a time when global supplies were more than adequate to meet demand. Therefore, commercial traders had no course but to collapse basis (the differential) rather than pay too high a market price. As this new age of commodity markets continues to mature, this same sort of break might be seen in more commodities.
Part IV: Allegro Con Fuoco As 2010 comes to a close, many
different commodities are either at or just coming off historic highs – with some of the rally certainly attributable to the unprecedented investment buying spree seen since June of this year. Reflecting this surge, the Reuters Jeffries CRB Index
to grow. That was until 2010. When market historians take a look back at the end of this decade, the most prominent feature will be how weather problems struck key growing areas of almost every commodity, tightening supplies and finally bringing the often talked about but seldom realized demand market/short-supply monster to life. Cotton, corn, wheat, soybeans, and even sugar saw global ending stocks and stocks to use tighten in 2010, leading many of these markets to post new all-time highs. Of these markets, the one most likely to see its situation grow
even more interesting heading into 2011 is corn. Corn touches almost every facet of our lives: from nearly all items on the grocery shelf, feed for both two and four legged critters, to fuel through increased demand for ethanol. As of the latest USDA and WASDE supply and demand reports, US corn ending stocks were at the lowest level since the 1995-1996 marketing year, with ending stocks to use the second smallest on record at 6.2%. Globally, the corn situation is tight as well, with world ending stocks to use pegged at 15.4%, the second smallest since the 1973-1974 marketing year. Outside of the agricultural markets, other commodities
Demand from an increasing, and increasingly
affluent population, new technologies, and yes new types of investments have changed the once side-show only commodity sector
(an index that uses a basked of commodities from different sectors in its calculation) posted a low of 247.25, very near chart-based support at 247.00, before rallying to near resistance at 337.00. Longer- term, the CRB seems on its way to a test of 383.00. This would be quite an
accomplishment coming off its low near 200.00 in February 2009 following its high near 474.00 in July 2008. The question remains; is the commodity market sector stronger now than it was in those heady days of 2008, and if so then why? The question may be found in the old saying that even a stopped watch is right twice a day. For many years there has been talk
about how commodities were going to be swept up in a demand-driven frenzy, possibly to the point of food riots around the globe. Yet, increased world production kept problems in check and allowed global stockpiles
8 December 2010
could also reap the benefits of stronger demand markets going forward into the next decade. Copper has tested its 2008 pre- economic meltdown high reflecting the growing consensus that the global economy may be strengthening, meaning more new building. And lest we not forget, crude oil demand is expected to increase by about one million barrels per day in 2011. Other markets that could see strong price moves due to increased demand tied to an improving economic situation could include lumber, platinum, and palladium just to name a few. To paraphrase a famous newspaper story headline, “Yes,
Virginia there really is demand markets.” This is one of the pivotal lessons so far of the 21st
century: demand from an increasing,
and increasingly affluent population, new technologies, and yes new types of investments have changed the once side-show only commodity sector into something more, something much more. These days you are just as likely to see a long-term investor park her money in some sort of commodity instrument rather than corporate stocks. This would have been almost unthinkable on New Year’s Eve 2000. The question as this first decade of the new century ends is what
will the situation be when the next decade comes to a close? •
Darin Newsom is Senior Analyst for Telvent DTN and provides DTN subscribers with daily market insight and analysis.
For more information visit:
www.telvent.com
Email Darin directly at:
darin.newsom@
telventdtn.com
You can also track Darin’s thoughts throughout the day via:
Twitter @DarinNewsom
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