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Commodity price watch


Commodity price watch


Wheat futures rose by 9% over 10-16 By Francisco Redruello, senior foods analyst, Euromonitor International Overview


Gloomy economic prospects prompted the European Central Bank (ECB) to cut Eurozone interest rates to a record low of 0.75% on 5 July. News coming from emerging economies was not good either. According to data released by the Chinese National Bureau of Statistics on 9 July, China’s inflation slowed in June to its lowest level in 29 months. On 10 July, euro-region finance ministers decided to mobilise as much as €100 billion in emergency loans to shore up Spain’s banks. Concerns about how much of this amount would be taken up by the European Stability Mechanism (ESM) prompted a surge in Spanish and Italian bond yields during the best part of July. This in turn boosted the value of the dollar, increasing the cost of speculative investment in commodities. An announcement of stronger support from the ECB for peripheral economies meanwhile started to weaken the US dollar on 24 July. Data released on 27 July showed a slowdown in US economic growth, with GDP rising by just 1.5% during the second quarter of the year. Poor US economic data had a mixed impact on commodity prices. On the one hand, it dampened appetite


52 Kennedy’s Confection September 2012


July. Wheat climbed on the back of a drier forecast for the US and Russia. Rumours that the coming Russian wheat output could be 30% lower than that of the previous year prompted strong buying activity from both commercial and speculative buyers. In addition, USDA’s World Agricultural Supply and Demand Estimates report, released on 12 July, downgraded global wheat stock projections by three million tonnes for the 2012/2013 season. This was the result of lower output projections for Argentina, Australia, Russia, Kazakhstan and Ukraine. Furthermore, ending stocks of wheat were projected to diminish on the back of stronger demand for cattle feed. This is because high corn prices are making wheat look more competitive to farmers that use grains as a feed input for their herds.


for risk. On the other, it weakened the dollar further and lowered the cost of speculative funding. From the point of view of supply, grains fundamentals were extremely weak. The US Department of Agriculture’s (USDA) World Agricultural Supply and Demand Estimates report, released on 12 July, showed a strong decline in global wheat stocks for the 2012/2013 season. An even stronger reduction in global corn stocks prompted concern among traders, who entered long (buying) grain positions on a massive scale. Later news in the month regarding dry weather in the Baltic Sea area caused “a perfect storm” as concerns about corn output spilled over rapidly into wheat. Weather news on sugar were fairly mixed and its effects neutral. Weak data on cocoa grindings offset the effects of dry weather in West Africa, preventing any rapid escalation in prices.


Wheat


CBOT front-month wheat futures prices increased by 11% over the 10 July to 9 August review period to close at US$9.2 per 60lb bushel.


CBOT wheat front-month futures prices declined by 4% over 16-24 July. On the one hand, weather models continued to show extreme dry weather conditions in the US Corn Belt, providing support for grain prices. On the other hand, a stronger dollar environment and increased concerns about the economic situation in the euro area hampered appetite for risk and increased the cost of speculative investment. In addition, traders shortened (sold) some of their open grain positions to cash in previous gains in a usual post-price surge profit- taking exercise.


Wheat futures rose by 6% over 24-30


July, reversing the losses of the previous week. Wheat prices surged in the wake of news that more agricultural regions in Russia had been declared emergency areas due to the recent drought. Russia accounts for around 10% of global wheat exports and fluctuations in its grain output typically have strong repercussions on international sales. Furthermore, wheat prices were underpinned by strong tendering demand from Middle Eastern countries, especially Morocco and Libya. Futures declined by 5% between 30 July and 2 August as a result of easing concerns


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