Commodity price watch
on a potential export ban in Russia. Russian official output estimates, released on 1 August, were higher than expected, which prompted short selling by grain traders. Renewed concern on dry weather pushed up wheat futures by 6% between 2-9 August.
Long-term traders planning to go short (sell) in September might opt to hedge against risk through put options (right to sell) within the US$8.80-9.00 per 60lb bushel price range. Day traders taking binary bets should pay attention to existing high volatility, with spreads between high and low prices peaking at 5% on 25 July. Wheat buyers focusing on cash should be wary of spot price hikes during August given the current volatility in weather projections.
Cocoa
LIFFE front-month cocoa futures rose by 3% over the 10 July to 9 August review period to close at £1,665 per tonne. Cocoa prices declined by 7% over 10-18 July. This decline took place on the back of weak data on cocoa grindings released by the European Cocoa Association (ECA) on 12 July. Cocoa grindings over the second quarter of 2012 were 20% down on the same quarter in 2011, prompting fears among traders about a slump in demand for chocolate-related products. Data on German cocoa grindings, 18% down on the previous year, was particularly weak. This underpinned concerns among analysts that faltering economic growth in Europe’s major economy was starting to impact real demand for cocoa in the continent.
Cocoa futures increased by 11% between 18 July and 9 August, reversing the losses sustained by traders during the previous week. This reversal in fortunes was partly down to positive data on cocoa grindings in Asia Pacific. According to the Cocoa Association of Asia, grindings in the region were up by 6% over the same period in 2011. This increase was driven by strong consumption in countries such as China. In addition, cocoa prices were underpinned by news that winds from El Nino might cause a potentially long dry weather spell in West Africa. If weak cocoa output for the 2012-2013 season is confirmed, it would result in in the further downgrading of global stock projections. This could in turn prompt a short-term surge in cocoa prices during
kennedysconfection.com
the fourth quarter of 2012. Long-term traders could achieve hedging against risk in September by going long (buying) on call options (right to buy) at £1,600-1,650/tonne support levels (lowest price expected after latest retracement). Day traders taking binary bets should pay attention to existing high volatility, with spreads between high and low prices peaking at 2% on 26 July. Cocoa buyers focusing on cash should be wary of spot price hikes during August given the current negative outlook for prices over the third quarter of 2012.
Sugar
ICE front-month sugar futures declined by 7% over the 10 July to 9 August review period, to close at US$0.21 per pound.
Sugar futures rose by 6% over 10- 20 July. This rise was partly down to reported rainfall along the coast of northeast Australia delaying the harvest of sugar cane, which prompted unease among traders. A further contributing factor in the growth of sugar prices was the rise in oil futures, which had knock on effects on sugar-based biofuels such as ethanol. Oil prices rose by 10% over 10-20 July. This increase was driven by rising political tensions in the Middle East and a relatively weak dollar environment, which lowered the cost of speculative funding. Front-month sugar futures in the Intercontinental Exchange returned to negative ground between 20 July and 9 August, declining by 12% in nominal terms. Stronger fundamentals in the form of robust projections for Brazil, one of the most important sugarcane producers, were regarded as a negative
factor by traders. Traders thus shortened (sold) their open positions. Brazil’s wet weather conditions ceased during the third week of July. Drier weather spells returned hopes among analysts regarding a robust output for the coming season and led to a progressive build-up of stocks for the 2012-2013 season. Traders could achieve hedging against risk in September by going long (buying) on call options (right to buy) at US$0.19-0.20 per pound support levels (lowest price expected after latest retracement). Sugar buyers focusing on cash should be wary of spot price hikes during August given the current neutral outlook for prices over the fourth quarter of 2012.
Palm oil
BMD crude palm oil futures (FCPO) declined by 9% over the 10 July to 9 August review period to close at US$910 per tonne.
The decline in the price of palm oil was partly down to weak economic data in China and dampened expectations for a short-term surge in demand for soybeans. Soybeans are used in the manufacture of soy oil, which competes with palm oil in most Asian countries. Soybean futures declined by 7% on the Chicago Mercantile between 20 July and 3 August, as scattered showers in the US mid-West dampened trade expectations of further escalations in prices. The approaching end of Ramadan, which is due to finish on 19 August, is regarded as a negative factor by traders. This is because consumption of cooking oils typically peaks before the start of the holy month and slows shortly after its end.
■ For further insight, please contact Francisco Redruello, Euromonitor International’s Senior Foods Analyst, at
francisco.redruello@
euromonitor.com
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