DO YOU TAKE SUGAR? HMM… HOW MUCH?
Some of the most used words in the street are inflation, cost of living and possible recession. For many people, the word inflation reminds them of the past, when economies got contaminated by structural inflation that led to higher borrowing costs, high unemployment and low if any growth.
Governments to fight inflation (some via their central banks), attack with high interest rates to slow down demand, looking to achieve lower costs and therefore lower inflation. In the short term, the remedy for inflation inflicts pain on consumers and many times too severe for them to deal with.
Commodities are under some pressure, due to higher prices and carrying costs, but not all. With the expectations of lower general demand, due to higher cost of living, the appetite for “Specs” to re-build their larger net longs is not seen. The net longs by “Specs” in Agri Commodities, as of the 23rd of May 2023 was 35% lower than December 2022. Some Commodities “suffered” more. We had long liquidation or greater shorts like Corn 53%, Soy Complex 45%, Wheat 10%, but Sugar only 9%. We also had some “good” news for Coffee with greater longs as well Cocoa and short covering for Cotton.
It seems the main reason for the lower net long positions (mostly selling longs) has been de-risking, lowering their risk appetite for Commodities with the expectations demand is more of a concern than the risk of lower production or logistics issues. When it comes to production, many crops are being planted (North Hemisphere) and so far, so good. We also have many crops growing or being harvested in the Southern Hemisphere and so far, is OK.
18 | ADMISI - The Ghost In The Machine | Q2 Edition 2023
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