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We have just experienced a calmer week, a week that can be described as neutral to slightly bullish when observing all commodities together. This is primarily because the price movement of oil on a weekly level was almost unchanged, but that does not mean that individual commodities did not have bullish or bearish movements on a weekly basis. If we also look at indices, such as the GSCI index, we see that there was no significant change and that it moved in a narrow range between 575 and 580 points last week.
However, some commodities may have been a bit more in focus for the market. Thus, funds continued to reduce their short positions in agricultural commodities, and this was a week in which funds bought the most contracts on a weekly basis in almost 3.5 years! This is just a continuation of the trend of reducing funds’ short positions prompted by floods in Brazil, a weak dollar, delays in planting in the U.S., damage from disease in Argentina, and the generally bullish momentum in which the market finds itself.
What is crucial is that everything currently happening is not a strong enough factor to justify the market movements of the last few weeks. Instead, it is still about fund managers abandoning their way of “deflating commodities” that they have held for the last two years, and this is currently providing strong upward momentum.
This week, a bit more caution is expected in the market, as we await data on producer and consumer prices in the U.S. in the second half of the week, which will show how inflation is moving and could significantly impact the direction of the U.S. market, and thus other markets worldwide. Investors are hoping for signs of easing inflation, which would open up space for the FED to reduce interest rates, but as we have previously written, this may not be likely to happen this year. In the currency markets, the value of the dollar against a basket of currencies has slightly increased. The dollar index (DXY) starts the new week at a level of 105 points, and the EUR/USD ratio is slightly below 1.08.
Stable Oil Prices
On global markets, oil prices remained almost unchanged last week as the largest world economies are not growing fast enough to strengthen demand. At the beginning of the new week, Brent crude futures are below $83/bbl, and WTI crude below $79/bbl. After a sharp decline a week earlier, oil prices moved in a narrow range last week as there is currently no reason for significant growth or decline.
The growth of the U.S. economy is gradually slowing due to high interest rates, and as inflation in the U.S. remains elevated, FED officials indicate that rates may stay at elevated levels longer than expected. The Chinese economy, on the other hand, shows signs of recovery, but not convincingly enough to expect a significant strengthening of demand. Although the situation in the Middle East has not completely calmed down, analysts estimate that the risk of escalation of conflict has decreased, so events there are currently not significantly affecting oil prices. Additionally, OPEC+ members are expected to maintain their production cut policy in the second half of the year, after July 1, if demand does not strengthen.
European natural gas futures TTF continue to hover around the level of €30/MWh, which is an increase of 33 percent compared to the lowest level in February, as concerns grow about replenishing fuel stocks for the upcoming winter. Strong competition with Asia for LNG cargoes has burdened traders, and LNG shipments in April decreased due to more lucrative spot market prices for Asia.
Concerns remain regarding the flow of Russian gas through Ukraine as the key five-year agreement regulating the transit of Russian gas through neighboring countries expires at the end of 2024, affecting countries like the Netherlands. Moreover, the possibility of a colder-than-normal winter has further fueled concerns about Europe’s gas supply next winter. Despite these factors, price spikes are being restrained by adequate short-term supply, with European gas storage currently at a seasonal peak of 62.8 percent capacity.
High Demand for Copper
Generally, when oil prices fall, it should be a bearish signal for agricultural commodities. However, this is not currently the case. At a time when climate uncertainties remain high among major grain exporters, the USDA on Friday sparked current nervousness. In its first report for the 2024/2025 campaign, the USDA expects a decrease in wheat production in the EU by 2.15 million tons to 132 million tons, a decrease in Ukraine by two million tons to 21 million tons, and a decrease in Russia by 3.5 million tons to 88 million tons.
This would be compensated by Argentina, which would increase production by 1.1 million tons to 17 million tons, Australia with an increase of 3 million tons to 29 million tons, the U.S. with an increase of 1.2 million tons to 50.5 million tons, and Canada with an increase of 2 million tons to 34 million tons. World wheat production in the 2024/2025 season is expected to rise to 798.2 million tons (from 787.12 million tons in the 2023/2024 season), while consumption is expected to rise to 802.4 million tons (from 800.3 million tons last season). The result is a further decline in world wheat stocks to 253.6 million tons in the 2024/2025 season (from 257.8 million tons in the 2023/2024 season).
For corn, the USDA predicts a decline in world production to 1,219.9 million tons in the 2024/2025 season, compared to 1,228.1 million tons in 2023/2024. At the same time, global corn consumption is expected to rise to 1,220.75 million tons from 1,215.9 million tons in 2023/2024. As a result, a slight decline in world corn stocks to 312.3 million tons for 2024/2025 is expected, compared to 313.1 million tons for 2023/2024. Finally, for soybeans, the USDA predicts a sharp increase in world production in 2024/2025 to 422.3 million tons from 396.95 million tons in 2023/2024. Although a rise in world consumption to 401.7 million tons (from 383.5 million tons in 2023/2024) is also expected, the result is a large surplus, with world soybean stocks for 2024/2025 rising to a record level of 128.5 million tons.
Copper futures prices have risen above $4.7/lbs, the highest in two years, holding above the threshold of $10,000/ton as long-term high demand and limited supply have heightened concerns about shortages. The key role of copper in the global electrification transition, from charging electric vehicles to grid energy storage, has supported ambitious forecasts for the metal’s utility. This has been amplified by piling bets on copper’s use in artificial intelligence and automation infrastructure.
Meanwhile, the latest data showed that China imported more ore inputs despite a sharp increase in prices, supporting manufacturers’ demand. On the other hand, low material availability has reduced margins for smelters in China, responsible for more than half of global supply, resulting in a potential production cut of 10 percent this year. High costs associated with new mines have pushed major miners towards merger and acquisition activities instead of starting new projects, recently highlighted by BHP’s attempt to acquire Anglo American.
