Commodity Markets: Orange Juice, Matif Wheat, and Silver Major Winners for the Month

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May was generally a positive or bullish month for commodity markets. During the month, Bloomberg’s commodity index rose by 1.3 percent. Looking at the commodities, orange juice, Matif wheat, and silver were major winners for the month. Looking ahead, the market will monitor weather forecasts across the northern hemisphere, particularly for the EU, the US, and the Black Sea, as well as the movement of physical commodity prices in major markets, strong summer seasonal trends, and the movement of the US dollar.‍‍‍‍‍‍

In short, we have just had a bearish week, a week in which prices of various commodities have generally fallen. This week will not lack reports that will partly take the market’s focus and may influence the direction of price movements. Thus, at the beginning of the week, we will see the first results of the corn and soybean conditions in the US, and on Thursday, we expect the ECB’s decision and a potential interest rate cut. Although the ECB is expected to lower interest rates, it will take some time for the eurozone economies to accelerate growth. The agri market will monitor the weather forecast in Russia, which is again leaning towards drought and higher temperatures. On the other hand, planting in the US is finishing positively, with sufficient moisture in the soil and maps suggesting cooler and drier weather until mid-June.

Loss of Trust

The Indian central bank has moved 100 tons of gold from London, from the deposits of the English central bank, to its own vaults. Such situations occur in history when trust in the system and among states begins to fade. And when trust is shaken, gold shines, which is why prices are where they are currently. Since June 2023, the price of gold in China has exceeded the international reference value in London. A battle for control of the global gold price is underway, but it is clear that Beijing is paying more for gold than the futures price, which has evidently been manipulated downwards for decades.

In the first quarter of 2024, Chinese demand for gold bars and coins increased by 68 percent year-on-year. A similar thing is expected for silver. India imported more silver in the first 4 months of 2024 than in the entire 2023. At the same time, UBS has updated its silver price outlook, predicting further growth due to strong industrial demand and a potential supply shortage in the market. According to their estimates, they predict that the metal will reach $34/oz by the end of September, $36/oz by the end of 2024, and maintain that level until the end of March 2025.

Oil prices have again fallen to last week’s levels, the second week in a row, while also recording the largest monthly drop (5.3 percent) this year as global demand is not as strong as traders hoped. However, the start of trading in the new week is even more interesting, marked by a significant drop in oil prices (greater than 3.5 percent). Thus, Brent oil has slipped below $80/bbl for the first time in 4 months, and WTI oil below $75/bbl. The main reason for this is the decision of OPEC+ members over the weekend to ease and increase daily oil production, or the plan they presented. Thus, OPEC+ members intend to gradually lift voluntary production cuts of 2.2 million barrels per day over the next year, starting in October.

It is expected that by December more than 500 thousand barrels per day will return to the market, with a total of 1.8 million barrels per day returning by June 2025. In the meantime, OPEC+ will maintain additional production cuts of 3.6 million barrels per day until the end of 2025. After OPEC+ relentlessly sought oil at $100/bbl, it seems that the cartel is throwing in the towel. It is evidently assessed that pumping more now can be beneficial, i.e., a short-term pain for long-term gain. First, OPEC+ is not facing a price collapse; this could be just a limited price drop. Second, somewhat lower prices could help in the long run: by easing global inflation and thus encouraging lower interest rates and higher economic growth in emerging economies, as well as eliminating the implicit subsidy that OPEC+ has given to its American rivals who produce oil from shale.

Gas Prices Rose 13 Percent

The futures prices of European natural gas TTF rose at one point on Monday by as much as 13 percent, to over €38/MWh (the highest level in the last six months), before stabilizing at around €36/MWh. This price jump was driven by a supply drop in Norway due to an unplanned outage at the Nyhamna gas processing plant. An incident on the Sleipner Riser platform on Sunday halted operations at the Nyhamna plant, and it is unclear how long this will last. Meanwhile, LNG imports into Europe have decreased in recent weeks due to higher demand in Asia, where a heatwave is increasing cooling consumption. This has led to increased competition for cargo between Europe and Asia.

The European Council has ratified a regulation introducing tariffs on imports from Russia and Belarus of grains (durum wheat: €148/t, common wheat: €95/t, corn: €94/t), oilseeds, and other products, including beet pulp (including molasses) and feed peas, to which a 50 percent ad valorization fee applies. The regulation will be published in the EU Official Journal and will come into effect on July 1, 2024.

On a weekly basis, the price of wheat fell by 2.7 percent, the price of corn fell by 3.96 percent, and soybeans by 3.45 percent. This is the time of year when agri traders are nervous about weather conditions for early summer production. Historically, corn and soybean prices tend to rise at the end of May. For example, soybean prices in the US have risen in 19 of the last 22 years in the two weeks at the end of May and the beginning of June. American traders are now convinced that corn and soybean planting is progressing well, which is affecting the prices of these 2 products. Wheat is falling, but partly due to profit-taking. Harvest pressure is also showing its face in the US. The wheat harvest has already begun in Texas and southern Oklahoma. The sun is shyly returning to France after a very gray and rainy week, which was unfavorable for crops. As a result of diseases that are progressing daily in grains punished by excessive moisture, the condition of soft wheat and winter barley is deteriorating again in France.

In Russia and Ukraine, rain forecasts that eased the wheat market last week are again giving way to drier and even warmer prospects for the next 2 weeks for most winter wheat. While activities on the international scene have been very calm so far, Algeria is returning to the market with a new tender.

Copper Fell from Record Levels

Futures prices of copper have fallen to $4.6/lbs from their record $5.2/lbs two weeks ago. Insufficient demand has short-term outpaced speculative bets that triggered the recent rise. An unexpected reduction in production activities, according to the official PMI for May, highlighted weak Chinese demand for industrial goods and increased concerns about oversupply as waste utilization increased production from refineries. This has increased stocks and led to a reduction in prices for delivery from customs warehouses compared to prices on the LME for the first time since data publication began in 2017, indicating low physical demand. Nevertheless, speculative bets on copper have kept prices 20 percent higher from the beginning of the year to date, based on its key role in electrification in energy storage networks and data center infrastructure, which corresponds to the hope that Chinese competition will succeed after Beijing introduced historic measures to support its economy. This coincides with high costs of adding new supply, forcing miners into mergers and acquisitions instead of developing new projects.