August 2, 2017 – Weekly Commodity: Good week for commodities but bulls seem to run a little too fast
Last week was overall very good for commodities supported with both weak dollar and fundamentals as the Bloomberg commodity index rose1.8%. However there are emerging speculations that the bull had run a littlebit too fast and some correction could be ahead, which was supported with the price action in the beginning of this week in most of the US traded commodity futures
The sharp drop in oil inventories reported Tuesday by API and confirmed by EIA next day were the main mover behind the rally last week. On Thursday API also added data about rising demand in July to the highest level this year pace since. Additionally the announced Russia – Saudi oil meeting regarding deteriorating OPEC compliance with output cut agreement helped also the bulls. After the US announced possible sanctions on Venezuela the WTI touched $50 and managed to close above this important level on Monday however yesterday it gave up these levels with a strong reversal technical pattern after last API crude oil stocks increased by 1.78mil barrels.
In Brazil the corn prices paid to farmers in the central regions are at record low and the government announced export subsidies that will make harder for corn futures in Chicago to recover. From EU corn import forecast are at record high when last week upgraded by 3mil tonnes to 15.3mil tonnes and there is also a robust demand from swine and cattle industries. EU “usable” Corn production estimates were cut by 3.6mil tonnes due to heatwaves in Europe.
Colder weather is expected along the Corn Belt the next 10 days that can limit dryness and heatwaves, and this is a price-negative news. In the Crop Progress report the percentage of corn in excellent and good conditions declined just 1% so USDA doesn’t see any huge damage to the crop so far. Overall grain positioning of hedge funds is supporting concerns that further gains are limited (net long in corn is almost 105k lots… but still far from record lvls)
There are rumours that only one month supply was left in India and that the government is considering another tranche of tariff free export to ease the shortage. While an increased demand is expected from India the next couple of months, the normal monsoon rains support sugar cane growers.
The Brazilian government cut biofuel tax which makes biofuels more competitive. Therefore demand for ethanol is expected to be higher ethanol which push higher sugar prices to as ethanol parity is will be rising. Current calculations shows ethanol parity above 14 cents in sugar price terms and it’s expected to rise until the year end.
Good Luck and remember to watch your risk and be consistent
Mr. Tech Man
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