Commodities continued to feel the impact of weather and supply impacts. Managed money demand for soft commodities extended to a third week with the tight supply outlook supporting a rally in coffee prices this week of over 8%. Raw sugar futures in the US continued to rise to over ten-year highs accelerating after breaking through the high from late February spurred on by a number of factors. Crude oil consolidated it’s rally, WTI rose 2.3%. Gold pulled back, but closed over $2000 with higher yields lifting the USD Friday. The Bloomberg commodity index rallied 1.5% (down 4.4% y-t-d).

Week Ending April 14, 2023

Commodities

“High interest rates, volatile prices and the war in Ukraine have made it significantly more expensive to finance commodity trade, forcing the industry to hunt for an extra $300bn to $500bn in working capital to keep raw materials moving around the world. Changing trade patterns have made the global flow of raw materials less efficient and more costly to finance and are also likely to push up the price of commodities for consumers, according to… McKinsey. ‘Since the end of 2020, we have seen a doubling of the working capital requirements in the commodity trading sector,’ said Roland Rechtsteiner, McKinsey partner and lead author of the report. ‘We could see a similar increase by the end of next year, if [further] changes in trade flows materialize.’”

January 29 – Financial Times (Leslie Hook)

Weekly Commodity Highlights

• Bloomberg Commodities Index gained 1.5% (down 4.4% y-t-d).
• Spot Gold slipped 0.2% to $2,004 (up 9.9%).
• Silver gained 1.5% to $25.35 (up 5.8%).
• WTI crude increased $1.82, or 2.3%, to $82.50 (up 3%).
• Gasoline added 0.8% (up 15%),
• Natural Gas rallied 5.1% to $2.11 (down 53%).
• Copper recovered 2.3% (up 8%).
• Wheat jumped 2.5% (down 13%),
• Corn declined 1.2% (down 6%).
• Bitcoin jumped $2,580, or 9.2%, this week to $30,480 (up 84%).

COT on Commodities

Money managers in commodities covering the week to April 11: 2% in total net long to a 7-wk high. Buying concentrated in WTI, gasoline, natural gas, coffee and cattle with some profit taking emerging in gold, platinum & soybeans while the wheat short hit a fresh 5-yr high via Ole S Hansen @Ole_S_Hansen

Metals

COT on metals in week to April 11: The COT on gold saw the sideways action in week to April 11 trigger some profit taking with 7.4k lots sold after 121k lots got bought in the previous four. Silver and especially platinum were sold while the #copper long increased by 45% to 6k lots, down 9k YTD despite trading up 8% via Ole S Hansen @Ole_S_Hansen

Copper

Highlights

• Copper prices continue to coil to a 6-week high of $4.12 per pound.
• Softer Chinese copper imports were ignored by traders with record Chinese first quarter iron ore imports and a 22% jump in Chinese oil imports as the true measures of the status of the Chinese economy.
• Strong credit growth in China underscored the country’s authorities’ intentions to stimulate infrastructure construction.
• Copper is entering the strongest Chinese demand season of the year. Outside that pressure from fear of a financial crisis which could trip up the global economy.
• Another sign of improving demand for copper came from a Bloomberg story indicating that operating rates at copper rod production facilities rose by 12.5% over the prior month.
• London Metal Exchange showed inventories fell to 56,000 tonnes, the smallest amount since 2005.
• The Shanghai Futures Exchange, which lost over one-third since their peak in February.
• Top producer Chile magnifying low supply from Peru due to political turmoil.
• Chile’s state-owned Codelco said the output in 2023 is estimated to sink as much as 7% after the 10.6% decline in 2022.
• The copper trade is concerned the US will implement fresh sanctions against China and tensions between the US and China could drift toward trade war status.
• Demand favors the bull camp and supply factors favor the bear camp.
• “A copper deficit is set to inundate global markets throughout 2023 — and one analyst predicts the shortfall could potentially extend throughout the rest of the decade. The world is currently facing a global copper shortage, fueled by increasingly challenging supply streams in South America and higher demand pressures. Copper is a leading pulse check for economic health due to its incorporation in various uses such as electrical equipment and industrial machinery. A copper squeeze could be an indicator that global inflationary pressures will worsen…” February 6 – CNBC (Lee Ying Shan)
• “Widespread anti-government protests are disrupting copper output in Peru, the world’s second-biggest producer, triggering predictions of a further surge in prices for the metal which has already rocketed in recent months as China’s resource-hungry economy reopens. Demonstrators demanding early elections and the resignation of President Dina Boluarte have thrown up roadblocks across the country and attacked mines, causing production slowdowns and closures in the Latin American nation’s copper operations, which account for about 10% of global supply.” February 7 – Financial Times (Joe Parkin Daniels and Harry Dempsey)

• Commodity trader Trafigura and Goldman Sachs last year both warned that global copper stocks have fallen to record lows with current inventories enough to supply world consumption for just 4.9 days
• Analysts at Goldman Sachs Group Inc. predict copper will hit a record high of $11,000 a ton within 12 months, while BNP Paribas says prices will drop to $6,465 a ton by the middle of next year as the market swings into a huge surplus.
• Glencore estimates a supply shortfall of 50 million tonnes in 2023.

Technical

Copper followed through with its break to the upside out of the pennant through the 50wma after it rebounded sharply off the tenkan and failed three times there in the past month. A bullish weekly hammer formed on copper prices, suggesting demand above $4.00. Rebounding from the two-week low of $3.98 touched on April 4th. The flattening Weekly Kijun acted as a magnet with the cloud twist. We closed right at the bottom of the previous bull flag from 2021. Copper had been a leader in the risk on movement for commodities.

Precious Metals

• Spot Gold rose 2.0% to $2,008 (up 10.1%).
• Silver jumped 3.6% to $24.98 (up 4.3%).

Gold

Highlights

• Spot gold prices fell $36.84 or -1.81% to $2003.43 Friday. For the week, gold prices fell $-3.62 or -0.18%
• Gold futures fell sharply reacting to higher yields and a stronger dollar Friday.
• Gold consolidating its rally over $2000 which started back in the first half of March, and from a technical viewpoint this puts it in a bullish posture. The banking crisis has eased, but it has not gone away entirely, and the pressure to raise rates seems to be softening, despite concerns expressed by Fed members that inflation is still too strong.
• “Gold prices hit their highest level of the year on Thursday, driven by bets that inflation will remain sticky despite recent declines. The most actively traded gold-futures contract rose to $2,055.30 a troy ounce, up 13% year to date. That also put it within striking distance of its record high, reached in the summer of 2020. Some investors value gold as a hedge against inflation, expecting the precious metal to hold up in value if other assets fall.” April 13 – Wall Street Journal (Hardika Singh
• Gold caught the bid with safe haven flows.
• China PMI suggests growth in the Chinese economy that should provide a boost to consumption of gold jewelry, among other things.
• The bull case in gold fundamental headwinds of rising rates, periodic fears of global slowing.
• Goldman earlier in March labeled gold as “the” investment hedge of preference and predicting gold to trade to $2050.
• Gold and silver will continue to see money flows from residual global bank contagion fears but a significant slide in implied US treasury yields this week adds a secondary supportive force for the bull camp.
• Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa.

“Traders quip that one of the few things to rally during bear periods is volatility. Add gold to the list. Its price has leapt about 7% so far in March to one-year highs of just under $2,000 per ounce. With investors dumping stocks and corporate bonds, money has flowed into both government bonds and gold. Interest in the yellow metal seems odd, given that price inflation in the US and elsewhere may well have peaked. And gold offers no income to investors… So what explains the renewal of interest? Well, gold does offer a safe haven, particularly for retail investors worried that their money may not be safe in a bank.””

March 24 – Financial Times

Technical

Gold futures successfully back tested the median after another rejection at the Tenkan (orange) moved towards the flat cloud and twist. Needs to get impulse off this ABC so double bottom gains more weight and it follows silver break higher. The yellow metal is consolidating after it accelerated after breaking the weekly triangle higher. Gold has bounced after support at its uptrend line since the August 2021 bottom and Kijun. To be bullish we need to stay above the triangle. Murrey Math resistance, watch Fibs & Chikou.

PBOC Buying Gold

• China boosted its gold reserves for a fifth straight month, extending efforts by the world’s central banks to boost their holdings of the precious metal.
• The People’s Bank of China raised its holdings by about 18 tons in March. Total stockpiles now sit at about 2,068 tons, after growing by about 102 tons in the four months before March. Nations have been building up stockpiles of bullion amid heightened geopolitical risks and high inflation. – Bloomberg April 7
• PBOC in December added to its gold reserves for a second straight month, adding 30 tonnes of gold worth. Brings China’s holdings to a total of 2,010 tons.
• PBOC in November added 32 tonnes of gold worth around $1.8 billion to its reserves, the first time it has disclosed an increase since September 2019.
• China has the world’s sixth-largest official national gold reserves after countries including Russia, Germany and the United States, which is the biggest with 8,133.5 tonnes
• The World Gold Council (WGC) said in October that central banks globally bought 399 tonnes of gold in the third quarter of 2022, by far the most ever in a single three-month period.

Silver

Highlights

• Spot silver fell $-0.50 or -1.94% to $25.31 Friday. For the week the price still rose by $0.36 or 1.43%
• The price of silver fell sharply Friday reacting to higher yields and stronger dollar
• Silver upside action over the past two weeks has been very orderly and potentially indicative of continued stepwise gains ahead.
• Silver is mostly missing out on flight to quality buying interest with Gold and the Swiss France dominating.
• Signs of low supply had supported prices, as New York’s COMEX inventories fell 70% in the last 18 months to just over 1 million tonnes. London Bullion Market Association stockpiles fell for the 10th straight month to a record-low 27.1 thousand tonnes in November.

Technical

Silver bounced off the bottom trend line and was energizes in the sphere of influence. Back over 50wma after spitting tenkan, now providing support after reversed. Closing under outer channel which is now resistance. Major support is 50wma and tenkan.

Industrial Metals

The London Metal Exchange at the end of 2022 showed the smallest available warehouse stockpiles in at least 25 years. Available inventories of aluminum fell 72% decline, zinc shrank by 90%.

“After a substantial stretch when battery makers were desperate for mineral supplies, the shoe is suddenly on the other foot. In the past few months, previously red hot cobalt and lithium prices have cooled dramatically. The chill is coming from both sides: supply and demand. Supply bottlenecks are easing while China’s demand for electric vehicles, and global demand for many consumer electronics, have ebbed as well. Cobalt has fallen out of favor the most: prices in February were down 61% from January last year… Lithium carbonate prices rose rapidly for most of last year, but the metal has seen a sharp correction of 21% since November. China’s EV subsidy cut in December is a big factor…”

February 28 – Wall Street Journal (Megha Mandavia)

Aluminum

Highlights

• Aluminum futures were trading under 2,400 USD/T, easing from a seven-month peak of 2,660 USD/T touched on January 25th, as fears of a global economic slowdown and rising output from China prompted investors to unwind some long positions.
• China’s annual aluminum production in 2022 increased by 4.5% from a year earlier to a record high of 40.21 million tonnes thanks to newly launched capacity and softened power supply constraints. 
• China has been taking significant steps to boost its economy and end the strict coronavirus-induced regime, lifting the outlook for metal demand and overshadowing global recession concerns.
• On the supply side, last year’s output cuts at key European smelters, including Alcoa’s San Ciprian smelter and Hydro’s plant in Slovakia, lent further optimism to bulls.
• Global inventories now stand at just 1.4 million tons, down 900,000 tons from a year ago and the lowest since 2002.
• Aluminum hit an all-time high of around 4,100 USD/T in March 2022 in the aftermath of Russia’s invasion of Ukraine. Aluminum is down roughly 40% from that record high in March amid persistent fears of a demand-sapping global recession triggered by an aggressive tightening campaign from major central banks.
• Alcoa reported Q4 earnings of a second consecutive quarterly loss as expected and missed on revenue. The company has been squeezed by higher energy and raw material costs and restructuring charges putting pressure on margins.
• $AA projects 2023 total alumina shipments of 12.7-12.9 million metric tons and aluminum shipments between 2.5-2.6 million metric tons. $AA traded down 5.5% after the release.

• In 2022 Aluminum and zinc on the LME had their worst year since 2018, with prices down 15% and 16%, respectively.
• Tin was the worst performer, falling by more than a third and registered the biggest annual decline since at least 1990.
• The world’s top aluminium producer, China’s primary aluminium production in November climbed 9.4% from a year earlier with 3.41 million tonnes as looser power restrictions allowed some regions to ramp up output and as new smelters started operation.
• China is the biggest producer, accounting for 60% of production, followed by Russia and then Europe and the U.S.
• On the supply side, LME has decided against banning Russian metal from trading and storing in its warehouses because many traders are still planning to buy the metal in 2023.
• The car industry is the world’s largest aluminum consumer, with nearly 67 million vehicles per year, according to SkyQuest.

Technical (Alcoa)

We analyze Alcoa as a surrogate to Aluminum given its high beta relationship and more liquid aspect as an investment vehicle. $AA retested the 50Wma and 50% confluence after earnings. From there the Chikou rebalanced it closed under the tenkan. We have support below at 2/8 sphere of influence under the tenkan confluence.

Agricultural Commodities

Managed money demand for soft commodities extended to a third week with a tight supply outlook supporting a 7.3% rally in sugar (+2% to 220k lots) and 8.3% in #coffee (+125% to 21.8k lots). Short covering reduced the cotton short by 14% to 14.8k lots.

Lumber

Lumber prices were a leading indicator of the supply-chain problems and inflation that followed pandemic lockdowns. They are a leading indicator for the strength of the home building industry.

The CME is attempting the replace the random length with the physical futures, but they have yet to achieve the critical mass necessary for success.

The existing legacy contract is freight on board (FOB) originating in Prince George, BC. It’s a reflection of the mill price of western spruce pine fir lumber, which legacy 110,000 board feet futures contract is derived from. The new mini lumber is FOB Chicago, so the premium of $105 represents the additional from delivering to the mill in Chicago. That’s the reason the premium in the mini. Secondly, the new contract has the ability for producers to deliver western SPF, eastern SPF, domestic and Canadian Doug Fir, and U.S. Hem Fir. Depending on the species and delivering mill, the FOB is anywhere from $80 to $105 premium to the legacy contract delivered to Chicago. Lastly, the new contract is sunset out of existence with the official and permanent expiration on May 15, 2023.

Greg Kuta, the President of Westline Capital Strategies,

Highlights

• Chicago lumber futures moved sharply lower after spitting the weekly Kijun. For now, they are trying to bottom above the $400 per thousand feet mark as persistent fears of a demand-sapping global recession prompted some profit-taking after a massive rally drove prices to an over three-month high in early February. 
• Prospects of interest rate hikes continued to depress real estate activity. Stubbornly high inflation and a tight labor market have raised worries that the Federal Reserve will keep rates elevated even after the recent turmoil in the banking sector.
• Fundamentals in the lumber complex had supported tight supplies and prospects of a rebound in-home construction and demand recovery.
• The benchmark remains down roughly 70% since its May 2021 peak of around $1,700, when supply chain issues compounded strong demand.
• Worth noting that before 2018, the price never eclipsed $493.50.
• In January 2023, nearby March random-length lumber futures were sitting at the $417.70 level, with the new physical futures at $525.00.
• In March 2020, random-length lumber futures fell to $251.50 per 1,000 board feet as the global pandemic gripped markets across all asset classes. When commodities exploded higher over the following months lumber rose to $1,711.20 as supply chain and other issues created a shortage. In an almost perfect bullish storm for the lumber market, historically low interest rates caused a housing boom, increasing the demand for lumber when supplies were low. 
• The Federal Reserve’s aggressive tightening cycle has briefly pushed 30-year mortgage rates to levels not seen since 2001, leading to slower home construction and souring sentiment among homebuilders.
• The war in Ukraine and the tightening sanctions against Russia and its ally Belarus, which account for more than 10% of the global export of lumber, had squeezed global supplies.

Grains

For the first quarter of the year, CBOT wheat fell 12.8%, with corn down 2.9% and soybeans down 1.4%.

Wheat

Highlights

• Wheat prices surged in all 3 classed led by KC wheat up $.30 – $.33, MGEX up $.20 – $.25, while Chicago was $.14 – $.16 higher Friday. All 3 classes managed to scratch out higher closes for the week.
• The on-going drought in the Southern plains and elevated risk the BSGI will expire in just over a month seems to be stimulating the short covering surge.
• US crop ratings expected to continue their decline on Monday elevating abandonment levels.
• KC May-23 premium over Chicago surged back $.18 today to $1.96 ¼, within a nickel of its all-time high established earlier this week at $2.01.
• Friday’s surge in May-23 MGEX was capped by 50 day MA resistance at $8.77 ¼.
• No precise breakdown on Thursday’s Algerian purchase of 400k – 450k tons of durum wheat from Canada and Mexico.
• Last week Egypt’s GASC bought 600k mt of Russian wheat in today’s tender.  Half the volume for May 10^th – 20^th shipment, half for May 21^st – 31^st. The average price for all 600k tons was $293.40/mt CF.  US export sales disappointing at only 7 mil. bu.  YTD commitments are down 5% from YA, vs. USDA forecast of down 3%. 
• USDA estimated US 2023 all wheat acres near 49.85 vs 48.85 expected and 49.5 Forum and 45.73 ly
• USDA estimated US March 1 wheat stocks near 946 mil bu vs 934 expected and 1,029 ly
• The all wheat acreage figure of 49.86 mil. was 1.17 mil. above the average trade est. and at the upper end of the range of estimates.
• The winter wheat acreage est. was revised up by 1.2 mil. from Jan-23 to 37.5 mil., 4.2 mil. above YA and the highest since 2015.
• The level of abandonment will be likely be significantly above the historical average without soaking rain soon in the US Southern plains.
• Spring wheat acres 10.57 mil. were 325k below expectations and the lowest in over a decade.

Technical

Wheat resistance is now the tenkan and the 50 and 61.8% Fibs. It had been drawn higher by the flat weekly cloud which unraveled the shorts which when done we sailed back through 0/8 like butter. The contract keeps failing to stabilize after it continued its sharp impulsive collapse. This came about after a failure at retesting the 8/8 move and high after it spat 8/8, and the minimum target. It had completed a measured 4/8 correction off highs then broke key support at 38% then 50% and 50wma confluence in the freefall.

Corn

Highlights

• Corn prices finished $.06 – $.14 higher Friday led by strength in the spot market as prices surged into new highs on the close.
• The summerlike conditions across the Midwest will end this weekend as temperatures cool to below normal readings. Rainfall over the next 7 days favors the NC Midwest. Little to no relief for the drought ravaged Southern plains.
• Prolonged planting delays are not expected across the southern Midwest. Temperatures will quickly warm by early to middle of next week back to above normal readings with the exception of the far north.
• The USDA announced the sale of 382k tons (15 mil. bu.) of corn to China. 10 mil. bu. were old crop, with 5 mil. for 2023/24 MY. This brings the 2 day total to just over 700k tons.
• It appears China isn’t taking any chances on the Black Sea Grain deal being extended beyond mid-May as they are estimated to have roughly 1 mmt of corn purchases on the books from Ukraine.
• The BAGE kept their Argentine corn production forecast unchanged at 36 mmt. Harvest is reported at 13% complete. I look for US planting progress to reach 10 – 12% in Monday’s crop progress report which would be the highest since 2016.
• USDA estimated US March 1 corn stocks near 7,401 mil bu vs 7,470 expected and 7,758 ly
• USDA estimated US 2023 corn acres near 91.99 Vs 90.88 expected and 91.0 Forum and 88.58 ly
• USDA pegged quarterly corn stocks at 7.401 billion bushels, the smallest for March 1 in nine years. Looking ahead to this spring, the USDA projected 2023 corn plantings at 92 million acres, up 4% from 2022.

Technical

Corn May-23 closed back above the 100 day MA, while coming within $.00 ½ of the April high of $6.68 ½. However again it remains under the Kijun after the 7/8 fail to close under the weekly cloud and under the 50wma. Earlier in the year Corn had topped out at the highest since 2012 in Chicago at +1/8 and corrected with impulse back to break the Tenkan which it swiftly did a spit of a spit after bouncing off 720, which also the price successfully retested the high from April 2021. From here we saw Tenkan fail again. Which is back where we are. Corn May-23 violating support at $6.45. Next support is at $6.37.

Soybeans

Highlights

• The soybean complex lower across the board Friday. Spot soybeans slightly lower while new crop futures were $.10 – $.11 lower. Soybean meal was off $3 – $4, while oil was down roughly 5 points.
• Argentine farmers sold 312k mt of soybeans in the first 2 days of the latest currency incentive program, roughly half of what was priced in the Dec-23 program. The BAGE kept their Argentine production forecast at 25 mmt, however cautioned if may decline further as a higher percentage of fields are likely to be abandoned. Harvest is only 4% complete.
• Wire services are reporting 30k mt of soybeans will be leaving a Brazilian port in late April destined for North Carolina. This was a deal completed weeks ago.
• US soybeans remain at roughly $90/mt premium to Brazil.
• In an effort to reduce their reliance on huge soybean imports China has proposed a 3-year plan to cut soybean meal feed rations to 13% from 14.5% YA.
• Brazilian Pres. Lula met with Chinese leader Xi in Beijing today. In a joint statement the 2 countries acknowledge that cooperation in agricultural trade is strategically significant. Both sides pledged to promote agriculture, trade, and supply chain resiliency while also working to strengthen environmental protections to deal with climate change.
• NOPA crush on Monday expected to show 183.4 mil. bu. of soybeans processed in March, up from 165.4 mil. in Feb-23 and 182.5 mil. in Mch-22.
• USDA estimated US March 1 soybean stocks near 1,685 mil bu vs 1,742 expected and 1,932 ly
• USDA estimated US 2023 soybean acres near 87.50 vs 88.42 expected and 87.5 Forum and 87.45 ly
• The government projected 2023 plantings of the oilseed at 87.5 million acres, up only slightly from 2022 and near the low end of estimates in a Reuters poll of analysts. The USDA also reported March 1 soy stocks at 1.685 billion bushels, down 13% from a year ago.

Technical

Soybeans after it rejected new lows at the bottom of trendline finally got the legs to break above the 50wma. The 50 wma and the tenkan are above the Kijun providing heavy support in the cloud. We sit above the January breakup. May-23 soybeans violated 100-day MA support at $14.95 however a late day recovering enabled it to close just above the $15 level. The weekly cloud and Murray mingle around the $14.9/bushel benchmark. May-23 soybeans broke thru the $15 level while also violating support at its 50 MA and settling right at its 100 MA at $14.92 ½. Next support is $14.77 ½.

Recall beans broke down from the bull pennant framed by +4/8 and +1/8 with the Kijun unable to sustain support right at the breakout. Support at the 50wma gave way to under the futures pivot at $15/bushel benchmarks and at the close of the week was a magnet to the recovery bounce. Pressure came from futures spitting the Weekly +4/8 over $17.50/bushel three times. The market needs to rebalance that energy.

Energy

For complete Oil and Natural Gas Coverage please visit our dedicated publications ‘Around the Barrel’ and ‘Into the Vortex.’ – Weekly Analysis and Outlook for Energy Traders and Investors

BDI Freight Index

For a Complete Macro and Micro Market Overview Visit TC Traders Market Weekly:

Five Factors in a Constructive Strategy for Investing in Commodities

Investing in commodities is something that needs to be done within a constructive strategy to understands risks and opportunity. There are many factors to consider individually depending on one’s access, location and financial position. Five factors to consider are monitoring the market, monitoring supply and demand dynamics, diversification, long-term focus and dollar cost averaging.

Focus on yourself and what YOU CAN INFLUENCE, set your trading plan and goals in be set for 2023.

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