Commodity Corner

Views on commodities and energy

Beef off menus, on agenda in Argentina

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If there’s one thing that gets Argentines hot under the collar, it’s rising beef prices, so it’s not surprising that surging costs at the butcher shop are ringing alarm bells at the presidential palace.
    Local TV stations are reporting a collapse in sales and some angry steak lovers have even set up a Facebook group to promote a one-week beef-eating strike. Some cuts have gone up by as much as 50 percent since the start of the year, according to local media, forcing government officials to play down the hikes as a temporary blip and blame their old enemies — the farmers.
    Economy Minister Amado Boudou has blamed recent rains for the price rise, saying ranchers are keeping their animals out grazing on the lush Pampas pastures instead of sending them to market.
    President Cristina Fernandez, who enthusiastically promoted pork as an alternative to beef by comparing it to Viagra last month, also pointed a finger at the weather, but took a pop at ranchers too.
    “It’s true, beef’s gone up. It’s gone up a lot, as has the price the farmers are getting,” she said this week, drawing an angry response from farm leaders, who said short-sighted government policy and middlemen were the real villains.
    The government has curbed exports on-and-off for years to keep a lid on the cost of the nation’s favorite food and the current spike in prices has raised the specter of fresh disruption to shipments from the country, a leading exporter.
    But as beef becomes increasingly unaffordable, some Argentine shoppers might be taking the president’s pork recommendation a lot more seriously.

Why are commodities risky assets for investors?

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Recently I received an email asking me to explain why commodities are risky assets. ”I would think energy and raw
materials would still be in demand, even if Dubai defaults,” the writer said.

 It’s a good point. People need to eat, drink, drive and live. They can’t do it without commodities.

from Global Investing:

Investors break commodities link with equities

Investors smelling profits in commodities are using the sector as an early cycle play, alongside equities, because a lack of production capacity means higher prices sooner rather than later. 

Historically, prices of natural resources lag equities, which typically front run the economic cycle by between 18 to 24 months. The change is also partly due to the tumbling dollar, a major driver in recent weeks.

from MacroScope:

Will food prices rise?

The Becker-Posner Blog has an interesting debate posted on the question of  food shortages and their accompanying price rises. As usual, it is a to-and-fro between economist and Nobel laureate Gary Becker and his University of Chicago colleague Richard Posner, a U.S. appellate judge.

Becker reckons that some commodity prices will rise as the global economy recovers but that food is different.

Live from London Metal Exchange Week 2009

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Nickel The great and good of the global metals industry gather for London Metal Exchange week — the flagship event for the industry.

With most base metal prices running way ahead of fundamentals, real and apparent demand unclear and leading economies at different stages of recovery or not, its a key time to take the temperature of banks, producers, consumers and funds involved in metals.

from Global Investing:

Start building the bunker

They keep telling us that the recession is over so maybe now's the time to start worrying about inflation. That's the view many wealthy investors are already taking, reasoning that a little bit of the yellow shiny stuff will provide some comfort as we start piling our cash into wheelbarrows to do the weekly groceries shop.

It is gold exchange traded commodities (ETCs) that have seen the biggest investor inflows this year so perhaps it's not surprising that the gold price broke through $1,000 an ounce this week.

Locked out of car, cut finger breaks monotony on crop tour

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    It was a case of keys being accidentally locked in the car, a cut to the finger by a corn leaf and a chat about hail damage at a scouting stop on the Pro Farmer crop tour on Tuesday in Carlton, Nebraska.
    And thus, the monotony of scouting a seemingly-endless number of corn and soybean fields in the Midwest grain belt was broken, momentarily, by these incidents.
    At the stop in Carlton, a U.S. Agriculture Department official, in the car behind ours, accidentlly locked his keys in his rented Hyundai.
    Then, this reporter deeply sliced his finger on the leaf of a corn stalk.
    While the government man borrowed a phone from another scout to call the rental company and I dressed my wound with a wet napkin and a bandage, the farmer whose bean field we were scouting pulled up in his pickup.
    Then, Rich Mosier, a broker with brokerage and research company Allendale, Inc., passing through from his home in Davenport, Iowa, stopped for a chat.
    All of the sudden, it was a veritable meeting of the minds on the side of Highway 4.
    With a locksmith on his way, talk returned to farming.
    Scout Elwood Line, our driver and a farmer from northeast Illinois, asked if Carlton farmer John Lange was a ‘John Deere’ man, referring to the farm machinery maker Deere & Co.
    “Both — John Deere and International,” Lange said. “International combine and a John Deere head.”
    Mosier said the crops in this area, especially the dryland fields, were first hammered by hail and are now thirsty for rain.
    “The dryland has suffered the last three weeks. We haven’t had any big rains,” Mosier said.
    After about 45 minutes, the locksmith showed up to jimmy the door of the Sonata.
    Asked how he was doing, the locksmith replied, “Better than you, I guess.”
    Corn yield in the field we scouted  was projected at 193 bushels per acre, while the soybean count was 1,034 pods in a 3-by-3 foot area.

from From Reuters.com:

Mining gold in Russia’s remote Chukotka region

Chukotka, a region revived in the last eight years by the $2.5 billion investment of Chelsea soccer club owner Roman Abramovich, produced a fifth of Russia's gold in the first half of this year. Gold is the region's passport to growth after Abramovich quit as governor last July.

Only South Africa holds more gold than Russia, but Moscow's fragmented industry has struggled to access vast reserves in its inhospitable Far East. The region was first mined in the 1930s by prisoners of the Gulags set up by Soviet leader Josef Stalin.

from MacroScope:

Running out of resources

Oil prices are more than double the December-February troughs and commodity prices generally are going up as the market cheers signs of an economic recovery.

Jeremy Grantham, chairman of U.S.-based money monager GMO, warns that the world is running out of resources in the long run yet is not correctly pricing the fact.

Oil Market Contango Widening

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0709-contango-fig-11The spread between front-month oil futures and contracts for later delivery on the New York Mercantile Exchange (see Fig. 1) has widened dramatically this month. (See Fig. 2)0709-contango-fig-2The widening contango frequently portends a rise in inventories. For example, in Fig. 3, it can be seen that when the discount for fronth-month crude to second-month crude widened to near $4 a barrel earlier this year, inventories jumped to 19-year highs. The relationship between inventories and the outright futures price can be seen in Fig. 4. 0709-contango-fig-30709-contango-fig-41