Disaster Averted - But Not Solved
Disaster Averted - But Not Solved
The Commodity Report #175
Disaster Averted - But Not Solved
The European Commission has proposed to delay the Deforestation free products regulation (EU DR) by 12 months. The law has been in place since May 2023, and was due to enter into effect on 30 December 2024.
EU DR requires that targeted commodities (cattle, cocoa, coffee, palm oil, rubber, soy, wood) and relevant products sold in the EU must not be produced on land that was deforested after 2020.
Importers must have collected precise data identifying the plots of land where the goods were grown. A traffic light system is being devised to assign a score for each country based on the perceived risk of deforestation there. Companies that fail to meet the rules could face fines of at least 4% of their annual turnover in the EU.
The EU was responsible for 16% of deforestation associated with international trade in 2017, surpassed only by China, at 24%, according to a 2021 report by the World Wide Fund for Nature.
Nevertheless, the new regulation has now been postponed by twelve months. An outright disaster was averted, but the problem is far from solved.
Coffee and Cocoa Show Weakness
Coffee and cocoa prices ended last week lower due to fundamental changes.
Concerns about weak chocolate demand are hammering cocoa prices after Jeffries warned that chocolate sales are "notably underperforming" other snacking categories due to elevated prices, prompting consumers to switch to cheaper snacks.
After poor crops in West Africa fueled huge bean shortages and turmoil across the market this year, focus has turned to how production will fare in the 2024-25 season that officially starts next week. Global output may exceed demand by about 90,000 tons, according to the average of 15 analyst and trader estimates compiled by Bloomberg, partly due to better harvests in top grower Ivory Coast.
Coffee prices ended the week also sharply lower after we saw evidence of slight rains in the major coffee-growing-regions. The badly needed rains come at the crucial time of coffee tree flowering - a time when the crops need moisture the most. After a dry September, sporadic rains have triggered flowering across the coffee belt. More rains are forecasted for the next two weeks.
In Other News…
Some mind-blowing stats about the size of the American cropland. If you want to see even more mind-blowing stats, you would need to make the same graph for Brazil’s cropland.
The U.S. devoted more than the entire area of Malaysia to growing corn in 2023. Meanwhile, America’s soybean crop could cover all of Finland.
This week, look out for the following:
CPI data on Thursday
PPI data on Friday
WASDE Report on Friday
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Till next Monday, Lukas
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