Investors Continue Offloading Commodities // Long Nuclear & Short Wind // Impacts of El Nino

The Commodity Report #120

Lukas Kuemmerle

Sep 11, 2023

Investors Continue Offloading Commodities

Looking at the latest fund flow data we can see that investors continue offloading commodity stocks - here in the case of energy stocks.

At the same time, the monthly ETF-Flow evaluation of US-ETF-Flows showed that US Commodity ETFs saw outflows of $2,7 billion in August – meanwhile, commodity indices were climbing again, mainly because of a solid surge in the price of crude oil. Commodities remain clearly the asset class with the most outflows in 2023.

Long Nuclear & Short Wind

Perhaps one of the most profitable trades since 2020 would have been to bet on uranium stocks and at the same time sell renewable energy stocks.

A good example is this relative performance chart between Cameco (one of the world's largest uranium miners) and Orsted (by the way one of the world’s largest offshore wind developers).

Cocoa Rush Continues

Cocoa soared to a new 12-year high last week and is on the verge of its highest price in more than 4 decades. Analysts say the market remains underpinned by supply concerns, with a third consecutive global deficit expected in the 2023/24 season starting in October.

Currently, wet weather in top grower Ivory Coast could delay the main crop harvest. These rains on the other hand could be viewed as a positive in the long term, as the main crop could yield more. But first more sun and dry weather are needed to dry the beans.

Something that in our opinion also could be viewed as a tipping point for prices, once it happens.

China’s Commodity Imports

Ole Hansen shared last week some interesting data-packed charts about the import dynamics of China. Those are China’s commodity imports compared to last year’s amount. Much less corn - therefore much more veg oil, coal, crude oil and soybeans.

Grain Prices Will Decline?

Corn, wheat, soybean, and cotton prices could all decline again in 2024/25 if growing conditions allow yields to re-cover to trendline levels. This is the assessment of the updated FAPRI report.

The increase in the food CPI slows to 2.5% in 2024 and to less than 2% in 2025, the report says.

Moreover, the report finds that estimated per‐acre variable costs for many crops decline in 2023, but the result is sensitive to when producers made input purchase decisions. Given projected prices for fertilizer and other inputs, costs for corn and other crops decline further in 2024 and 2025.

Find the full report here.

The Impacts of El Nino

S&P Global shared this graphic last week making the comment that this year’s El Nino weather event isn’t affecting the global food supply. While this may be true for grain prices at large, we continue to see the effects of El Nino weather in India, impacting the sugar plants due to extensive drought as well as excessive drought conditions in Argentina, impacting the soybean crop.

So we say El Nino has already impacted the soybean as well as the sugar market by large during this year!

Moreover, an unusually dry August has taken a toll on cereal and oilseed crops in Asia as El Nino intensified, and forecasts for lower rainfall in September are further threatening to disrupt supplies.

While wheat output forecasts are being revised lower due to dry weather in Australia, the world's second-largest exporter, record-low monsoon rains are expected to reduce the volume of crops, including rice, in India, the world's biggest shipper of the grain, analysts forecast.

This week look out for the following:

Chinese M2 and New Loan data on Monday
WASDE Report on Tuesday
CPI data on Wednesday
PPI data and Retail Sales data on Thursday
Empire State Manufacturing Index and Prelim UoM Consumer Sentiment on Friday

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Till next Monday, Lukas

If you have any questions in the meantime, please feel free to contact me via Twitter or Mail.

Disclaimer: All information, views, and opinions provided herein are for informational purposes only and should not be construed or relied upon as investment advice, an offer to sell, or a solicitation for any form of investment. The information contained in this website is the most recent information available to us (except otherwise noted); however, all of the information herein is subject to change without notice. Certain information included in this website is based on data obtained from sources considered to be reliable; however, no representation is made with respect to the accuracy or completeness of such data. All opinions, estimates, and forward-looking statements, including any market forecasts or projections, involve a number of assumptions that may not prove to be valid. Past performance does not guarantee future results.