Commodity Watch for Last Week

From Prudent Bear.

"March 2 – Financial Times (Leslie Hook): “As oil prices spiral higher amid turmoil in Libya, developing countries across Asia are taking evasive action, shoring up their strategic petroleum reserves against the risk of a prolonged supply shock. Their actions could propel crude even higher. The Philippines… announced… that it would require oil companies in the country to maintain 15 days of reserves, and refineries to keep enough oil to last for 30 days. Manila’s move is the most visible sign yet of how Asian countries are seeking to improve their oil security… Analysts believe the political upheaval in the Middle East and north Africa is likely to encourage both China and India to accelerate their purchases of crude for strategic reserves… Unlike industrialised countries… China only recently began its strategic reserve programme, starting to fill reserves in 2006 and completing a 102m barrel build-out in ‘Phase One’ two years later. The second phase of the programme will build a further 168m barrels… by the beginning of next year. When China finishes filling its reserve, which it is expected to do by 2020, it will hold about 500m barrels, equal to roughly three months of imports… China’s strategic stockpiling ‘is likely to be a feature of the global oil market not only this year but this decade’, says Soozhana Choi, head of Asia commodities research at Deutsche Bank… India is some way behind China. The country is targeting a reserve of about 40m barrels, equal to little more than two weeks of imports… So far, it has only filled depots holding 9.8m barrels… ‘We are not willing to import too much at high prices. We want to buy when the price falls,’ says Wang Jun… at the Chinese government-linked think-tank CCIEE. But Mr Wang acknowledged… that China’s vulnerability to oil supply shocks was exacerbated by the lack of a complete strategic reserve: ‘Chinese dependence on imported oil for the purpose of ensuring normal economic and social functioning has become the speculation capital of international oil traders.’”

March 3 – Bloomberg (Stuart Wallace): “World steel prices rose 10% last month, according to MEPS (International) Ltd., a U.K.-based industry consultant…”

March 3 – Bloomberg (Wendy Pugh): “Cotton buyers have purchased more than 80% of the coming harvest from Australia, the fourth-largest shipper, stepping up the pace of advance sales as a shortage pushes prices to a record… The amount of so-called forward sales compared with usual levels of 50% to 60% at this time, Phill Ryan, a director of the Australian Cotton Shippers Association, said… ‘The U.S. is the biggest exporter in the world and they are sold out,’ Ryan said…”

March 4 – Bloomberg (Chris Prentice and Jae Hur): “Cotton futures surged to a record on signs that global demand from textile mills will continue to outpace supplies. Output in China, the world’s biggest consumer, fell 6.3% last year… U.S. sales surged 56% to 403,341 bales in the week ended Feb. 24 from a week earlier… Prices have more than doubled in the past year. ‘It’s a worldwide scramble,’ said John Flanagan, the president of Flanagan Trading… ‘The last holdouts realized there was no way out other than just buying, trying to find cotton to keep their mills running.’”

March 2 – Bloomberg (Debarati Roy and Isis Almeida): “A JPMorgan Chase & Co. unit took delivery of almost 1 million metric tons of raw sugar, the most for the commodity since 2009, to settle the expiring March futures contract in New York.”

March 2 – Bloomberg (Phoebe Sedgman): “Whole-milk powder prices surged to a record on sustained demand from China and concerns rising input and feed costs may curb supply, potentially boosting inflation. Powder gained 15% to $4,958 a metric ton from two weeks earlier…”

March 3 – Bloomberg (Chris Prentice): “Cocoa extended a rally to a 32-year high amid escalating violence in Ivory Coast, the world’s biggest producer. Sugar and coffee also gained in New York. Cocoa has surged more than 30% since a disputed election in late November left Ivory Coast with two rival presidents.” "

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"The CRB index jumped 3.3% (up 9.0% y-t-d). The Goldman Sachs Commodities Index surged 4.2% (up 13.9%). Spot Gold rose 1.4% to $1,431 (up 0.7%). Silver jumped 7.3% to $35.33 (up 14%). April Crude rose $6.54 to $104.42 (up 14%). April Gasoline gained 4.7% (up 25%), while April Natural Gas dropped 4.9% (down 14%). May Copper added 0.7% (up 1%). May Wheat rallied 2.6% (up 5%), and May Corn increased 0.8% (up 16%)."

This means China's hoarding to placate their masses to stave off the Jasmine Revolution spreading from the Middle East, and that the commodity situation isn't going to get any better until farmers successfully harvest good crops for the next couple of years (weather permitting), and political turmoil is resolved. You can see above that commodity prices for May are already up, and that's two months into the future!

We're also forecasted to have another La Nina year--bad for crops. Whatever you did to make it to this point, and whatever you did to make it through the last round of $4/gallon gas, do it again, only do it faster and harder, and plan on having to do it for the long haul. This is Thomas Friedman's world as it finishes flattening, and it's going to be the new normal until the weather at least cooperates, and we can begin to feed all these newly-formed former impoverished.

In the meantime, people are gonna die--don't let it be you. Take adequate precautions with food purchases, food storage, and begin to look for ways to take advantage of the downward-spiraling natural gas story. Our struggle has only begun, and 2008 was just a practice drill. The economic abyss is ahead of us--the last "V" on the WV-shaped recovery.