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Commodities Corner: Lean Hogs Rally to Record High, Coffee Slips on Suez Canal Relief

April 3, 2021 at 20:13 by Andrew Moran

Spilling a Cup of Cocoa  

Cocoa futures ended the trading week below $2,400 per metric ton as demand concerns weighed on the agricultural commodity. Contracts are settling near their lowest levels since the beginning of November.  

Cocoa’s direction is being mostly driven by the resurgence of coronavirus infections across Europe, a major market for the crop. As COVID-19 cases skyrocket, many jurisdictions are instituting new lockdowns and measures that could affect consumption. The coronavirus vaccine rollout has also endured hiccups along the way, leading to speculation that other waves could intensify throughout the continent.  

That said, market analysts say the downward trend in cocoa could benefit consumers since it would lower input for a wide variety of companies that specialize in the crop, such as Hershey. Brands that consume other raw materials have been forced to raise prices, but Hershey may be exempt from the broader commodities supercycle.  

In the first quarter of 2021, cocoa prices have slumped close to 8%.  

  • Friday Settlement: -$3.00, or 0.13%, to $2,392.00 per metric ton  
  • Weekly Performance: -2.72%  
  • YTD Performance: -7.89%  

Is Coffee Brewing Up Near-Term Losses?  

Coffee prices took a nosedive this week on news that the Ever Given container ship that was stuck in the Suez Canal had been freed. After nearly a week, one of the world’s largest carriers had been let go. This had initially prompted worries over shortages of a broad array of commodities, from natural gas to oil to coffee. The concerns temporarily lifted prices.  

So, when the boat was freed, it mitigated shortage fears. Although industry observers are sounding the alarm over delays in shipments and deliveries, the initial expectations that the Japanese-owned, Panama-flagged ship would be paralyzed for weeks did not come to fruition. This sent coffee lower.  

In other industry news, data from the US ICE Futures exchange found that Arabica coffee sourced from Brazil became the primary source of supply backing global benchmark futures prices. Rio De Janeiro officially surpassed Honduras. According to the group, there were 871,604 bags of Brazilian coffee as of March 30, which is up from 650 bags in ICE warehouses in September. ICE facilities currently have 772,166 bags.  

Because the South American country is going through a biennial crop cycle and 2022 is an on-year, Brazil could produce excess coffee.  

Brazil has mostly benefited from the exchange modifying its rules in 2013 to permit semi-washed arabica beans to be certified against washed arabica contracts. Brazil has been able to offer large volumes of low-cost coffee for the mass market because of its mechanized harvesting. ICE warehouses still have quality controls in place, but coffee was never of a high enough quality.  

  • Friday Settlement: -$0.085, or 0.69%, to $1.216 per pound  
  • Weekly Performance: -4.36%  
  • YTD Performance: -4.48%  

Going Hog Wild  

Lean hog futures experienced a substantial drop on Wednesday because of the US Department of Agriculture’s (USDA) Prospective Plantings report that sent prices soaring for livestock feed, such as soybean and corn, which witnessed a limit-up. But lean hog prices quickly recovered following the report and notched an all-time high.  

In a separate report, the USDA confirmed that export sales of US pork surged 61,000 tons in the week ending March 25. China accounted for close to half of the booked total (29,700 tons), receiving 11,900 in shipments. Domestic demand for pork has also been strong ahead of the summertime grilling season.  

Dan Norcini, an independent livestock trader, told Reuters:  

Pork demand continues to be good. The packers seem to be having trouble getting numbers. They are having to compete for hogs and put higher cash on the board, and it’s keeping those front months elevated.  

Traders are looking at the return of the restaurant business and consumers that are flush with cash from stimulus checks. They are expecting good, strong, red meat demand as we get into the spring and summer grilling season.  

In other data, hog slaughter rose 2.5% to 494,000 head, but it is down 1% from the same time a year ago. The USDA noted that frozen pork belly inventories jumped 49% year-over-year to 37.974 million pounds.  

  • Friday Settlement: +$0.00825, or 0.78%, to $1.06125 per pound  
  • Weekly Performance: +2.93%  
  • YTD Performance: +50.85%  

Platinum Shines Among the Metals  

There was not much news in the platinum market this week, so why did it enjoy a 2% rally? In fact, why was it the only metal – industrial or precious – to post a weekly gain? The running of the bulls.  

According to the Public Investment Corp., Africa’s biggest money manager, is forecasting that platinum should sustain this rally “for some time,” pointing to the “solid” supply and demand fundamentals. The group’s conviction on the industrial metal is so strong that it investment $7.4 billion in miners, like Sibanye Stillwater Ltd., Anglo American Platinum Ltd., and Impala Platinum Holdings Ltd.  

Mdu Bhulose, the PIC’s portfolio manager for mining and resources, told Bloomberg:  

The cycle should continue for some time. The supply and demand dynamics are quite solid and they are talking to a tightening market which should be supportive of prices.  

We still see reason to retain exposure to the sector. However, a prudent move would be for investors to reduce some overweight positioning. As much as we can see tightening in the supply-demand dynamics, you also don’t want people to needlessly spend money or take their eye off the ball.  

At the same time, the substantial boost in new mining projects to take advantage of higher prices, buoyed by electric-vehicle demand, could impact long-term investments.  

  • Friday Settlement: +$22.60, or 1.9%, to $1,214.10 per ounce  
  • Weekly Performance: +1.93%  
  • YTD Performance: +12.47%  

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