11/01/2012 | 
Auteur 
KEY FACTS:
1. China is the biggest consumer and Producer for cotton. They drive the market.
Top Producers : China, India, USA, Pakistan à 75 % of the production
Top Consumers : China, India, USA, Pakistan, Russia, Brazil à 90% of global consumption
2. The global textil market of wich 43,5% is apparel, 33% interior and home textiles, and 23.5% for industrial and technical textiles
3. Futures market normally shows a normal curve and not an inverted one.
4. Cotton industry is one of the most polluting industry on the planet.
5. Future contracts are traded in the NYMEX (New York Mercantil Exchange) with the désignation Cotton N°2
6. Future contracts are traded (per cents per pounds). And the size for one contract is 10 metric tons.
7. Cotton supply is affected by meteorological conditions. The weather affect the crops and obviously the supply and demand.
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- China is the biggest Iron Ore consumer. They are driving the global market
- 98% of the global Iron Ore production is used to produce steel
- Rio Tinto, Vale Group and BHP Billiton are the big 3 mining companies of the market
- There are 2 main categories of Iron Ore, the high grade and the low grad. High grade generally contain more than 60% of iron and the low grade that contain between 25% and 30% of iron
- One of the major benchmark of the market is the Iron Ore fines 62% Fe. China use it for its importations
- Iron Ore contracts are generally per lot of 1000 dry metric tones
- Derivatives markets are relatively new for Iron Ore and are tiny compare to the physical market. They are not widely used at present
Wheat price recap 2011
The graph below shows the wheat price fluctuations for the last week of 2011.
During the last week of the year (52), wheat price increased due to slowing supply coupled with new orders from different countries.
This second one shows the price fluctuations for the whole year 2011.
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- The surging food prices in January are made by buyers from North Africa and the Middle East like Turkey, Jordan and Algeria. These coutries purchased United States crops in large quantity at the same time.
- As the world’s fifth-largest wheat exporter, Ukraine announced positive news about its crops during the winter and the production in the Black Sea escapes from any winter damage.
- 60 percent of the crop has been damaged and lost because of fungi in dry region from Morocco to northern India. Globally, wheat farmers have reallocated their production because of a growing demand for ethanol
- The United States Department of Agriculture released that this year’s flooding have disrupted wheat plantings. It was the opposite situation in Western Europe with hard drought which had cut wheat quality and output.
- The Canadian Wheat Board, which had the monopoly on wheat prices, was losing its power after 70 years of being the only seller of wheat in this country.
- The increasing supply and inventory levels, particularly in the United States, reduced wheat prices.
Wheat forward curve
The graph below shows the wheat futures curve for 2012 and 2013.
Prices of futures contract have been rising sharply and after slight backwardation between May and July 2013, the shape return to contango until December 2013.
2011 was a year with several records in volume of supply and inventory. Therefore prices of futures contracts went lower and lower. However, 2012 should face a new increasing demand from emerging countries.
Forecast
As mentioned in our previous newsletter, we believe that the wheat price hit the floor and therefore we expect the price to increase during the next months.
Sources
Wheat historical price, weekly and annual charts 2011, published on 30th December 2011. http://markets.ft.com/research/Markets/Commodities
Wheat futures prices, published on 30th December 2011.
http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/wheat.html
“U.S. Wheat Exports Grow as Prices Rise”, published on 24th January 2011. http://online.wsj.com/article/SB10001424052748703398504576100144223351836.html
“Wheat Declines As Ukraine’s Winter Grains Escape Cold Damage”, published on 8th February 2011.
“Syria: Fighting the Fungi That Threaten Wheat”, published on 18th April 2011.
http://www.nytimes.com/2011/04/19/health/19global.html?_r=1
“U.S. Springs Wheat”, published on 18th August 2011.
http://online.wsj.com/article/SB10001424053111903596904576514761389155224.html
“Wheat’s Rise Bites Bakers”, published on 31st May 2011.
http://online.wsj.com/article/SB10001424052702303654804576349603782854860.html
“Canada Is Taking Aim at Its Wheat Monopoly”, published on 9th September 2011. http://online.wsj.com/article/SB10001424053111904537404576552354106792900.html
“Record Output Seen for Grains”, published on 10th December 2011. http://online.wsj.com/article/SB10001424052970203501304577088250618231754.html
- The most economically important varieties of beans are Robusta and Arabica. Robusta is considered as lower quality than Robusta
- Brasil is the world’s largest producer of arabica.
- Vietnam coffee production has recently exploded. Vietnam is world’s largest producer of Robsuta. However, traders are reluctant to rely on the vienam transaction. Many delays or cancelation degrade their reputation.
- Coffe is quite volatile. Traders buy when the price is high and expect the price going down. They use hedging in order to mitigate the risk.
- Kraft, Nestlé, Procter & Gamble, and Sara Lee are the “Big 4″ roaster companies.
- There’s no futures market for Robusta coffee.
- Wheater conditions has strong effect on the futures crop and obviously on the coffee supply and demand.
1. Sugar comes from sugar cane and sugar beet.
2. The 2 most important futures contracts are: No.5 in London; and No.11 in New York.
3. 50% of traded sugar is used to make ethanol.
4. 5 top consumers of sugar: EU, India, Brazil, Chine et USA ; 5 top producers of sugar : EU, India, CIS, USA, Brazil.
5. Sugar depends on climate condition and natural disaster.
6. Ethanol is made out of sugar; therefore sugar is negatively correlated from Crude oil.
7. Sugar is the second most traded soft commodity in the world.
- Coal has 4 benchmarks. API2 is used to trade into Northwest Europe. API4 is the benchmark used for coal exported out of Richards Bay, South Africa. API6 which is used for coal exported out of Australia, Newcastle. And the US central Appalachian coal traded on NYMEX
- Coal is mostly used in electricity generation, steel production, cement manufacturing and liquid fuel
- The largest coal users are China, USA, India, Russia and Japan
- The biggest producers are China, USA, India, Australia and South Africa
- There is two types of coal: steam coal also known as thermal coal which is mainly used in power generation and coking coal, also known as metallurgical coal which is mainly used in steel production
- Coal can be a substitute for crude oil. For example, we can also use it to generate electricity
- Coal is described as the dirtiest fuel using to produce energy. The problem is that making energy by burning coal produces twice as much CO2 as by burning natural gaz.
1. The wheat price is correlated with others agricultural commodities (Soybeans, Corn).
2. Chicago Board of Trade (CBOT) is the wheat main exchange market.
3. There are more than 30 varieties of wheat but only two are significant in economic terms:
- Durum wheat: used for making pasta and semolina, is mainly cultivated in hot and dry countries.
- Bread wheat or common wheat: used to produce flour for making bread and for the production of beer and alcohol.
4. Wheat price is relatively inelastic because the production goes to: human consumption 58%, animal feed 34% and others (ethanol) 8%.
5. For traders on the wheat market, quality matters. Quality and costs of transportation are the price drivers.
6. Wheat grows all around the world and the most important players are:
- Biggest producer: China
- Biggest consumer: China
- Biggest exporter: The United States
- Biggest importer: Egypt
7. The supply is affected by meteorological conditions.
1 – The first swiss chocolate industry was created in 1819 by François-Louis Cailler.
2 – According UN Food & Agriculture Organization, about 60% of the world’s Cocoa beans production came from African countries, such as Côte d’Ivoire, Ghana, Nigeria and Cameroon. Indonesia is responsible of proximally 15% of world’s production.
3 – Cocoa is the world’s smallest soft-commodity market. Cocoa products futures contract are traded in NYSE, for south-eastern African quality, while the London’s ICE trade western African quality. The forward curve is a slope contango:
4 – From Feb/2011 to Nov/2011, Cocoa’s price dropped about USD 1000.-, due to great harvests in Africa, and a correlation with Europe’s equities, once Europe is a major player in Cocoa’s market.
5 – According to NYSE, The major importers of cocoa beans are the USA, Netherlands, Germany, UK and France with most cocoa products being consumed in Europe and the USA respectively.
6 – Dark chocolate is good for your heart. A small bar of it every day can help keep your heart and cardiovascular system running well.
7 – In September 2000, a British television documentary reported that hundreds of thousands of children in Burkina Faso, Mali and Togo were being purchased from their parents and sold as slaves to cocoa farmers in neighbouring Côte d’Ivoire. The documentary included claims that slavery existed on as many as 90% of Ivorian cocoa farms.
According to subsequent media accounts, children as young as six years old were forced to work 80–100 hour weeks without pay, suffered from malnutrition, and were subject to beatings and other abuse.
We hope that the coming year will bring you peace, good health, good cheer and much prosperity!
- Copper is among the few materials that do not degrade or lose their chemical or physical properties in the recycling process. Hence, existing copper in use can be considered a legitimate part of world copper reserves.
- Smelting is the pyrometallurgical process used to produce copper metal.
- Like numerous metal, copper demand is mainly led by China who accounts for 40% of world consumption. Though a lot of it is eventually exported in the form of manufactured goods to the West.
- It is a very volatile commodity, which fluctuate with economic events because it is present in almost all aspects of economic development including building construction, telecommunication infrastructure and electronic manufactured devices.
- Copper is a terminal market which means that the Exchange such as LME takes delivery when the contract comes to term without any costs for the companies.
- It can be replaced with aluminum for its conductive aspect.
- The major part of copper comes from the Andean region of South America / Chile (45%) and then United States.
1. Aluminium is made from extracting bauxite ore using the “Bayer process”
2. It is light, strong, doesn’t rust and is endlessly recyclable
3. China is the main consumer and the main producer
4. Aluminium is used in all kinds of industries (construction, automobile, packaging, aviation, electrical items…)
5. Electricity costs represent a third of global costs of aluminium smelters
6. Aluminum futures are exchanged at the LME, a terminal market (which takes physical delivery in its warehouses)
7. The forward curve is steep in contango mainly because the inventories are high. The LME being a terminal market, it is an incentive for producers to keep producing and storing their aluminium in the LME warehouses