Month: November 2020

Price fluctuation

 A decrease in oil price could result in an opportunity to produce more cotton at a lower price as the shipping and harvesting parts are high oil consumers. We can clearly see how the worldwide lockdown in March has lead to a huge drop in cotton’s prices.This crash is explained by the economy worsening off, and customers are less likely to buy cotton-based items. Furthermore, countries may have stopped stockpiling which could have led to artificially inflated prices that we had during the earliest month of 2020. Government policies and sustainable programs trying to shield the farmers and textile industries could have a big impact on production costs and may cause this uncertainty. Bad weather in some regions also influenced cotton prices, especially when there are drought periods as this year, which produce an automatic decrease in the price because of production issues.

After this crash, we can see that the price of cotton slowly recovered to the same level than before the pandemic, this may be explained by the countries trying to relaunch their economy by easing their restrictions on population. However, we can see that the price dropped again in October-November which could be linked to the current situation where many European countries re-entered in a lockdown.

Supply and demand dynamic of the commodity:

On a global scale until the end of 2019 the exports of cotton were stable. But in 2020 the cotton industry has been hit hard by the Covid-19 pandemic, large cotton producer such as India has seen its exports decreased to 800.13 USD Million in 2020 against 3379.21 USD Million in 2019.

According to the World Trade Organization, the World (based on available data for countries and represents 90% of world trade) cotton exports in March 2020 decreased by 12.5% while it decreased by 34.6% in April 2020 compared to the same months in 2019.

Global Cotton Export

India’s cotton Export (in tonnes)

In contrast we can see that the cotton production has been more or less steady in India, China and USA but Brazil has seen a growth in its production since 2017 because the state of Mato Grosso has started to heavily grow cotton. It went from approximately 2000 tons to 3000 tons in a year. The cotton supply chain suffers from Covid, trade tensions and weak global economy and this is why most of the producing countries will see their production decrease for the 2020/21 projection.

Production Changes in Major Regions from 2015/16 to 2020/21 (tonnes per country)

Forward Curve

The cotton futures prices are going to be on the rise until July 2021 (73.310). Right now we are in a contango situation (Price on the 9^th of Novembre 2020 : 69.0) and it may go further up with the lesser uncertainty surrounding the COVID-19 pandemic but we can also see a trend from December to July the price is on the up it’s in correlation of the harvesting periods of the different producers.

Recommendations:

As long as the Coronavirus will remain active across the world, the demand should stay week. Indeed, due to this current situation, it becomes hard to shop due to the active lockdowns in several countries and a lot of people became unemployed. Therefore, the demand for cotton should remain week in the next few months while the supply is projected to outpace demand by 500’000 tonnes. Our recommendation for the next months will be to buy in order to make a profit by selling three months later.

Sequeira Reny, Tiago Marques & Nicole Peytregnet

BIBLIOGRAPHY

5 factors affecting cotton prices – Materials Risk, [no date]. [online]. [Viewed 7 November 2020]. Available from: https://materials-risk.com/5-factors-affecting-cotton-prices/

agric_report_e.pdf, [no date]. [online]. [Viewed 7 November 2020]. Available from: https://www.wto.org/english/tratop_e/covid19_e/agric_report_e.pdf

CERTI-PIK, U. S. A., [no date]. Understanding the Factors That Determine Cotton Prices. [online]. [Viewed 7 November 2020]. Available from: https://certipik.com/2018/07/understanding-the-factors-that-determine-cotton-prices/

Cotton | 1913-2020 Data | 2021-2022 Forecast | Price | Quote | Chart | Historical, [no date]. [online]. [Viewed 7 November 2020]. Available from: https://tradingeconomics.com/commodity/cotton

Cotton 2019 Export Highlights | USDA Foreign Agricultural Service, [no date]. [online]. [Viewed 8 November 2020]. Available from: https://www.fas.usda.gov/cotton-2019-export-highlights

Cotton No. 2 Futures | ICE, [no date]. [online]. [Viewed 12 November 2020]. Available from: https://www.theice.com/products/254/Cotton-No-2-Futures/data?marketId=5673519

Cotton, [no date]. European Commission – European Commission [online]. [Viewed 8 November 2020]. Available from: https://ec.europa.eu/info/food-farming-fisheries/plants-and-plant-products/plant-products/cotton_en

Covid-19 and the Cotton Sector: Adapting and Innovating at Farm Level, [no date]. Better Cotton Initiative [online]. [Viewed 8 November 2020]. Available from: https://bettercotton.org/blog/covid-19-and-the-cotton-sector-adapting-and-innovating-at-farm-level/

CT1 Commodity Quote – Generic 1st “CT” Future, [no date]. Bloomberg.com [online]. [Viewed 7 November 2020]. Available from: https://www.bloomberg.com/quote/CT1:COM

India Exports of Cotton | 1996-2020 Data | 2021-2022 Forecast | Historical | Chart, [no date]. [online]. [Viewed 7 November 2020]. Available from: https://tradingeconomics.com/india/exports-of-cotton

Pakistan Steps Up Imports of Farm Goods to Curb Soaring Prices, 2020a. Bloomberg.com [online]. [Viewed 7 November 2020]. Available from: https://www.bloomberg.com/news/articles/2020-10-01/pakistan-on-shopping-spree-for-farm-goods-in-pricey-world-market

Pakistan Steps Up Imports of Farm Goods to Curb Soaring Prices, 2020b. Bloomberg.com [online]. [Viewed 8 November 2020]. Available from: https://www.bloomberg.com/news/articles/2020-10-01/pakistan-on-shopping-spree-for-farm-goods-in-pricey-world-market

Sécheresse, [no date]. Le climat aujourd’hui et demain [online]. [Viewed 8 November 2020]. Available from: https://blogs.letemps.ch/dorota-retelska/category/secheresse/

What Determines the Price of Cotton?, 2018. Barnhardt Purified Cotton [online]. [Viewed 8 November 2020]. Available from: https://barnhardtcotton.net/blog/what-determines-the-price-of-cotton/

Cobalt & Lithium

Cobalt:

Cobalt futures are traded in the London Metal Exchange (LME). The LME works closely with the Fastmarket MB, which is an international specialist and publisher of information about the global steel, non-ferrous and scrap metal market. 

Forward curve for the LME Cobalt (Fastmarket MB) from Sept.2020 (they didn’t release the OCT. and NOV. yet). Prices are in USD per MT compared to the other Cobalt physical price which are in Tonnes (1000kg)

Image source: https://www.lme.com/Market-Data/Reports-and-data/Monthly-overview , consulted in Nov.2020

The forward curve graph shows a contango situation. As previously mentioned in class, a contango situation means that the futures price of a commodity is higher than the spot price. In the case of our Cobalt graph, the slope shows that the market is stable and nothing dramatic is affecting it. The almost straight line shows that the futures price is directly linked to the price of cobalt plus its cost of carry each and every month.

image source: https://tradingeconomics.com/commodity/cobalt; consulted Nov.2020

The LME only started to trade Cobalt in 2010, so this is the furthest we can go historically. Today (11.11.20) the price of Cobalt is 32’835$/T. What is interesting for Cobalt is what happened in the past: if we look at the graph, we can see that in 2018, the price went up to 95’000$/T, which is almost 3 time of today’s price. The reason behind this is especially because of a huge jump in EVs market growth between 2016 and 2018. The International Energy Agency (IEA) projected that by the end of the current decade, the EVs being used on roads would triple to reach 13 million in total and that by 2030, we would see about 125 million vehicles. Such growth projections have spurred very strong demand for lithium-ion batteries, which we know now, use cobalt for the batteries’ cathode components. Let us remember that such batteries are used not only on EVs but on smartphones, like the iPhone, PCs and so on. The demand had been then very anticipated to grow rapidly over the coming decades[1]. This created a high demand for cobalt, pushing the price higher and higher. This phenomenon inspired the miners to mine more in order to capitalise on higher price. What happened next was an increase in mining for cobalt: DRC, which stands for more than 60% of the global Cobalt mining, was suddenly mining a lot more to catch up with the demand, by the increasing creation of local artisanal mines. Moreover, Glencore, was building a massive cobalt mining infrastructure in Katanga, DRC ( https://goo.gl/maps/H4WmTGEJMy36d6GBA ), which would increase global Cobalt supply to 26’000tonnes/y[2]. These sudden supply rush created an oversupply in the market which pushed the price down.

On top of that, something that contributed to the crash was that Tesla, the leading company for EVs, stated in 2018 that they were “reducing cobalt content” in their new batteries for the next cars[3].  

Another point was that Chinese manufacturers were stockpiling cobalt by buying more than needed, thinking that prices would keep going higher every month. They finally ended up buying less after the price dropped because they already had stocks.

All these points contributed to the 70% price crash that occurred in 2018-2019.

The price is still much correlated to these points but there were not such a high price up to today. In the graph below, we can see that price drop in March is very much correlated to the Coronavirus pandemic, which slowed the industry down.

We can see that in the second part of the year, the price resurged because of the summer de-confinement and restart of the businesses but also an increase due to the several news of the EV market. If we look at Tesla and Nio stock price, it sky rocked after news on new batteries technology (1mio mile Tesla battery[4][5).

Source: https://www.lme.com/Metals/Minor-metals/LME-Cobalt-FASTMARKETS-MB#tabIndex=2 consulted Nov.2020

Tesla stock and NIO stock price graph  

Images source: https://www.macrotrends.net/stocks/charts/

Lithium:

Lithium has no futures contract yet but the LME, partnering with Fastmarkets MB, is projecting on creating the very first one, the LME lithium Hydroxide CIF futures contract, in H1 2021 (first half of the year), so we will have to wait for the Forward/futures curve.[6]

The lithium market is also much linked to the EV market and other consumer electronics. If we look at a historical price from the same dates as cobalt above (in the small graph), we will see the same trends:

This is the chart of lithium Carbonate 99.5% LiCO3, battery grade, spot price China. Warning: this chart is in ChineseYuan/tonne (39’000CNT = 5890.70USD dated 12.11.20)

Image source: https://tradingeconomics.com/commodity/lithium

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2. Supply and demand dynamic

A quick reminder: Why is cobalt important?

Cobalt is a main component used to produce batteries. The biggest growth in the batteries sector will come from electrical cars. The sector is forecasted to grow from 3.2 million electric vehicles in 2017 to 130 million by 2030. The forecast is that by 2030 65 percent of cobalt demand will be needed for the electrical cars market. Additionally, the growth in the electrical cars industry will be heavily influenced by different countries’ regulations.

Supply and demand dynamics

The European Commission published a rapport in 2018 where they forecasted how the supply and demand dynamic of cobalt will evolve.

Cobalt supply and demand dynamics

The forecast states that we will experience a shortage of cobalt by 2025. The deficit will keep on growing. Their study shows that even by adding back into the supply chain recycled cobalt, the forecast is that by 2030 the supply of cobalt will be short of 66 000 tonnes.

Cobalt market balance

What is being done to try to remedy the situation?

In the European Union the focus is on battery recycling and additional mining activities. Together they could increase endogenous supply, which could then cover about 15 percent of the European electric-vehicle sector demand in 2030.[7] 

Australia is also expected to become an important cobalt-producing country, potentially accounting for 14 % of the world production in 2030. Today, 55 percent of the world production comes from the Democratic Republic of Congo.

And tesla in all this?

On September 22, Tesla held its annual meeting of shareholders and battery day. Tesla’s CEO promised all kinds of battery improvements geared at reducing costs per KWh, increasing range and lowering investment per GWh. Despite the company’s efforts to eliminate cobalt, many still believe the battery metal will be needed for some time to come. However, one thing is for sure the cobalt supply chain is critical and if new batteries without cobalt in them aren’t created soon, the world will run out of cobalt pushing the price of all electronic devices and electrical vehicules upward. 

Inventory levels

China & COVID-19

China’s refiners, which dominate global output of cobalt are heavily reliant on material that comes from Democratic Republic of Congo mines via ports in South Africa. COVID-19 lockdowns in southern Africa have created bottlenecks, delaying cobalt shipments from Zambia and the Democratic Republic of Congo.[8][9]

China’s state stockpiling agency has drawn up plans to buy 2,000 tons of cobalt after the coronavirus pandemic highlighted the fragility of supplies of the strategic mineral. Bloomberg stated that the National Food and Strategic Reserves Administration in China could put its purchasing plan into action by the end of this year, according to two people familiar with the matter. The move is in response to supply disruptions from top producer, the Democratic Republic of Congo, and is in line with China’s future economic and strategic needs. [10]

3. Recommendations to be short (sell) or long (buy) for the next 3 or 6 months.

As far as it concerns the cobalt commodity, we can see that the forward curve is a contango. This is showing us the market as seen today. The Prices for future delivery is higher due to cost of carry and interest. Historically, cobalt production has been consistently growing in the last 50 years and in any event, accelerating since the 2000’s. The price has additionally been increasing. However, it has been firmly impacted by supply (crisis in DR Congo) and demand (from Asia) interruptions. China being the largest consumer, it’s been found that Lithium and cobalt refineries have sufficient inventories to sustain their production for the time being, with lithium refineries particularly well-stocked due to raw material overstocked in 2019.[11]The sharp increase in the demand was largely driven from Chinese consumption and EVs but also aerospace industry for whom the cobalt is an essential irreplaceable element as well as within power generation with gas turbines using cobalt. These all reasons explain the high demand for cobalt. Therefore, the demand would be much higher than supply meaning the producers will be increasing the price due to shortage of supply. In addition, looking at supply side, much before the year 2020, critical metals, such as cobalt and lithium, were growing concerns because of the uncertainty over their reliable supply for the technology and renewable energy industries.[12] Furthermore, it would give incentives to firms like Apple and Tesla securing their supply by investing directly in processing and mining or acquiring critical metals mines.[13] So, in the case of cobalt the message and recommendation is to go ahead and store.

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BIBLIOGRAPHY

[1]https://www.iea.org/reports/global-ev-outlook-2020

[2]https://www.reuters.com/article/us-cobalt-prices-electric-idUSKCN1Q11EP

[3]https://internationalbanker.com/brokerage/why-have-cobalt-prices-crashed/

[4]https://www.cnbc.com/2020/06/30/tesla-and-the-science-of-low-cost-next-gen-ev-million-mile-battery.html

[5]https://www.ft.com/content/aa09dbcb-37ed-4010-a0ee-ab6cfab4d4b5

[6]https://www.lme.com/Metals/Minor-metals/Lithium-prices#tabIndex=0

[7]https://ec.europa.eu/jrc/sites/jrcsh/files/cobalt_infographics_one-pager.pdf

[8]https://investingnews.com/daily/resource-investing/battery-metals-investing/cobalt-investing/cobalt-market-update/?mqsc=E4118751

[9]https://www.reuters.com/article/us-cobalt-prices/african-supply-bottlenecks-fuel-cobalt-price-surge-idUSKCN2511XO

[10]https://www.bloomberg.com/news/articles/2020-08-19/china-plans-to-boost-cobalt-reserves-as-virus-spurs-supply-risks?sref=SAPiUD9B

[11]https://www.spglobal.com/marketintelligence/en/news-insights/research/metals-markets-to-rebound-after-coronavirus-epidemic-peaks-part-2

[12]https://www.reuters.com/article/us-cobalt-prices-idUSKBN201194

[13]https://theconversation.com/how-the-coronavirus-pandemic-has-disrupted-the-global-mining-industry-137384

PRICE MOVEMENT RECAP

Price in USD per bushel (60 pounds)
From May 28 2020 to November 6 2020
source: Macro trends

China is the biggest importer of Soybeans and since the number of Chinese pigs is increasing in China, more soybeans are purchased in order to feed them. China is concerned about the COVID-19; thus, they have decided to increase its stock of soybean in order to not experience a shortage. The price increases since the demand has increased rapidly and the supply is decreasing. China imports principally soybeans from Brazil but when the supply is running low in this region, China buys them from the US.

FORWARD CURVE

source: CME Group

As we can see, the forward curve is generally inverted. This trend can be explained by the weather concerns in South America. Irregular rainfalls caused by the La-Nina phenomenon could cause a shortage due to a decrease in productivity, which would explain why buyers are willing to pay a premium for delivery now. Furthermore, the demand for soybean is high due to Chinese mass pig farming. It is forecasted to go up to 2,7 million of bushels for the marketing year 20-21, while it was 2,4 million of bushels for marketing year 19-20.

SUPPLY & DEMAND CHART

source: CME Group

As we can see the supply and demand are in constant increase since the 90s. As populations, income levels, and urbanisation expand worldwide, the demand for soybeans is boosted. Another major soybean trade driver is the different governments policies. The 3 main drivers of soybean’s supply are weather, protein demand and Chinese demand.

What is interesting is the 2018-2019 decrease. It coincides with the start of the US-China Trade War which led to a decrease in production. Nowadays the situation got better and China started to import from the US again.

On the demand side, China is the biggest importer. The recovery of China’s pork industry from the African swine fever has stimulated imports in 2020. Mainly because soybean is used as a source of feedstock in animal production.

INVENTORY LEVEL (STOCK) CHART

source: CME Group

Brazil and the U.S. are the main soybean exporters and there have been supply issues in both countries. Due to COVID-19 Brazilian supplies have been limited.

Due to drier conditions in Brazil and Argentina, the future supplies might be lower. Dry conditions have negatively affected U.S. yields as well.

RECOMMENDATIONS

The Chinese economy is back to normal and there is a forecasted increase in demand. Therefore, importers are ready to pay a premium for delivery now as the supply is uncertain given the weather conditions coupled with COVID-19. Moreover, China imports first from Brazil and then from the US, since the harvest season happens at the beginning of the year in Brazil and at the end, in the US. From an importer’s point of view, we would recommend it to be long over the next few months as the supply will remain low.

REFERENCES

• A Supply Drop and Demand Pickup Pushed Soybeans to a Three-Year High, [no date]. [online]. [Viewed 10 November 2020]. Available from: https://www.spglobal.com/en/research-insights/articles/a-supply-drop-and-demand-pickup-pushed-soybeans-to-a-three-year-high
• Blog: World Soybean Production Projected to Rebound, 2020. IHS Markit [online]. [Viewed 10 November 2020]. Available from: https://ihsmarkit.com/research-analysis/blog-world-soybean-production-projected-rebound.html
• SAEFONG, Myra P., [no date]. Why soybeans may be headed for their highest price in 6 years. MarketWatch[online]. [Viewed 10 November 2020]. Available from: https://www.marketwatch.com/story/why-soybeans-may-be-headed-for-their-highest-price-in-6-years-11600450312
• Soybean Reports – CME Group, [no date]. [online]. [Viewed 10 November 2020]. Available from: https://www.cmegroup.com/content/cmegroup/en/trading/agricultural/soybean-reports.htm
• USDA ERS – Major Factors Affecting Global Soybean and Products Trade Projections, [no date]. [online]. [Viewed 10 November 2020]. Available from: https://www.ers.usda.gov/amber-waves/2016/may/major-factors-affecting-global-soybean-and-products-trade-projections/
• China’s Oct soybean imports jump 41% on year on swine fever recovery | S&P Global Platts, 2020. [online]. [Viewed 10 November 2020]. Available from: https://www.spglobal.com/platts/en/market-insights/latest-news/agriculture/110720-chinas-oct-soybean-imports-jump-41-on-year-on-swine-fever-recovery
• Chinese 2019-20 soybean imports to total 88 mil mt, up 6% on year: USDA | S&P Global Platts, 2020. [online]. [Viewed 10 November 2020]. Available from: https://www.spglobal.com/platts/en/market-insights/latest-news/agriculture/021220-chinese-2019-20-soybean-imports-to-total-88-mil-mt-up-6-on-year-usda
• Soybean Futures Quotes – CME Group, [no date]. [online]. [Viewed 10 November 2020]. Available from: https://www.cmegroup.com/content/cmegroup/en/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html
• Soybean Futures Quotes – CME Group, [no date]. [online]. [Viewed 10 November 2020]. Available from: https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html
• Soybean Prices – 45 Year Historical Chart, [no date]. [online]. [Viewed 10 November 2020]. Available from: https://www.macrotrends.net/2531/soybean-prices-historical-chart-data
• TAN, Huileng, 2020. Soybean futures have been surging on Chinese demand, trade group CEO says buying could continue. CNBC [online]. 10 September 2020. [Viewed 10 November 2020]. Available from: https://www.cnbc.com/2020/09/10/soybeans-have-been-surging-on-chinese-demand-and-purchases-could-continue.html

Group 3 – K
Maxime DOLLA, Mahona PENNA, Romane POUCHON

Overview of corn market on the last 15 years

Source : https://www.agriculture.gov.au/abares/research-topics/agricultural-outlook/coarse-grains

-#1 In 2008, the financial crisis caused the prices to fall.

-#2 In 2006-2011, the ethanol production doubled (strong demand for ethanol).

Source : https://www.uwlax.edu/globalassets/offices-services/urc/jur-online/pdf/2012/rattray.jennifer.pdf

-#3 In 2012, there was severe dryness in the USA,  (USA, largest producers and exporters, had to import  5 times more than the 2 previous years. The importation was 160 million bushel against 28-29 million in 2010-2011.

Source : statista, from USDA, economic research service.

-#4 Between 2012 and 2017, the production was higher than demand and at the same time stocks were increasing resulting in low prices. Since 2017, demand has become higher than supply. To satisfy this demand, it was necessary to use the stocks. Therefore, the stocks decreased and it explains that the impact on price was quite low.

Source : https://teseo.clal.it/en/index.php?section=maisesoia&utm_source=teseo&utm_medium=website&utm_campaign=menuEN#

How has evolved the price through the current year

Corn prices in USD/Bushel (last update 4/11/2020)

Source :https://markets.businessinsider.com/commodities/corn-price

On this chart we can see that the price collapsed in the first months of the year, mainly caused by the covid-19. The lockdown in many countries led to a collapse of diesel and gasoline demand and ethanol is no exception. The production has fallen and decreased by almost 50%. And we know that more than 1/3 of corn production is used to make ethanol. After that, we can see that the price started to increase linked to the end of the first wave of covid-19. And when we approach August the price tends to increase. The explanation is climate in the US; a storm in Iowa (the main state to produce corn in the US) has damaged the crop. We can also add the low rainfall in the corn belt during the month of August. All these events have affected the quality and the quantity of corn.

Source : https://teseo.clal.it/en/index.php?section=maisesoia&utm_source=teseo&utm_medium=website&utm_campaign=menuEN

World corn prices

The world price of corn is forecast to drop by 8% to US$150 per tonne in 2020-21, representing the lowest price since 2006-07. The fall in the price is due to a record global planting and expectations of record average yields. The mixed outlook for demand due to the COVID-19 pandemic worsened the impact of record production on prices.

Global production

Global corn production is expected to reach 1.2 billion tonnes in 2020-2021, an increase of 6.5% over the previous year. Corn production is forecast to reach record peaks in the United States and Brazil. An almost record production is also forecast in China, backed by favourable seasonal conditions.

Global demand

Because of the ongoing COVID-19 impact, the global demand outlook for corn remains unclear. As a consequence of COVID-19 measures, industrial and food use of corn is expected to decline in 2020.

Also due to COVID-19 impacts on travel, the use of corn for bioethanol in the United States decreased by 8 % compared to the previous year.It is also expected that the use of corn as food will have decreased over the COVID-19 period, due to ongoing disruptions to the food service industry.

On the other hand, despite the ongoing impact of COVID-19, the use of corn as animal feed is expected to increase.

As we are still in this COVID-19 period and potential future waves of it still represent a big risk for the industrial and food use of corn.

Forward curve

Source : https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/corn_quotes_settlements_futures.html

From December ‘20  to July ‘21, it is a normal curve. Then, it goes into an inverse curve until September ‘21. From September ‘21 to july ‘22 it goes into a normal curve again and then falls into an inverse curve and goes back to a normal curve again. We can see a pattern here. Indeed, it is a normal curve (the market is well supplied) but always drops into an inverse curve between July and September which is due to the harvest period for the two main producers, USA and China. Prices reflect the seasonal breakdown of supply.At this time, the supply/demand is in favor of demand.

From December to July, the message is to store because the demand doesn’t need as much.  From July to September, the message is to deliver (don’t store) because the demand is willing to pay for it.

Recommendation

We prefer to give a recommendation for 3 months because of the uncertainty due to COVID-19. Indeed, the situation is constantly changing. The recommendation is to go short for the 3 upcoming months based on the price’s forecast.

Patrice Correia Cardoso, Maike Da Silva, Léo Millet & Cassandra Kirchhoff

SOURCES

CLAL, [sans date]. TESEO – Corn and Soybean: world market trends. [en ligne]. [Consulté le 5 novembre 2020]. Disponible à l’adresse : https://teseo.clal.it/en/index.php?section=maisesoia&utm_source=teseo&utm_medium=website&utm_campaign=menuEN

Coarse grains: September quarter 2020 – Department of Agriculture, [sans date]. [en ligne]. [Consulté le 5 novembre 2020]. Disponible à l’adresse : https://www.agriculture.gov.au/abares/research-topics/agricultural-outlook/coarse-grains

Corn Futures Settlements – CME Group, [sans date]. [en ligne]. [Consulté le 5 novembre 2020]. Disponible à l’adresse : https://www.cmegroup.com/content/cmegroup/en/trading/agricultural/grain-and-oilseed/corn_quotes_settlements_futures.html

Find information for Corn Futures Settlements provided by CME Group. View Settlements GILBERTIE, Sal, [sans date]. Corn And Soybean Prices Are Often Lowest During The October Harvest. Forbes [en ligne]. [Consulté le 5 novembre 2020]. Disponible à l’adresse : https://www.forbes.com/sites/salgilbertie/2020/10/06/corn-and-soybean-prices-are-often-lowest-during-the-october-harvest/

NYSTROM, Phyllis, [sans date]. Grain Outlook: USDA misses 2019-20 corn stocks by 205 million bushels. TheLandOnline [en ligne]. [Consulté le 5 novembre 2020]. Disponible à l’adresse : https://www.thelandonline.com/news/grain-outlook-usda-misses-2019-20-corn-stocks-by-205-million-bushels/article_a44435d6-0a5a-11eb-ae12-bfc2f3f76440.html

USDA, [sans date]. [en ligne]. [Consulté le 5 novembre 2020]. Disponible à l’adresse : https://www.usda.gov/

Rattray – 2012 – The Implications of the Increasing Global Demand f.pdf, [sans date]. [en ligne]. [Consulté le 5 novembre 2020]. Disponible à l’adresse : https://www.uwlax.edu/globalassets/offices-services/urc/jur-online/pdf/2012/rattray.jennifer.pdf

Price movement recap

Chinese, transportation and construction industry demand are factors influencing the price. Worldwide lockdowns in March led to the closure of plants and construction sites. Transportation and automotive industries demand decreased as well, due to the decrease in travelling, an increase of telecommuting, the interruption of Chinese parts exports and manufacturing and assembly plants. This explains the price fall at the beginning of the year, which has slowly increased since mid-May.

Forward curve

As it can be observed, the market is in contango. It makes sense as demand is expected to grow in the few months and the market is oversupplied. Companies can therefore easily stock.

Supply and demand dynamic

As said above, China has a huge impact on supply and demand. Its monthly output is expected to rise for the end of the year as smelters are reopening and increasing their capacities. The global demand is expected to grow again as Asian countries and are recovering from the first wave of Covid-19 and are less impacted by the second wave. The fact that Asian countries are not facing right now such a high contamination rate as in Europe has given a new wind of optimism and exports have surged in the region. China has become even more than before the driving force of production and demand in the aluminium market.

In addition, a switch to can consumptions has been fastened by the COVID-19. While cans were already starting to be preferred thanks to their ease of recycling, the shutdown of restaurants has shifted the consumption from glass bottles to cans. Consequently, there is not enough capacity to meet demand. Ball corp., the largest producer of cans, is unable to make up to 8 billion cans for the year. It is important to note that this shift is unlikely to go away with the pandemic.

Inventory levels

As an effect of the COVID-19, the largest producer, China, has put in place a lockdown, which stops the production from at the beginning of the year. The lowest level was reached in March with the lockdown of the other countries. Then China recovered first from the epidemic, though recovery of production starting at the end of March increasing stocks. Stocks are now reaching the same level as before lockdown.

Recommendations

Due to the actual oversupplied and the growing demand, prices are expected to rise. However, in the long-run, when supply will be more balanced with demand, the surplus will be none, and prices will probably rise even more.

Beatriz Ferreira Caetano, Virginie Gruaz and Mingxin Ma

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