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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

Secular bull markets versus industrial revolutions



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Wheat Gains After Ship Attack Temporarily Shut Russian Port

This article from Bloomberg may be of interest. Here it is in full:

Wheat futures rose, paring a weekly loss, after a major Russian grain-shipping hub was temporarily closed. 

Traffic from Novorossiysk port was halted for several hours on Friday after a Ukrainian drone attack on a naval vessel. The overnight assault was repelled without damage to port facilities, according to the Russian Defense Ministry. 

Although the closure was short-lived, it adds to uncertainty about Black Sea trade flows as the war escalates in the midst of this year’s harvests. Russia is the world’s top wheat shipper, and its farmers are collecting a second bumper crop. 

Chicago futures climbed as much as 3.5%, before paring the advance. Prices have been increasingly volatile after Russia attacked Ukrainian sea and river ports following its withdrawal from the agreement to allow Ukrainian crop shipments through the Black Sea last month.



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Thailand Mulls Suspending Rice Farming on Drought

This article from the Bangkok post may be of interest. Here is a section:

Thai government considers suspension of rice farming in central region to save water amid drought, Bangkok Post reports, citing Surasri Kidtimonton, secretary-general of the Office of the National Water Resources.

Rainfall this year has been lower than average triggering an expectation of drier rainy season

Hardest areas will likely to be the central provinces, which is considered the country’s main rice growing region

Region may face 40% drop in accumulated precipitation this rainy season, likely causing widespread water shortages

Water levels are also at low level at four main dams including Bhumibol in Tak province and Sirikit in Uttaradit province



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Cocoa Factories Slowing Down Spell Trouble for Chocolate Makers

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“The demand issues are multifold,” said Judy Ganes, president of consultancy J. Ganes Consulting, who has followed the market for more than 30 years. “There’s not just cocoa prices that are high, but sugar prices are also high, and manufacturers always look for ways to meet margins and work to put fewer chocolate chips in a cookie, or they shrink the bar sizes.”

Factories usually process cocoa several months before products are turned into chocolate. That means the slowdown likely signals the industry is expecting less demand ahead. Barry Callebaut AG, the world’s largest maker of bulk chocolate, said earlier this month that its sales volume fell 2.7% in the first nine months of the year, with its gourmet and specialists’ business seeing the biggest drop. 
 



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Brazil's All-Powerful Sugar Industry Sours the Country on EVs

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So far, Lula’s government is trying to support both technologies in a precarious balancing act. To appease the sugar industry, it will keep incentives for ethanol in place while simultaneously courting electric-car makers from China scouting new overseas factory sites with a compelling sales pitch: proximity to local battery-metal deposits, a growing domestic middle class and access to other Latin American markets with their own discretionary incomes to spend. It has worked, with at least two of China’s biggest carmakers — BYD Co. and Great Wall Motor Co. — planning to bring their vehicle production to the country’s shores. But even they plan to add some ethanol-fueled hybrids to their Brazilian lineups in what looks like a friendly — and savvy — gesture.

The discussion about electric cars is “very important for Brazil and for the world,” said Renan Filho, Brazil’s transport minister. But ethanol should be part of the conversation, too, he said. “Ethanol emits much less.”



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Email of the day on rough rice

I am curious about the rationale behind taking the rough rice position, beyond the 1000D EMA which shows support in the region of $15. Despite El Niño, according to the FAO latest report July 7 (https://www.fao.org/worldfoodsituation/csdb/en/), there is no supply/demand imbalance in spite of a lower 2022/2023 production. After a slight draw on stocks for the current harvest season, they are due to increase in 2023/2024 as well as worldwide production (same forecasts from the USDA https://www.ers.usda.gov/webdocs/outlooks/106909/rcs-23f.pdf?v=4882.7).



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European Power Prices Fall Below Zero With Green Power Boom

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Electricity prices across Europe are set to fall below zero this weekend as the continent experiences a
surge of summer winds combined with the peak season for solar generation.

The sub-zero prices are a preview of what’s to come for European power markets if a flood of planned renewable power production isn’t met with a shift in demand. The hope is that eventually larger electric car fleets, smarter grids and better battery technology will catch up, but for now the mismatch is a headache for policy makers and companies. 

The risk is that a prolonged slump in prices could undermine the case for future investments, add costs for consumers and waste energy that could be used to cut demand for polluting alternatives.



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Richemont Drops on Signs Luxury Demand Is Weakening in US, China

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Richemont led luxury-goods stocks lower amid concerns that demand in the US and China, two of the biggest markets for the industry, is starting to sputter.

The Swiss owner of Cartier reported a surprise drop in revenue from the Americas in the three months through June.

While Richemont’s sales from Asia rose sharply, China reported slower-than-expected economic growth Monday, signaling signs of a possible pullback in consumer spending.

Richemont fell as much as 8.2%, the steepest intraday decline in more than year. LVMH dropped as much as 3.7% and Hermes fell as much as 4.2%.

The luxury-goods industry has been counting on a rebound in China after that country’s reopening would make up for weakness in the US market. Now Richemont and its peers are contending with the prospect that its two main growth motors are weakening.

Last week, Burberry Group Plc said the low end of the luxury market in the US softened.



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Russia Pulls the Plug on Ukraine Grain Export Agreement

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Moscow had repeatedly threatened to leave the pact, citing obstacles to its own exports. It last agreed to a two-month extension in May, which ends Monday. The corridor’s shutdown will hit key buyers like China, Spain and Egypt.

“Unfortunately, the part concerning Russia in this Black Sea agreement has not been fulfilled so far,” Kremlin spokesman Dmitry Peskov said, according to Russian news agency Tass. “Therefore, it is terminated.” 

The move jeopardizes a key trade route from Ukraine, one of the world’s top grain and vegetable oil shippers, just as its next harvest kicks off. It also comes after Russia on Monday said Ukrainian drones damaged a key bridge to Crimea.

The pact — brokered by the United Nations and Turkey — has ensured the safe passage of almost 33 million tons of crop exports via the Black Sea since it was signed in July 2022, helping world food-commodity prices ease from the record levels reached after Russia’s invasion of Ukraine. However, it has been bogged down by red tape and slow vessel inspections in recent months.



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Inflation at 3% Flags End of Emergency, Turning Point for Fed

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None of this means it’s game over in the fight against price pressures — especially for the Fed, which is widely reckoned to be locked-in to another interest-rate increase later this month. Still, there’s now a better-than-even chance that a July 26 hike, which would take the benchmark US rate to 5.5%, could be the last in quite a while. 

That’s the way markets were betting after Wednesday’s data. Yields on short-term Treasury yields plunged, stocks rose, and the dollar was headed to the lowest in more than a year by one measure – all in anticipation that the Fed might ease up.

‘Coming to End’
“The new data could give the Fed reason to debate whether any further rate hikes after this month are needed,” wrote Ryan Sweet, chief US economist at Oxford Economics. “This tightening cycle by the Fed is likely coming to an end.”



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