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

China Urges Winter Food Stockpiling, Prompting Online Worry

This article from Bloomberg may be of interest to subscribers. Here is a section:

China’s bracing for a cold snap this week, with temperatures in some regions forecast to fall by as much as 15 degrees Celsius. Vegetable prices typically rise when the temperature drops in winter and supply is unable to catch up with increasing demand before the Lunar New Year holiday.

The Monday statement told local commerce departments to coordinate more to improve local and inter-provincial supply chains for vegetables and also to strengthen monitoring of the prices of key staples such as vegetables and meat. 

Major agricultural distributors were encouraged to sign long-term contracts with producers, while provinces in both southern and northern China were told to improve their vegetable reserve systems and also release meat and vegetables from the reserves in a timely manner to replenish supplies. 

The call to stock up on food comes less than two weeks after a different government department told companies not to hoard food. 

 



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Cash on Cash, Gold on Gold

Thanks to Iain Little for this edition of his Global Thematic Investors’ Diary focusing on gold miners. Here is a section:

For most of my 40 year career, analysts have mocked poor management in the mining business. The wisdom is that gold mines -perhaps with the exception of royalty or streaming financiers- are low quality, cyclical investments that only work when the cycle is right. Management doesn’t matter. The gold price -and luck with your timing- do. So I was intrigued by this chart. After decades of devouring investors capital for capital-intensive projects and surviving on shareholder bounty, the current generation of gold miners have finally got the message. They have done so when most of their all-in, sustainable costs cluster around USD 1,000 an ounce. Gold trades near USD 1800. Free cash flow yield (FCFY) measures the free cash flow (net profits plus depreciation less annualized capex) as a percentage of a company’s market value. It can be compared to the yield on a bond or a cash deposit. Gold mining, handcuffed by capital constraints after years of shareholder abuse, is now the highest yielding sector on the planet, with a FCFY of 7%, roughly double that of the rest of the market. During the last 2001-2012 bull cycle, when most gold shares multi-bagged, they never really got close to cash positivity. This is money -or maybe gold- that can be paid to investors and it is on the increase. In a yield deprived, inflationary age, is this not El Dorado?



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America's Plunging Barley Crop Means Cheap Beer No More

This note from Bloomberg may be of interest to subscribers.

It’s last call for cheap beer. Rising input costs are soaring across the globe, fueled by withering barley supplies and surging aluminum costs, plus the same labor and transport bottlenecks plaguing every other industry. In North America, dry weather scorched fields, which typically produce enough barley to account for about 20% of global commercial beer production. In the U.S., American farmers reaped the smallest crop since 1934, just after Prohibition ended, while in Canada - - the fifth-largest producer -- barley output shrunk 34% to the second-smallest harvest since 1968



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I'm A Twenty Year Truck Driver, I Will Tell You Why America's "Shipping Crisis" Will Not End

This article from Medium.com may be of interest to subscribers. Here is a section:

How do you convince truckers to work when their pay isn’t guaranteed, even to the point where they lose money?

Nobody is compelling the transportation industries to make the needed changes to their infrastructure. There are no laws compelling them to hire the needed workers, or pay them a living wage, or improve working conditions. And nobody is compelling them to buy more container chassis units, more cranes, or more storage space. This is for an industry that literally every business in the world is reliant on in some way or another.

My prediction is that nothing is going to change and the shipping crisis is only going to get worse. Nobody in the supply chain wants to pay to solve the problem. They literally just won’t pay to solve the problem. At the point we are at now, things are so backed up that the backups THEMSELVES are causing container companies, ports, warehouses, and trucking companies to charge massive rate increases for doing literally NOTHING. Container companies have already decreased the maximum allowable times before containers have to be back to the port, and if the congestion is so bad that you can’t get the container back into the port when it is due, the container company can charge massive late fees. The ports themselves will start charging massive storage fees for not getting containers out on time — storage charges alone can run into thousands of dollars a day. Warehouses can charge massive premiums for their services, and so can trucking companies. Chronic understaffing has led to this problem, but it is allowing these same companies to charge ten times more for regular services. Since they’re not paying the workers any more than they did last year or five years ago, the whole industry sits back and cashes in on the mess it created. In fact, the more things are backed up, the more every point of the supply chain cashes in. There is literally NO incentive to change, even if it means consumers have to do holiday shopping in July and pay triple for shipping.



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The Macro Case for Precious Metals

Thanks to a subscriber for this chart-laden article from Crescat Capital. Here is a section:

As inflation continues to develop in the economy, see below the incredible link between gold and CPI since the GFC.

Note how after the pandemic lows, gold front ran the potential risk of a rise in consumer prices and the entire precious metals market appreciated sharply.

It is important to remember that before recently peaking, gold had been going on a streak for two years already.

The metal was up more than 75% from August 2018 to August 2020 and even reached historical highs during this period.

Back then, with CPI around 1%, very few investors foresaw inflation as a risk to the economy. Now it is a real problem.

We think gold likely appreciated too quick and too fast becoming what some thought as an obvious trade.

Extreme sentiment probably explains the reason for its recent weakness after signaling way earlier than any other asset the possibility that an inflationary environment could be ahead of us.
We are now on the other side of this extreme.

 



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Smashing Atoms: The History of Uranium and Nuclear Power

This infographic from Sprott focusing on uranium may be of interest to subscribers. Here is a section:

Although uranium mining is a global activity, only a handful of companies account for the majority of production.

The top 10 uranium mining companies accounted for 85% of global production in 2020.

The demand for this uranium come from nuclear reactors around the world.



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Robusta Coffee Prices Hit Highest Since 2011 on Supply Woes

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

Robusta coffee futures rallied to the highest in more than a decade driven by dwindling stockpiles for the beans favored for instant-coffee brands such as Nestle SA’s Nescafe. 

January futures in London jumped as much as 3.8% to $2,278 a ton, the highest for a most-active contract since September 2011. Arabica coffee also rose in New York. 

Both varieties have climbed more than 60% this year after drought and frosts damaged the arabica crop in Brazil, the No. 1 coffee producer, boosting demand for the cheaper robustas. The January-March spread in London surged to record premium. 

At the same time, soaring shipping costs are hindering a draw down of hefty stockpiles in robusta giant Vietnam. Exchange-monitored stockpiles for both varieties have continued to slide as roasters tap stored reserves.  

Technical-trading indicators are “very positive” and that attracted more buying, plus “there’s concern that flows have been paralyzed out of Vietnam because of the lack of container and elevated freights,” said Hernando de la Roche, senior vice president at StoneX Financial in Miami.



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Gold Extends Gain as Inflation Risks and Virus Concerns Persist

This article from Bloomberg may be of interest to subscribers. Here is a section:

“Gold and silver’s recent strong run of gains received a temporary setback on Friday in response to a sudden bout of taper tantrum following comments by Fed Chair Powell,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said in a note. “At the same time, however, he talked down the risk of raising interest rates while also expressing concern over persistently elevated inflation.” 



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Brazil Analysts Jack Up Inflation, Rate Forecasts as Woes Grow

This article from Bloomberg may be of interest to subscribers. Here is a section:

Brazil analysts expect a higher interest rate both this year and next after the government said it would
circumvent the public spending cap to increase spending on the poor.

The central bank will lift the Selic to 8.75% at the end of this year and 9.5% in 2022, up from prior projections of 8.25% and 8.75% respectively, according to a survey published on Monday. Analysts also lifted their year-end inflation forecasts to 8.96% this year and 4.40% in 2022, both above target. 

President Jair Bolsonaro announced last week plans for cash transfers to the poorest that would be financed either by a waiver or changes to the spending cap rule. The increased spending, coupled with a fresh plunge in the currency, are boosting bets that policy makers will have to raise borrowing
costs faster. The central bank will meet over rates Tuesday and Wednesday.

With annual inflation running above 10%, policy makers led by Roberto Campos Neto had promised their third consecutive rate hike of a full percentage point this week. But now analysts at major Wall Street firms expect them to deliver an increase of at least 125 basis points. 
 



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Russia sharply raises key rate as prices soar

This article from Bloomberg may be of interest to subscribers.

Russia's central bank aggressively raised its interest rate for the sixth time in a row Friday in an
effort to slow soaring food prices, and did not rule out further hikes.

Rising prices, falling incomes and a lack of tangible government support during the pandemic have been eroding popular support for President Vladimir Putin's two-decade rule, and authorities are under pressure to ease inflation.

At a meeting on Friday, the Bank of Russia increased its key rate by 0.75 percentage points to 7.50 percent, surprising many analysts who had expected a smaller hike.

The bank said that more hikes could follow and revised up inflation predictions.

"Inflation is developing substantially above the Bank of Russia's forecast and is expected to be within the range of 7.4-7.9 percent at the end of 2021," the bank said.

The Bank of Russia said that as of October 18, inflation stood at 7.8 percent but was expected to return to 4.0-4.5 percent next year.

"The central bank continues to act decisively and proactively," Dmitry Polevoy, head of investment at Locko Invest, said in a note to clients.

After months of historically low inflation, consumer prices began to climb in March 2020, driven by a drop in the ruble's value in the middle of the coronavirus pandemic.

The central bank started raising its historically low rate the same month. Its next rate review meeting is scheduled for December 17. In September, the bank raised its interest rate by 0.25 percentage points to 6.75 percent.



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