Data-Driven Commodity Research, The Commodity Report

The Commodity Report

Data-Driven Commodity Research

A unique newsletter about commodities and macro analysis in a weekly format.

Commodities

Natural gas is a naturally occurring hydrocarbon gas mixture consisting primarily of methane, but commonly including varying amounts of other higher alkanes, and sometimes a small percentage of carbon dioxide, nitrogen, hydrogen sulfide, or helium. It is formed when layers of decomposing plant and animal matter are exposed to intense heat and pressure supplied by existing under the surface of the Earth over millions of years. The energy that the plants originally obtained from the sun is stored in the form of chemical bonds in the gas.

<ul><li>A historically strong El Niño will not rescue Europe’s gas winter.</li><li>Even if the winter runs 1 °C warmer than normal, Europe will need at least 7 million tonnes more LNG than last year, according to Rystad Energy – only at +2 °C does demand fall back to last winter’s level.</li><li>El Niño mainly eases early winter, while the cold risk shifts to February and March, when storage, currently at a record low, will be emptiest.</li></ul>

A historically strong El Niño will not rescue Europe’s gas winter.Even if the winter runs 1 °C warmer than normal, Europe will need at least 7 million tonnes more LNG than last year, according to Rystad Energy – only at +2 °C does demand fall back to last winter’s level.El Niño mainly eases early winter, while the cold risk shifts to February and March, when storage, currently at a record low, will be emptiest.

Gold is a chemical element with the symbol Au (from Latin: aurum) and the atomic number 79. In its purest form, it is a bright, slightly reddish yellow, dense, soft, malleable and ductile metal. Chemically, gold is a transition metal and a group 11 element. It is one of the least reactive chemical elements, and is solid under standard conditions. The metal therefore occurs often in free elemental (native) form, as nuggets or grains, in rocks, in veins and in alluvial deposits. It occurs in a solid solution series with the native element silver (as electrum) and also naturally alloyed with copper and palladium. Less commonly, it occurs in minerals as gold compounds, often with tellurium (gold tellurides).

<ul><li>In its recent Investment Strategy Insights publication, UBS makes the case for expanding commodity exposure beyond traditional safe-haven assets such as gold and the more familiar energy and industrial metals segments.</li><li>The underlying argument is that commodities can provide additional sources of return, portfolio diversification, and protection against inflation, geopolitical disruptions, and structural supply constraints - something we argue for a couple of years now</li><li>UBS identifies several structural trends supporting commodity markets. </li></ul>

In its recent Investment Strategy Insights publication, UBS makes the case for expanding commodity exposure beyond traditional safe-haven assets such as gold and the more familiar energy and industrial metals segments.The underlying argument is that commodities can provide additional sources of return, portfolio diversification, and protection against inflation, geopolitical disruptions, and structural supply constraints - something we argue for a couple of years nowUBS identifies several structural trends supporting commodity markets. 

Agri-Exposure remains too low in portfolios

<ul><li>The IRI/CCSR prediction plume goes out every month and travels far — onto commodity desks, into insurance notes, through agricultural outlooks.</li><li>It is among the most widely shared forecasts in macro, and among the least well read.</li><li>We backtested all 291 plume starts since May 2002, roughly 6,800 model runs, against the observed Oceanic Niño Index. Three things stand out.</li></ul>

The IRI/CCSR prediction plume goes out every month and travels far — onto commodity desks, into insurance notes, through agricultural outlooks.It is among the most widely shared forecasts in macro, and among the least well read.We backtested all 291 plume starts since May 2002, roughly 6,800 model runs, against the observed Oceanic Niño Index. Three things stand out.

ICE US - Cocoa Futures
The Cocoa contract is the world benchmark for the global cocoa market. The contract prices the physical delivery of exchange-grade product from a variety of African, Asian and Central and South American origins to any of five US delivery ports (Port of New York District, Delaware River Port District, Port of Hampton Roads, Port of Albany, or Port of Baltimore). Calls for delivery of any kind of cocoa bean as   long as it meets FDA standards for importation.   
Standards: Established by Exch. licensed graders  in accordance with specified tolerances for defects, bean count, bean size and other standards.

<ul><li>On my socials the chart claiming El Nino leads world food prices by 12 months is making the rounds again, but the correlation behind it is actually weak (just +0.13, barely significant and explaining under 2% of the variation)</li><li>That doesn't change our view that we still expect upward pressure on ag commodity prices this cycle, based not on one macro chart but on the mechanism-specific signals we've tested individually…</li><li>Cocoa's ONI momentum signal, Corn Belt heat, the live Texas-Xinjiang cotton stress, and an Indian monsoon tracking the textbook strong-El-Nino pattern.</li></ul>

On my socials the chart claiming El Nino leads world food prices by 12 months is making the rounds again, but the correlation behind it is actually weak (just +0.13, barely significant and explaining under 2% of the variation)That doesn't change our view that we still expect upward pressure on ag commodity prices this cycle, based not on one macro chart but on the mechanism-specific signals we've tested individually…Cocoa's ONI momentum signal, Corn Belt heat, the live Texas-Xinjiang cotton stress, and an Indian monsoon tracking the textbook strong-El-Nino pattern.

Ags did something they did last time in 2009

<ul><li>El Nino trades tend to get discussed as futures positions - long Cocoa, long Sugar, short whatever the weather is punishing this month.</li><li>That is the obvious layer. The less obvious one sits in equities of companies whose operating margins are already so thin that a commodity price move which barely registers for a diversified producer can flip a loss-making segment into a meaningfully profitable one.</li><li>Sudzucker is a live example of exactly that setup, playing out right now.</li></ul>

El Nino trades tend to get discussed as futures positions - long Cocoa, long Sugar, short whatever the weather is punishing this month.That is the obvious layer. The less obvious one sits in equities of companies whose operating margins are already so thin that a commodity price move which barely registers for a diversified producer can flip a loss-making segment into a meaningfully profitable one.Sudzucker is a live example of exactly that setup, playing out right now.

Undiscovered Gems of the El Nino - Suedzucker

The Commodity Report
Data-Driven Commodity Research

Can El Niño rescue Europe's gas winter?

El Niño mainly eases early winter, while the cold risk shifts to February and March, when storage, currently at a record low, will be emptiest.

The Commodity Report

Agri-Exposure remains too low in portfolios

In its recent Investment Strategy Insights publication, UBS makes the case for expanding commodity exposure beyond traditional safe-haven assets...

The Commodity Report

3 Hard Truths About ENSO Forecast

The IRI/CCSR prediction plume goes out every month and travels far — onto commodity desks, into insurance notes, through agricultural outlooks.

The Commodity Report

Ags did something they did last time in 2009

Cocoa's ONI momentum signal, Corn Belt heat, the live Texas-Xinjiang cotton stress, and an Indian monsoon tracking the textbook strong-El-Nino...

The Commodity Report

Undiscovered Gems of the El Nino - Suedzucker

El Nino trades tend to get discussed as futures positions - long Cocoa, long Sugar, short whatever the weather is punishing this month.

The Commodity Report