Commodity Recap: February 18
Saxo Bank | Feb 19, 2014 01:52AM ET
Another strong day for commodities with the DJ-UBS commodity index currently up by more than one percent and with half the month gone it is currently on track to record its best monthly performance in 18 months. Weather-related issues in the US and in South America rather than macroeconomic developments lie behind the continued gains of several commodity markets.
Arabica Coffee (KCK4) surged as much as ten percent at one stage today to a 13-month high after rainfall over the last four days was much less than what the drought-stricken coffee growing areas in Brazil required. The continued worry about coffee production in Brazil, the world's largest producer, has led to a forecast reduction in production. Just a month ago analysts were looking for a record production for a third year in a row. Hedge funds have been strong buyers on the move as they continue to build a sizable net-long position. The drought has also been the driver behind the jump in sugar (SBK4) today.
Hot and dry weather in Brazil and too much rain in Argentina has lent support to soybeans (ZSK4) which has risen to a nine-week high on worries about the size of the South American soybean harvest. Staying with the crops, CBOT wheat continues to find support from worries about winter kill across the US Midwest following the very cold weather recently.
Natural gas (NGH4) and WTI crude (CLH4) are also receiving another boost from the winter storms across the US Northeast. WTI crude has risen to the highest in four months as the discount to Brent crude continue to narrow. The weekly inventory data due later this week is expected to show a third weekly drop in inventories at Cushing, Oklahoma. The recent improved pipeline infrastructure continue to reduce the bottleneck at the delivery hub for WTI crude and this together with elevated refinery demand continue to keep crude oil supported.
Gold (XAUUSD) and silver (XAGUSD) both retraced some of their explosive gains from last Friday but with the 200-day moving average now providing support below hedge funds continue to add to net-longs after having missed out on most of the early January rally. The Euro climbed against the dollar to the highest level since early January also helped stabilise both metals with silver especially moving back towards Monday's high at USD 22/oz.
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