Commodities Markets Report. Week 5 2023

Global weather review

  • La Niña continues in the tropical Pacific, but has weakened from its peak in spring 2022. Though ocean temperatures have warmed in recent weeks, atmospheric indicators are largely unchanged and remain at La Niña levels.
  • La Niña typically increases the chance of above average rainfall for northern and eastern Australia during summer.
  • El Nino will not arrive until late this year into 2024.
  • The Indian Ocean Dipole (IOD) is neutral and has little influence on Australian climate while the monsoon trough is in the southern hemisphere (typically December to April).
  • Continued stormy albeit cooler weather prevailed across much of Europe.
  • In North Western Africa cool, showery conditions eased drought and improved topsoil moisture, though the drought is far from over.
  • Most of India remained dry, however the North got light showers that provided moisture to the ground.
  • Brazil remained wet as monsoon season goes on.
  • In US In the storm’s wake, the coldest holiday weather in more than 30 years engulfed most areas east of the Rockies, leading to freeze concerns for crops such as sugarcane, and strawberries in winter agricultural regions of the Deep South, from southern Texas to central Florida. Southern Florida that is the orange region, escaped the freeze.

Dollar Index

Commodities Index

Cocoa: Sell

Cocoa prices are bearish on larger global supply, good weather prospects and low demand.

  • Cocoa futures closed higher on Wednesday.
  • Seasonal demand continues to be weak and the Harmattan wind season ends bringing favorable weather to cocoa crops.
  • Cocoa Association of Nigeria reported Nigeria's Dec cocoa exports fell -0.7% m/m and -73% y/y to 36,571 MT.
  • Ivory Coast farmers sent a cumulative 1.51 MMT MT of cocoa to ports from October 1 through January 22, up +9.4% y/y.
  • North American National Confectioners Association reported for Q4 grindings fell -8.1% y/y to 107,130 MT.
  • European Cocoa Association reported that cocoa grindings fell -1.7% y/y to 359,577 MT.

Cocoa: Weather review

West African region saw moderate amount of rain which is favorable for cocoa crops during key development period.

At this time of the year hot wind called Harmattan is weakening which favorable for cocoa crop development as more rain will arrive.

Cocoa: Price Chart

Orange Juice: Sell

Orange juice prices are bearish on the back of larger Brazil export into US, low US demand and seasonality.

  • Orange Juice futures traded sideways on Wednesday moving average is mostly flat.
  • Technical picture is typically bearish pattern.
  • US demand continues to crash by ~10% year over year as increased imports from a large Brazil crop help fill in the holes in production from the catastrophic reduction in Florida production to almost nothing.
  • Brazil's 2022–23 orange harvest is expected to yield a crop of 414.4 million 40.8-kg boxes (MBx), an increase of 15% over the prior season's production.
  • USDA FAS estimates there was an increase of 10% in Brazilian fruit for NFC processing (88 MBx) for 2021–22 to supply the United States market.
  • Cumulative Brazil orange juice exports during 2022 are 388,022 MT. That’s an increase of 26,622 MT y/y.
  • Brazil orange juice in US appears to be cheaper than Florida made orange juice.
  • Right now is a harvest season both in Florida and Brazil therefore large stockpiles of oranges are bearish to prices.

Orange Juice: Weather review

Brazil was wet which is beneficial for orange crops that is collected from July to January.

Florida remains warm. Tallahassee’s high of 84°F on the 19th set a January record; the previous mark of 83°F had been achieved on January 2, 2022, and several earlier dates. Weather was favorable for orange harvest that goes on from October to June.

Orange Juice: Price Chart

Lumber: Buy

Lumber prices find bullish support on rising demand due to economic recovery, lower inflation and lower interest rates in US.

  • Lumber futures closed higher on Thursday.
  • Lumber prices are typically one of the first markets to turn higher well in advance of improved global economic activity.
  • As China is reopening demand for construction material is on the rise including lumber.
  • With inflation rates coming down and the Federal Reserve in a tightening de-escalation, the lumber market has likely made a major low and can trend substantially higher over the next year.
  • Lower interest rates as FED is dovish on monetary policy improves demand for mortgages and therefore construction material including lumber

Lumber: Price Chart

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About the author

Max Schulz is a professional futures and commodities trader. He is the founder and head of InsiderWeek. For many years he has been helping people achieve their financial goals by training them in futures trading.

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