Global pressure on commodities

December 17, 2015

Most major commodities are under strong pressure, with the likes of iron ore and crude oil trading at levels not seen since 2009. The CBOT Wheat open short position held by managed money remains historically high, making the market susceptible to short covering rallies.

The continuing crude oil rout has been bruising up the other commodity markets of late, with too much supply and not enough demand weighing on prices. The OPEC cartel announced at the start of the month that they would not be slowing production, and since then multi-year contract lows have been hit daily. It appears part of the strategy of OPEC is to out-muscle the smaller US shale oil producers, many of which are now buckling under the pressure of low prices. 

Currency volatility remains a factor in export pricing with spot AUD/USD testing 0.7000 at the start of November, while testing 0.07400 at the start of December. Currency influences will remain a factor with the Chinese Renminbi gaining IMF reserve currency status, the US on again, off again possible rate rise and the Euro zone’s expanded quantitative easing measure, or lack thereof.

Other fresh news to be found over the week was the release of the monthly USDA WASDE report. World wheat production was pushed 1.95Mmt higher than last month’s report to 734.93Mmt. The biggest mover in the report was Canada, where production was raised 1.6Mmt to 27.6Mmt. Australian wheat production remains unchanged at 26Mmt with ending stocks of 5Mmt and 18Mmt tipped for export.

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