Corn to sugarcane gain on weather woes

On Monday, the commodities market was shaken by developments in Ukraine as Russia threatened to turn aggressive to protect its interest.

But commodities from gold to grains, corn to crude oil and sugar to soyabean have been blowing hot and cold in the last one month, literally. Regions from Ottawa in Canada to Mato Grosso in Brazil, from Illinois in the US to New South Wales are going through indifferent weather patterns: be it the coldest season in a decade-and-a-half or a prolonged period of dry weather.

Weather developments came to the fore so much in February that the commodities market saw volatile movements, particularly those relating to farm produce.

The developments have changed the course of commodities such as coffee and sugar that were going through a bearish phase. Suddenly, these have become the favourites of hedge funds, money managers and speculators.

It all began with North America undergoing one of the coldest spells since 1996 in December. Though prices of commodities ruled steady then, they really began to take off during the second week of January, when the polar vortex descended from the North Pole into the US via Canada.

Natural gas was the primary beneficiary of this weather phenomenon. With half the households in the US using natural gas for heating, demand shot up, eating into inventories.

As the cold wave prolonged and snow began to cover, other commodities such as oat, wheat, corn also began to gain. By Monday, natural gas had gained over 35 per cent despite paring gains last week by 11 per cent. Natural gas ruled at $4.52/mMBtu on Tuesday.

Oat was another commodity which gained due to cold weather since Canada, a major producer, was unable to move the coarse grain to the US. Canada is the top supplier of oat to the US for cereals and breakfast. The problem with moving oat was that rail companies cut short their journeys to short ones because air brakes tended to fail due to extreme cold. On Tuesday, oat, which has gained over 12 per cent, was up over three per cent at $4.97 a bushel, turning costlier than corn (industrial maize).

Grains, on the other hand, are accorded lower priority for transportation.

In between, wheat and corn, too, gained since farmers in the US couldn’t move them to the ports as rivers got frozen. Even when the weather cleared, the rivers were in a spate making it difficult to move grains through barges.

As the market began discounting the cold weather, the news of drought affecting crops in South America, particularly Brazil’s centre-south, began to impact the market. Heavy rains in the South American nation’s centre-west have left soyabean fields flooded, affecting harvest in Mato Grosso.

Some regions in Brazil have received nearly double the normal rainfall in the last 10 days. According to analysts, this could reduce soyabean production by at least 0.5 million tonnes (mt) in Mata Grosso. In Parana, the production could be lower by at least two million tonnes.

On the Chicago Board of Trade, soyabean has gained over eight per cent. On Tuesday, the bean for delivery in May was up at $14.13 a bushel.

Palm oil has also gained as a result of dry weather in South-East Asia. Malaysia and Singapore have not received rains for weeks together. Crude palm oil June contract has topped $850 a tonne as result. On Tuesday, the contract ended at 2,795 ringgit or $853 a tonne.

Drought, on the other hand, has affected the coffee and sugar belt, cutting yields. Coffee production in Brazil is now projected at a three-year low of 36.3 million bags (of 60-kg each). This could be lowered if the drought prolongs. Sugarcane production is seen lower by 36 mt due to lack of rains for a period of over 60 days. Though rains lashed the areas from the third week of February, they were seen as too late to save the crop.

Coffee prices, particularly those of Arabica, have surged by over 42 per cent. On Tuesday, Arabica contracts for delivery in May were up at $1.93 a pound on ICE US. Sugar prices have gained nearly 10 per cent with raw sugar on ICE US for delivery in May rising to 17.72 cents a pound. Coffee and sugar have tended to shed gains in view of improvement in weather conditions.

Fears of drought affecting Australia have also played a part in driving prices higher. On the other hand, unrest in Thailand and Ukraine has resulted in fears over supplies, pushing up prices of grains such as wheat, corn and rice further.

Wheat at $6.28 a bushel has gained 15 per cent in view of weather and political unrest, while corn at $4.68 a bushel is up over seven per cent.

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