Wheat had the biggest January rally in 18 years amid food riots in Africa. Crude oil surged to a two-year high today. This month, cotton and copper rose to records, while hogs climbed to a 24 year-peak. Adverse weather has slashed global crops, and the U.S. and Europe have kept borrowing costs low to bolster economies.
The herd, including beef and dairy animals, totaled 92.582 million head as the year began, down 1.4 percent from a year earlier, the U.S. Department of Agriculture said today in a semiannual report. That’s the smallest since 1958, the USDA said. Seven analysts in a Bloomberg News survey were expecting a 1.6 percent reduction, on average.
Cattle futures climbed 26 percent in the past year, reaching a record $1.166 a pound on Jan. 18. Still, surging prices for corn, the main ingredient in livestock feed, discouraged expansion. The grain has jumped 78 percent in the past year.
Higher resin costs are pushing up the price of polyethylene terephthalate, or PET, the plastic used in a variety of consumer products such as soda bottles and clothing. Bottle-grade PET is up more than 21% from a year ago and more than 24% since late September, according to ICIS, which tracks petrochemicals data.
One reason for the rise in PET plastic prices has less to do with soda and more with textiles. Cotton prices are up more than 145% over the past year, hitting 140-year highs recently on supply concerns. To combat the higher costs, clothing manufacturers are buying more polyester to blend into clothing and other textiles, said Chase Willett, PET consultant at Chemical Markets Associates Inc. That affects the price of PET plastic resin because both are from the same raw materials.
“It’s a sizable enough incremental volume shift that it creates problems in the polyester supply chain,” Mr. Willett said.
He estimates that amount of resin used in a half-liter plastic bottle could cost 4.22 cents next month, an increase of 47% from lows last August. Prices could continue higher through the summer until next year’s cotton crop comes in. “We’re in for a long ride this summer,” Willett said.
Wheat rose, capping the longest rally since November 2009, while corn and soybeans climbed as countries increase purchases from the U.S., the world’s biggest exporter, to cut food inflation and quell civil unrest.
Food-exporting countries are “strongly advised” not to restrict shipments to prevent “more uncertainty and disruption” in world markets, the United Nations said. Governments in Egypt, Algeria, Morocco and Yemen have faced protests amid rising costs and high unemployment, and a revolt toppled Tunisia’s leader.
“Sovereign nations are beginning to stockpile food to prevent unrest, and that will help to boost demand for U.S. grains,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “You artificially stimulate much higher demand when nations start to increase stockpiles.”
Commodity prices retreated Tuesday, taking a cue from currency-market response to the U.K. economy’s surprise contraction.
Both industrial and agricultural commodity prices were hit by the selloff, with natural gas, copper, coffee and rice futures all down more than 2%. Palladium was off more than 4%.
“A lot of it is panic selling,” said Bob Haberkorn, senior market strategist with Lind-Waldock in Chicago.
Fueling the flight from relatively risky assets was the announcement that the U.K.’s economy contracted 0.5% in the fourth quarter of last year, well below economists' expectations of a modest expansion. On a year-over-year basis, the economy grew 1.7%, which also fell far short of economists' expectations of 2.6% growth.
Korea Line Corp., South Korea’s second-largest operator of dry-bulk ships, filed for receivership after a global oversupply of vessels caused rates to tumble to the lowest in almost two years.
Although consumption has changed very little, domestic producers are attempting to lift second quarter offers because of raw material price developments and energy cost increases. Outlay on iron ore is forecast to rise and coking coal shipments from Australia are being affected by the floods.
An upsurge in steel purchasing activity is predicted over the next few months as distributors look to re-fill depleted inventories. Consumption should also improve this year. Consequently, MEPS forecasts steel values to advance considerably during the first half of 2011.
Prices for flat products picked up rapidly during the second half of December, driven by higher input costs and some restocking by distributors. Both rerollers and the integrated producers benefited from the increases. Third country values are also soaring, making material from those sources quite unattractive.
Long product values are currently rising very fast in the European market, following a concerted push by producers, due to the continuous surge in scrap prices. Most distributors only purchased relatively small quantities at the end of last year and now need to buy in order to increase their stock levels. End-user activity has improved slightly but remains subdued.
While these commodities historically have been volatile, this latest price surge is a signal that fundamental factors are moving to the forefront. Torrential rain in Colombia and an unstable political situation in the Ivory Coast are casting a shadow over the availability of supply for coffee and cocoa, respectively, while demand continues to increase.
In anticipation of continued high raw-material costs, steelmakers are trying to boost their own prices to offset more expensive raw materials.
The world’s second-largest steelmaker, China’s Baoshan Iron & Steel Co., has already announced price increases of 3% to 7% for some of its key products.
More price-increase announcements are expected, but whether they hold will depend on demand and supply in a particular region. In Brazil and China, the price increases are expected to stick because demand remains relatively strong for steel products. But in places like South Korea and North America, the price increases are likely to be less successful.
In the U.S., mills are running at about 70% to 75% capacity utilization, a profitable level, but not indicative of very strong demand. “The sustainability of such steel hikes is highly questionable,” said Barclay’s Capital analyst Leonardo Correa in his research report earlier this month.
Regional PP makers have cited tightness in supplies of propylene monomer feedstock as a reason for the massive increase. PP prices in the region now are up an average of 23 cents per pound since June 1 — including a 2-cent price dip recorded in late 2010 — according to the Plastics News resin pricing chart.