The Kiwi Kommodity Klub - Sperg about commodity markets here

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How high will oil prices climb in this cycle?

  • $80 or lower (they have peaked)

    Votes: 6 21.4%
  • $90 - $120/bl

    Votes: 5 17.9%
  • $120 - $150/bl

    Votes: 4 14.3%
  • $150-$180/bl

    Votes: 1 3.6%
  • $180+ (drill baby drill!)

    Votes: 12 42.9%

  • Total voters
    28

69ing Ur Mom

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It looks like oat production fell about ~3% of the expectation while demand slightly rose. I couldn't find any reliable production numbers, but the USDA grain report comes out on Nov 9th.

Inflation is playing a part in the increase in price. You can see it at the grocery store with higher prices/smaller sizes. That could account for 10-25% of the price increase? (I pulled those number out of my ass.)

The bigger issue is the incompetence surrounding going green. Natural gas is used to generate electricity, heating, and the production of fertilizer.

Natural gas is usually produced in conjunction with oil drilling. Drops in oil production due to legislation or price will carry over into the natural gas market. Production has not been able to keep up with demand.


As a result here are the current natural gas prices:

naturalgas.png



The fast run up in price means that it is not economically viable to produce fertilizer. This has pushed fertilizer prices up as people are expecting supply shortages. Diesel has also gone up in price.

When the two biggest inputs for grain production increase in price, the price will go up. 2022 is looking like it is going to be an expensive year for food.


 

Vexillology

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When the two biggest inputs for grain production increase in price, the price will go up. 2022 is looking like it is going to be an expensive year for food.
Not to mention the political factors. Customs and excises are ramping up in major importers and exporters, major players like China are huge wildcards. Long-term contracts could be severely undervalued.

It seems like most people prefer short-term (mostly monthly) contracts. What kind of time horizons do you guys look at for futures? I'm curious who else likes to take an occasional risk on contracts with distant end dates.
 

RussianParasite

Россия без Укропа!
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It seems like most people prefer short-term (mostly monthly) contracts. What kind of time horizons do you guys look at for futures? I'm curious who else likes to take an occasional risk on contracts with distant end dates.
Most futures contracts are for three months out in most markets. Many are futures are now in backwardation which is expected with these crazy high price levels further out though as you mention. It’s a gamble depending on how high you think inflation and supply chain bottlenecks will keep prices high. A lot of money to be made by getting short in theory though heading into 2022.

I can’t trade most commodities or commodity stocks due to legal restrictions around my line of work :( I’d be curious if any one here takes a position though.
 

69ing Ur Mom

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Not to mention the political factors. Customs and excises are ramping up in major importers and exporters, major players like China are huge wildcards. Long-term contracts could be severely undervalued.
This is a great point. Everyone's pissed at China and now is a great time to get rid of the CCP. The plan looks to be to deplete China's foreign reserves to cause food and energy shortages.

That's why there's such strong restrictions on removing capital and travel from China. No one is going to accept payment in RMB. $3.2T in foreign reserves won't last long with high inflation, high commodity prices, and 1.4 billion people to feed.


High commodity prices are likely what will break the Chinese housing market ponzi scheme. Housing prices aren't going to go up when food prices are rapidly rising and factories can't keep the power on.

real-estate-gdp.png


 

Simple Moving Average

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Not to mention the political factors. Customs and excises are ramping up in major importers and exporters, major players like China are huge wildcards. Long-term contracts could be severely undervalued.

It seems like most people prefer short-term (mostly monthly) contracts. What kind of time horizons do you guys look at for futures? I'm curious who else likes to take an occasional risk on contracts with distant end dates.

Present. PM me if you have any questions.
 

69ing Ur Mom

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Aug 31, 2021
The USDA Cold Storage report released yesterday is interesting. People are always sperging out about food shortages, without including any numbers.

Around me chicken has been more expensive. I've basically written off bacon as it has increased in price while switching from 16oz to 12oz packages.

Monday the Poultry Slaughter report comes out. Wednesday is Livestock and Meat Domestic Data. If production in those reports is also down, I would expect food prices to continue to rise.

Is that a recipe for stagflation?

September 2021 Highlights

Total natural cheese stocks in refrigerated warehouses on September 30, 2021
were up 2 percent from the previous month and up 8 percent from September
30, 2020.

Butter stocks were down 9 percent from last month and down 4 percent from a
year ago.

Total frozen poultry supplies on September 30, 2021 were up 1 percent from
the previous month but down 17 percent from a year ago. Total stocks of
chicken were up 3 percent from the previous month but down 17 percent from
last year. Total pounds of turkey in freezers were down 3 percent from last
month and down 17 percent from September 30, 2020.

Total frozen fruit stocks were down 1 percent from last month and down
6 percent from a year ago.

Total frozen vegetable stocks were up 19 percent from last month but down
4 percent from a year ago.

Total red meat supplies in freezers were up 4 percent from the previous month
but down 4 percent from last year. Total pounds of beef in freezers were up
5 percent from the previous month but down 6 percent from last year. Frozen
pork supplies were up 3 percent from the previous month and up slightly from
last year. Stocks of pork bellies were down 26 percent from last month and
down 48 percent from last year
.



I'd also like to know if anyone has any good investment ideas based on secondary effects of rising food prices. My first thought is that discretionary spending should decrease, but I'm not sure if that's the case.

Annual numbers aren't very helpful as no one was buying things after the lockdowns started. Now people appear to be spending at around pre-pandemic levels?

 

69ing Ur Mom

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Poultry Slaughter report​


High chicken prices make sense when the number of mature chickens is down more than 10% from a year ago. The images are large to include the headings. Look at the mature heavy chickens and they're down in terms of live, refrigerated, and frozen count.

chicken-heavy.png


frozen-tendies.png


Ready-to-Cook Weight Up 4 Percent from Last Year

August 2020
contained 21 weekdays (including 0 holidays) and 5 Saturdays.
August 2021 contained 22 weekdays (including 0 holidays) and 4 Saturdays.

Poultry certified wholesome during August 2021 (ready-to-cook weight) totaled
4.42 billion pounds, up 4 percent from the amount certified in August 2020.
The July 2021 revised certified total at 4.27 billion pounds, was down 1
percent from July 2020. The July revision represented an increase of
7.24 million pounds from last month's preliminary pounds certified.

The preliminary total live weight of all federally inspected poultry during
August 2021 was 5.83 billion pounds, up 4 percent from 5.63 billion pounds a
year ago. Young chickens inspected totaled 5.17 billion pounds, up 4 percent
from August 2020. Mature chickens, at 61.2 million pounds, were down
11 percent from the previous year. Turkey inspections totaled
588 million pounds, down 1 percent from a year ago. Ducks totaled
14.6 million pounds, up 21 percent from last year.

Young chickens slaughtered during August 2021 averaged 6.47 pounds per bird,
up 1 percent from August 2020. The average live weight of mature chickens was
6.75 pounds per bird, down 2 percent from a year ago. Turkeys slaughtered
during August 2021 averaged 31.5 pounds per bird, down slightly from
August 2020.

Ante-mortem condemnations during August 2021 totaled 14.0 million pounds.
Condemnations were 0.24 percent of the live weight inspected, as compared
with 0.22 percent a year earlier. Post-mortem condemnations, at
27.2 million pounds, were 0.61 percent of quantities inspected, as compared
with 0.69 percent a year earlier.


USDA Estimated Live Poultry​

Current estimates don't look like there has been any meaningful gain on production.

NW_PY016
Atlanta, GA Wed. Oct 20, 2021 USDA Market News

MISC. POULTRY: Weekly Estimated Slaughter of U.S. Broiler/Fryers and Fowl (Wed)
Week ending 23-Oct-21


Current Week Previous Week
10/23/21 (1) 10/16/21
Class ---------- Thousand head ---------
Broiler/fryer 158,044 (2) 158,728
Light hens 706 683
Heavy hens 1,537 1,685
Total 160,287 161,096

(1)ESTIMATED

(2)The estimated number of broiler-fryers available for slaughter
the week ending 23-Oct-21 is 165.7 million head compared to
169.4 million head slaughtered the same week last year. The
estimated U.S. slaughter this week is 158.4 million head or
-7.3 million less than estimated available.
For the week of
30-Oct-21 the estimated available is 165.3 million head.

SOURCE: USDA Livestock, Poultry, & Grain Market News
Atlanta, GA 404-562-5850 email: Atlanta.LPGMN@ams.usda.gov
http://www.ams.usda.gov/market-news/livestock-poultry-grain

Prepared: 20-Oct-21 11:55 AM C NBS


Future and Cause(s)?​

I don't see how chicken prices are going to come down heading into winter. Production is stable through, so I would only expect large price increases if there is reduced beef and pork production.

Higher fuel and feed costs will put upward price pressure on chicken. However, I think that the 11% drop in production is a bigger reason why chicken went from $0.99/lb to $1.99/lb around me.

Everyone seems to be blaming the winter storm in February that caused power outages in Texas. The claim is that it disrupted slaughter house operations. Production had to be cut because the processing capacity didn't exist?

I don't find that explanation to be very compelling.

Edit: I've been trying to find estimated cost breakdowns on broilers. Turns out feed is 70-80% of the cost. I now think chicken will be getting more expensive.


 
Last edited:

eternal dog mongler

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I'd also like to know if anyone has any good investment ideas based on secondary effects of rising food prices. My first thought is that discretionary spending should decrease, but I'm not sure if that's the case.
I'm shorting Darden.

My gut feeling is that overall food spending as a % of income will be the same but people will move more towards home-cooked meals and cheap fast food rather than sit-down restaurants. Currently the average person spends about 10% of their income on food. In the 70s where it was peak food prices they were still only spending 15%, so I don't think it will have that much effect on discretionary spending.
 

69ing Ur Mom

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Joined
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This is a great point. Everyone's pissed at China and now is a great time to get rid of the CCP. The plan looks to be to deplete China's foreign reserves to cause food and energy shortages.

That's why there's such strong restrictions on removing capital and travel from China. No one is going to accept payment in RMB. $3.2T in foreign reserves won't last long with high inflation, high commodity prices, and 1.4 billion people to feed.

I'm not the only one that thinks China is having problems with foreign reserves.