The Geopolitical Risk Index is at its highest since the eve of the 2003 Iraq invasion with gold prices caught between an increasingly unstable global scene and the near-certain march 21 US rate hike.
Article / 30 June 2016 at 11:00 GMT

Daily Shot: What's behind the volatility in commodities? Team / Saxo Bank
  • Resurgent BRL boosts commodity prices
  • Sugar jumps to 42-month highs
  • Corn, wheat under pressure

By Walter Kurtz*

Let's discuss commodities.
1. A major factor in recent appreciation in several commodities has been the strength of the Brazilian real. The currency is up over 23% this year versus the US dollar.

2. Brazilian real and tighter markets in Asia sent coffee prices higher. 

3. Sugar prices soared to the highest level in three-and-a-half years. According to Nasdaq, Wednesday's jump in prices was driven by "speculation that a trading house was set to take another big physical delivery of the commodity." A much stronger Brazilian real helped as well. 

4. Orange juice futures rose sharply. 

Orange juice
5. US milk futures spiked as well. Based on the above, we can see our breakfast getting more expensive in real time.
6. On the other hand, US grains got hammered over the past few days. Here are corn and wheat. 

Corn and wheat
7. Investors have been moving into silver. As a precious metal, it provides some protection against "tail risk" (with rising demand for coins for example) while also being an extremely useful industrial commodity. Supplies are expected to be tight in the next few years. 

8. In China's commodity markets, some of the frenzied activity we've seen this year has returned despite Beijing trying to curtail it. Here are the soy meal futures on the Dalian Commodity Exchange. 

Below we see cotton futures on the Zhengzhou Commodity Exchange. 

And finally, here is thermal coal - also on the Zhengzhou Commodity Exchange. 

Thermal Coal
 — Edited by Michael McKenna

* Walter Kurtz is an alias

** This is an abridged version of the Daily Shot. To subscribe to the full version, link to the Daily Shotand select the appropriate command. E-mail addresses are never shared with head of commodity strategy at Saxo Bank

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