Endgame for commodity boom

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New Delhi, Aug 17: Monday morning commodity traders across Asia would be scampering to cut losses, as the biggest boom in the global commodity cycle begins to unravel.

It is not just gold and silver the marquee items for markets like India, but is much more broad this time. The 19 commodities ReutersJefferies CRB Index has slipped by 2.7% on Friday, the biggest fall since March 20 this year. The index has eased by over 20% since July 3. But more significantly the futures, or the expected prices for most commodities, are now pointing downwards for the first time in over a year. A combination of rising US dollar, rising global supply of agricultural commodities and spreading recession in Eurozones are the reasons for the rapid downturn.

For instance, corn futures for December delivery has fallen almost 5% to $5.495 a bushel on the Chicago Board of Trade, the biggest decline since August 4, as per Bloomberg data. Its prices had climbed as USA and EU began massively spiking their automobile fuel with corn-based ethanol to take on rising crude oil prices.

The drop will be welcomed by India and even China, struggling to tame domestic inflation riding on 8% plus GDP growth rates. India’s bellwether inflation index has touched 12.44% for the latest reported week. The government has been hamstrung by the cascading rise in prices of wheat, rice and palm oil in international markets from importing more to tame domestic prices at the retail level. India’s import bill till June is already $24.45 billion, with the trade deficit opening up to $10 billion.

The contagion has spread as global analysts feel the commodity markets have entered a bear phase. Soybean futures for November delivery, for instance, fell 4.3% to $12.19 a bushel in Chicago Board of Trade, the biggest drop since August 8. This is on top of an earlier drop of 70 cent, hitting the lower circuit filter.

Commodity traders at Jhaveri Bazaar in Mumbai said the pressure to exit from current position will be massive if international gold prices touched $700 a troy ounce. “That will signal that the bull-run in precious metals is well and truly over,” a Mumbai-based commodity analyst said.