Last week the global commodity markets were in a cautious mood and most of the key commodities, except those in the energy complex, declined during the week. Interestingly even gold, which usually would gain under such circumstances, lost by 2.57% during the week in its near-month contract. What made the markets cautious was the Bloomberg Consumer Comfort Index on US consumer confidence which at -49.3 in the period up to September so far was close to this year?s lowest (-49.4) with most households saying that they were reluctant to spend at this point of time.
The damp US consumer sentiment was not completely misplaced as the job market seems to be moving sideways for quite some time now. The markets were also worried about drop in Chinese exports as this would affect global recovery severely. It was a little surprising then that the benchmark near-month copper contract declined by 1.5% over the week.
During the week, the euro strengthened a bit against the dollar in reaction to the European Central Bank?s (ECB) announcement on Thursday of joint action with other central banks to offer three month dollar loans to banks in the euro zone area to ease pressure in the money market. The rally in the euro was further strengthened by European leaders committing themselves to letting Greece remain afloat. However, the euro?s rally was short-lived and it declined against the dollar by 1.62%. The initial hopes about the euro zone recovery fueled a rise in the two energy contracts viz., WTI Crude and Brent Crude and this momentum continued even after the market became pessimistic about the euro zone mostly because of reports of short fall of supply of crude oil from Libya and production outages in areas such as the North Sea. Over the week, WTI Crude for October delivery closed at $ 88.18 per barrel and Brent Crude closed at $112.22 per barrel at the end of the week .
Cotton and sugar lost by 1.05% and 4.7% over the week, respectively. The main factors causing a downward pressure on cotton prices were the USDA?s hike in its cotton production estimate for cotton for the season 2011-12 as well as a hike in the carry-over stocks and slack Chinese demand for cotton in July 2011.
Near month sugar prices were in a correction mode and the correction was aided by estimates by International Sugar Organisation (ISO) of a global sugar surplus of 4 MMT for 2011-12 as well as its prediction of a record sugar production of 172.4 MMT for the year.
A technical correction was seen in global corn futures with the contract for December delivery falling by a sharp 6.10% over the week. Wheat futures underwent a correction of 5.75% over the week.
In the domestic market the important news for the agricultural commodity futures was the Ministry of Agriculture?s First Advance Estimate of the country?s grain production at 123.88 million tonne during the current kharif season as against last year?s 120.2 million tonne of production. Production of pulses is expected to fall by 10% to 6.43 million tonne. Production of coarse cereals is projected at 30.42 million tonne down from 32.43 million tonne last year.
The author is senior economist, NCDEX. The views expressed are personal.