Banging Your Head in the Dark (No Light Bulbs)

Spend Matters welcomes a post from regular contributor, Nick Peksa, of Mintec Ltd. on what's happening with various commodities around the world this week.

Orange Juice
Frozen orange juice concentrate has been on an interesting journey in the last few months. The price has been up and down in a wave like motion with peaks and more recent crashes (which is quite a coincidence). But why was the price so high?

Florida's orange forecast for the 2010/11 season was recently reduced, but still remains around 4% above the 134m boxes produced in 2009/10. The harvest is due around October and the US stockpiles of orange juice are currently very low after poor weather in Florida and Brazil last year. This seems reasonable -- but prices crashed out recently. Why?

Earlier in the month, the traded price of orange juice dropped sharply on the news that Tropical Storm Emily dissipated in the Atlantic Ocean, easing the threat to groves in Florida. This basically leads me to believe that the market was already prepared for disaster, and over speculated.

As traders in the marketplace have a tendency for doom and gloom, the US hurricane season is a very happy time. What is even better is that as of the 18th of August there is a nice tropical wave forming in the central Caribbean Sea about 200 miles south-southwest of Jamaica and near 726 miles south-southeast of Miami, Florida. These current environmental conditions are conducive for development and a tropical depression or tropical storm. The storm of 2011 will be Harvey -- so for those who know the ingredients of a Harvey Wallbanger cocktail we have a recipe for more speculative price hikes in the near future.

Europium Oxide fob CN
The price of europium oxide in China (in terms of Chinese Yuan) has risen more than 1,000% year-on-year. Europium oxide is one of the most useful of the rare earth metals. It is used increasingly in a wide variety of energy-saving light bulbs, smartphones and plasma TVs. China (whose total share of world rare earth metal reserves is less than 40%) is responsible for more than 95% of the world's production but has reduced exports in order to protect domestic supply. There are large deposits of rare earth metals found in the USA, Australia, Russia and other CIS countries and plans are being made to start mining these soon, but it may be another five or ten years before production outside of China is ramping at a level to provide significant world supply.

Palm fatty acid
Palm fatty acid saw a surprising 16.9% rise this week in Europe as supplies are extremely tight. In Asia, fatty acids at origin are booming due to flourishing the oleo chemical industry.

However, the price of palm oil has continued to decrease as Malaysian palm oil stocks reached an 18-month high. The combined palm oil output in Indonesia and Malaysia is set to grow 7% to over 43m tonnes in 2011/12 due to improved weather conditions in both countries. Palm oil prices have now fallen 16% since the beginning of the year. Output is expected to slow in August as plantation workers take a long break to celebrate Ramadan.

Pimento prices declined sharply, around 20% this week. The sharp decline is due of the arrival of the new crop from various global regions. There could have been an even greater price decrease if it were not for heavy rainfall and storms in the growing regions of Mexico. These have slowed down the pace of harvesting. However, I am sure this additional supply to the marketplace will help the price decline further -- unless the tropical wave decides to smile at the traders.

- Nick Peksa, Mintec, Ltd.

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