To The Moon

$Nestle S.A.(NSRGY)$ $Costco(COST)$ $Kweichow Moutai Co.,Ltd.(600519)$ 

The benchmark, CRB Commodity Index, ended the week 1,7% higher

Over the last week, oil was continuing its consolidation, while Natgas continued its strong upward trajectory. Grains were all up after the latest WASDE report was getting published on Friday. Metals were also solid on the winning side as were softs. Only cotton and live cattle continued their consolidation.

In other news, the US Dollar Index surpassed the level of 100 USD for a few hours but then jumped back below the key psychological level.

Here is my latest playbook:

Food prices are no bueno - scary reality

Not a good sign for food prices if I have to adjust the scale of my charts.

The FAO Food Price Index jumped to another record high in March. Up over 12 % from last month's reading!

The continued surge in food price inflation was heavily driven by oilseeds, cereals and dairy. All key commodities to feed the world are still in a strong uptrend and therefore its IMO safe to say that we haven’t seen the top in food prices yet. Riots and protests against the higher cost of food are just around the corner, especially in lower-income economies.

It’s hard to replace Russia as an oil supplier

It’s actually pretty hard to really give a good estimation of how much supply actually is getting lost during the current embargos/sanctions against Russia. The oil market analyst Rory Johnston estimates that the flows from Russia are lower on a scale between 1-4 million bpd.

But it’s even harder to replace Russia as a key supplier for Europe, in times of a worldwide supply shortage. I pointed for example out that a nuclear deal with Iran could help. But only as a short-term solution. Iran can only partially replace Russia’s exports of oil and gas. If Western sanctions are lifted after the revival of the nuclear deal, known as the Joint Comprehensive Plan of Action, Iran can release oil from storage centers, but it won’t be able to make enough oil available to offset the loss in Russian exports, much less make a dent in the global energy market. Moreover getting oil from Iran is not that simple and oil produced in Iran and Russia is not the same. Europe’s refineries rely on specific grades of oil to make the products their need. These refineries can’t quickly switch to processing Iranian supplies once sanctions are lifted.

Still a very opaque situation.

Copper stocks start to rise again - so be very careful on the long side

Over the last four weeks, the copper inventories at the LME started to bottom out and now rebounded. Here it’s important to keep in mind the correlation between copper inventories and the copper price. In periods where inventories are getting built up again, the price of copper tends to move at least sideway or to sell off. Combine this with recession fears and you have a decent argument for declining copper prices over the next few months (even though it’s a key metal to develop our carbon-neutral world over the long-term)

Elsewhere In The Macro World

Yields are on very overstretched levels on a relative basis

From a technical perspective 10Y treasury yields are very overstretched. This chart by Yardeni Research confirms that view. On a 13-week change basis, we’re now in regions where the rate of change usually tends to top out and reverse to the downside again. Moreover, the Citi Economic Surprise Index is confirming that aspect as well.

By the way, I was having a great discussion with Jack Farley from Blockworks about the commodity markets, which appeared on Thursday.

This week look out for:

• CPI data on Tuesday
• PPI data on Wednesday
• Retail Sales data on Thursday

BTW If you would like to see more commodity and macro content like this - consider following me on Twitter @lukaskuemmerle