Commodities Corner: Lean Hogs Target $1, Palladium Posts 11% Weekly Gain

It’s Hog Town 

Lean hog futures continued their 2021 rally this week, rising on tightening supplies and strengthening demand. Not even tense US-China discussion squelched hog prices in recent sessions. Could lean hog futures target $1 next? 

The US and China held talks in Alaska this week to touch upon a wide range of subjects. But the meeting ended abruptly, with both sides accusing each other of nefarious intent. Beijing accused Washington of encouraging countries “to attack China,” while American officials argued that the Chinese representatives “arrived intent on grandstanding.” Overall, the White House is worried about Xinjiang, Hong Kong, Taiwan, and cyberattacks. Beijing is perturbed by the US utilizing its military and financial supremacy to suppress other nations. 

Market analysts had flirted with the possibility that this would force China to start purchasing fewer US pork quantities. However, industry observers argued that it is unlikely to happen because demand is so strong, particularly as the broader economy reopens in the aftermath of the COVID-19 public health crisis. 

Investors also combed through the US Department of Agriculture’s (USDA) latest report that assessed the monthly cattle-on-feed numbers. According to the USDA, on-feed supplies this month stood at 102%, up from 98% in February. 

Hog markets will monitor the resurgence of the African swine flu in China. The disease had decimated the country’s hog supplies in 2018 and 2019. Authorities had prognosticated that supplies would return to pre-crisis levels by 2022 at the latest. But if African swine fever cases increase again, China might need to rely on foreign markets for its consumption needs. This would bode well for hog prices. 

• Friday Settlement: -0.005 cent, or 0.05%, to 94.25 cents per pound 
• Weekly Performance: +3.34% 
• YTD Performance: +33.97% 

Palladium’s Double-Digit Weekly Gain 

It was a decent week for the precious metals, but it was an even better performance for palladium.  

The industrial metal was driven mostly by reports that production could be lower than initial forecasts. Nornickel, Russia’s mining giant, warned that platinum, palladium, and nickel output could be as much as 20% lower than its original guidance. In recent weeks, there have been several mine closures due to water problems. This could result in the loss of 710,000 ounces of palladium this year. 

This could drive palladium prices in 2021 and 2022 since international demand for the white metal remains strong. Financial analysts say that platinum could outperform gold over the next two to three years because of intense industrial demand.  

Palladium demand has increased this year, mainly from auto and investment demand. Money managers and hedge funds have begun to pour into palladium-related investments, especially with inflation on the horizon. 

Moreover, automakers continue to look for cheaper alternatives to palladium to meet government emission standards. Until then, they need to rely on industrial metal. Today, palladium’s primary function is in catalytic converters to strip pollutants from vehicles that run on diesel. Should electric vehicle adoption spike, demand for both platinum and palladium could spike. 

• Friday Settlement: -$39.80, or 1.49%, to $2,623.00 per ounce 
• Weekly Performance: +11.17% 
• YTD Performance: +6.82% 

Is Oil Bubbling Into Correction Territory? 

Crude oil prices experienced a substantial correction this week, with both West Texas Intermediate (WTI) and Brent contracts tumbling around 6%. The decline surprised financial markets since it has been traveling on a rocket to the moon for most of the calendar year. So, what happened? 

For the most part, oil took a breather from its rally on fears of economic uncertainty amid hiccups in the vaccine rollout program worldwide. While it seems to be on course in the US and the UK, other parts of the world are suffering from logistics headaches and concerns over the efficacy of the coronavirus vaccines, including Astra Zeneca. Experts warn that the world is in a race against time because the variants might intensify and initiate additional waves across the globe. 

US inventories continue to increase, too. According to the US Energy Information Administration (EIA), domestic inventories of crude rose by 2.396 million barrels in the week ending March 12. This is lower than the median estimate of 2.964 million barrels. In the previous week, US stocks soared close to 14 million barrels. 

The industry is filled with news, too. The US administration warned China to stop purchasing Iranian discounted crude oil amid sanctions. New data found that Saudi Arabia enhanced crude exports in January. Venezuela’s energy sector could witness renewed growth as President Nicolas Maduro has promised to abolish the government monopoly on the sector, a move that could potentially enhance output. Saudi Arabia confirmed another drone attack on a Riyadh refinery, although officials say that the crude supply is safe. 

Ist this week’s abysmal performance confirmation of the International Energy Agency’s (IEA) statement that oil is not in a supercycle? The Paris-based group dashed estimates that crude demand would return to pre-pandemic levels this year, writing in a report: 

Global oil demand, still reeling from the pandemic’s effects, is unlikely to catch up with its pre-Covid trajectory. 

West Texas Intermediate (WTI) Crude Oil  

• Friday Settlement: +$1.45, or 2.41%, to $61.51 per barrel 
• Weekly Performance: -6.18% 
• YTD Performance: +27.03% 

Brent Crude Oil  

• Friday Settlement: -$0.07, or 0.11%, to $64.46 per barrel 
• Weekly Performance: -6.89% 
• YTD Performance: +24.63% 

Are Investors Forecasting Weaker Cocoa Demand?

Could demand plummet for cocoa? The world’s top cocoa producers, Ghana and the Ivory Coast, are waiting for news from Zurich. It is being reported that Barry Callebaut, the Swiss chocolatier, is monitoring the coronavirus vaccine situation unfold in Europe. Reportedly, the company is paying strict attention to what is happening with the Astra Zeneca vaccine. 

This matters for cocoa-rich countries because how Barry Callebaut reacts could determine how much cocoa beans its grinds for the rest of the first quarter and perhaps into the second quarter. 

Cocoa prices have also slumped this year, sliding approximately 4%. The industry has tumbled as investors are factoring in vast supplies and weaker demand. This could weigh on economies that rely on cocoa production and exports. 

It did not help the sector when Belgian chocolatier Godiva announced that it was shutting down 128 retail chocolate stores and cafes in North America by the end of March. The move was surprising because cocoa demand had remained relatively strong in the US. But the decision may have been made on consumption declining in Europe and Asia during the fourth quarter. 

• Friday Settlement: -$14.00, or 0.56%, to $2,479.00 per metric ton 
• Weekly Performance: -4.06% 
• YTD Performance: -4.54% 

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