The grains sector hit a fresh record high with the Bloomberg Grains Spot Index sprinting to a +30% gain on the year. Soybeans led the rally, followed by wheat with corn registering a small loss in the week. Global worries about a food crisis persist with disruptions in shipments from the Ukraine, one of the world’s most important supplier of high-quality wheat and sunflower oil causing ripples around the world. Ukrainian farmers have almost completed the sowing of spring wheat for the 2022 harvest and the overall rate of this year's spring crop sowing is 25% lower than at the same date in 2021, the agriculture ministry said on Friday.
A couple of positive supply news, however, helped ease but by no means remove worries about a global food crisis. Palm oil slumped after Indonesia ended its short-lived export ban. Wheat which earlier in the week surge to fresh highs in Europe and the US on worries about supplies from India saw prices ease on forecast for a bumper crop year in Russia. However, comments from agriculture analysis firm Gro Intelligence that the world only has 10 weeks’ worth of wheat consumption in reserve will keep prices supported. At least until we get some more clarity over production levels in Europe and North America, both areas that have seen a challenging weather-related start to the growing season.
In our latest industrial metal-focused update, we wrote that the precious metals sector was looking to China for a rebound and, indeed, this week saw some of the signals that China is starting to turn more supportive. Before then, the Bloomberg Industrial Metal Index had lost 25% since the early March peak, with the main catalysts – aside from global growth worries – being China and its zero-Covid policy. Outbreaks in Shanghai and Beijing have been met with a prolonged period of lockdown, hurting economic growth and creating major bottlenecks across global supply chains.
This week in China, we saw retail sales slump 11% and youth unemployment hit a record 18.2%, as well as economists forecasting downgraded GDP. Responding to these developments on Friday, Chinese banks cut their 5-year loan rate by a record 0.15 basis points. Keep in mind, this is happening while the rest of the world is going in the opposite direction, and it highlights the Chinese government’s willingness to support the economy. More support will likely follow as the government seeks to support infrastructure and property projects, which are both critical for industrial metal demand.
Around the timing of the early March peak in prices, stock levels of the four major industrial metals held at warehouses monitored by the LME and Shanghai Futures Exchange stood at 1.77 million tons. Instead of rising as demand according to the price action showed weakness, this level has continued to fall, reaching 1.43 million tons this week – a 19% decline during this time.