Commodity Conversations News Monitor

Revenues at Goldman Sachs’ commodity unit have exceeded $2.2 billion in the final months of 2021, exceeding those for 2020, after the team placed big bets on rising prices. The bank remains hugely bullish on energy prices, betting that we are in a commodity super-cycle that could last a decade.

With world food prices back to where they were in 2011, Bloomberg worries that some countries may see food riots and social unrest. However, after nearly doubling in 2021, fertilizer prices are beginning to fall, raising hopes that food inflation might also ease.

Soy farmers in South Brazil are battling a severe drought that could wipe out their harvest in some areas. Good rains in the top-producing state of Mato Grosso could partially offset losses in the south. Still, some forecasters have cut their estimates for Brazil’s total soy output this year by some 10 to 11 million tonnes to about 133-134 million tonnes.

A USDA report on drought preparedness finds that approximately 80 per cent of US irrigation organizations don’t have a formal plan for responding to future water scarcity. As recently as November, 28 per cent of the US was affected by severe to extreme drought. The drought is mainly located west of the Mississippi River, with arid conditions in far Western states. By contrast, Maine has produced a record potato crop.

Ships looking to avoid delays at China’s Ningbo port are heading to Shanghai, causing growing congestion. Ships are also re-routing to Xiamen in the south.

Maersk has upgraded its full-year guidance and expects to report up to $1.8 billion in Q4 earnings for a revised full-year EBIT of $19.8 billion. It comes on the back of an 80 per cent hike in its average freight rate, compared with Q4 2020, and despite a 4 per cent decline in liftings. Maersk’s 2021 earnings will easily exceed the previous five years combined.

In the last quarter, operating margins for container shipping companies ranged from 67 per cent for Evergreen to 52.7 per cent for Costco and 40.8 per cent for Maersk. The industry will report about $190 billion of combined operating profit for 2021, more than the operating earnings at Apple and Microsoft Corp. combined.

Maersk has exercised options for four additional new build containerships powered by carbon-neutral methanol. Maersk placed its original order for eight 16,000 TEU methanol-fuelled ships in August 2021, with delivery planned in the first quarter of 2024. They will have a dual fuel engine setup to enable green methanol or conventional low sulphur fuel operation.

Maersk has meanwhile announced that it is bringing forward the date by which it hopes to be carbon-neutral from 2050 to 2040.

The NGO Global Canopy reports that a third of the 350 companies most exposed to commodities such as palm oil, beef and timber has no policies to ensure their products are not fuelling deforestation. The UK has already made it a legal responsibility for companies to ensure no illegal deforestation in their supply chains, and the EU and US are looking at similar legislation.

The Guardian writes that a Brazilian farm that has in the past sold corn and soy to Cargill will be blacklisted this year under the Soy Moratorium, a voluntary industry agreement that bars the trade in soya beans on Amazon land deforested after 2008.

Brazil will stop monitoring deforestation in the Cerrado due to budget cuts. Deforestation in the Cerrado rose 8 per cent to 8,531 square kilometres for the 12-months through July.

The USDA aims to double the US’s cover crop plantings to 30 million acres by 2030, spending $38 million to help farmers in 11 states plant cover crops to bolster soil health, limit soil erosion and capture and store carbon.

Bloomberg writes of the future of lab-grown meat and asks when FDA approval will be forthcoming. The sector is optimistic about its prospects, particularly after the USDA awarded a $10 million grant to Tuft’s University over five years to establish the National Institute for Cellular Agriculture.

A UK government-commissioned survey found that 42 per cent of respondents said that nothing could persuade them to try lab-grown meat, but 27 per cent might try it if they knew it was safe to eat and 23 per cent if they could trust that it was properly regulated. The majority (67 per cent) reported that nothing could make them try edible insects, although 13 per cent could if they knew they were safe to eat and 11 per cent if they looked appetizing.

After meat and coffee, researchers are turning their attention to lab-produced palm oil. Bill Gates’ investment fund, Breakthrough Energy Ventures, has invested $20 million in C16 Biosciences to develop a microbial palm oil alternative. As with all lab-based options, the problem is to scale production economically.

Scale might not be a problem securing protein for animal feed from Scotland’s gorse and broom bushes, invasive species that landowners clear each year. Gorse contains 17 per cent protein, and broom has 21 per cent protein.

Environmental groups are against the US administration’s proposed Build Back Better Bill that encourages livestock and dairy farmers to trap methane gas and sell it for electricity or vehicle fuel. They say that if capturing and selling methane from cows becomes profitable, it could incentivize large farms to grow, increasing greenhouse gas emissions. One policy analyst said, “If you start making money off of pollution, you’re not going to stop polluting.”

A new study published in Nature argues that the world’s more than $200 billion of agricultural subsidies are neither healthy nor sustainable. It finds that about two-thirds of all subsidies are non-specific, allowing farmers to use them as they wish. The report argues that the support should be redirected in ways that are good for the environment and consumer health, specifically away from meat and dairy.

The US administration is considering reducing the 2022 ethanol blending mandate below the proposed 15 billion gallons. Last December, the US EPA proposed reducing ethanol requirements for 2020 and 2021 but restoring them to 15 billion gallons for 2022.

The US Supreme Court has refused a bid to revive a 2019 EPA waiver that allowed year-round sales of E15, effectively lifting summertime restrictions. The Supreme Court agreed with an earlier lower court ruling that the agency had exceeded its authority in granting the waiver.

ExxonMobil has bought a 49.9 per cent stake in Biojet. This Norwegian biofuel company plans to convert forestry and wood-based construction waste into biofuels and biofuel components that meet the requirements for advanced fuels under Norwegian, EU and UK regulations. Biojet intends to begin commercial production in 2025.

ADM has signed a letter of intent with Wolf Carbon Solutions to build a 350-mile steel pipeline to capture and transport carbon dioxide produced at ADM’s ethanol facilities at Clinton and Cedar Rapids, Iowa, to a sequestration site in Decatur, Illinois.

In trade news, India has agreed to allow US pork and pork imports, removing a longstanding trade barrier. However, China will maintain tariffs on US distillers grains (DDGS) imports but will conduct a review that may see the tariffs lifted in January 2023.

Finally, Sprudge agrees with the New York Times that robusta will take market share from arabica as climate change makes the latter harder to grow.

© Commodity Conversations ® 2022

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