The Capital.com app service, which offers trading on the most popular metals and energy commodities such as gold, silver, crude oil and Brent oil, is expanding. A range of commodities under the four main categories – agriculture, livestock, metals and energy – is being added to the service via two tranches.
The first tranche will include Copper; Heating oil; Gas oil; Carbon Emissions (EUA); Coffee C; Robusta Coffee; Cotton No 2; London No 7 Cocoa; N.Y. Cocoa; Orange Juice; Sugar No. 11; Sugar No. 5 and London Wheat.
This will be followed by a second tranche consisting of Feeder Cattle; Live Cattle; Soybean Meal; Soybean; Corn; Lean Hogs; Lumber; Oats and Wheat.
Each commodity has its own history of trading, degree of volatility – or lack of volatility in certain cases – and main drivers of price change.
A long-established business
The history of commodity trading is one that goes back centuries and pre-dates trading stocks and bonds. Ancient civilizations traded a variety of commodities, from seashells to spices.
Hedge funds and other large-scale investors dominate today’s trades, but individual investors seeking to include commodities in their portfolio can access them through exchange-traded funds (ETFs). They can also invest in companies such as BP and Rio Tinto to gain exposure to commodities in the energy or metals category.
However, still the most popular form of investment is the futures contract – an agreement to buy or sell an underlying commodity at a specified future date and price. Each futures contract represents a specific amount of a given commodity. The futures market attracts two basic types of investor – the commercial or institutional user of a specific commodity and the speculator.
While mergers and acquisitions have trimmed the numbers, there are still many commodities exchanges around the world. The world’s leading commodities trading market is the CME Group in the US, formed by the merger of the Chicago Mercantile Exchange and the Exchange and Chicago Board of Trade in 2006
CME owns the New York Mercantile Exchange (NYMEX), the world’s largest physical commodity futures exchange, offering exposure to a wide variety of products. Commodity Exchange (COMEX) is a division of the NYMEX and offers exposure to various metals contracts, competing with the London Metal Exchange for trading in metal commodities.
Other major US exchanges include the Intercontinental Exchange in Atlanta and the Kansas City Board of Trade. The Intercontinental Exchange (ICE) became the centre of global trading in “soft” commodities in 2007, following its acquisition of the New York Board of Trade (NYBOT). Now known as ICE Futures US, the exchange offers futures and options on futures on soft commodities including cotton, cocoa, frozen concentrated orange juice, sugar and the Coffee “C” contract based on arabica coffee.
CME accounted for just over one in three of the 25 billion commodities futures and options contracts traded last year. India’s National Stock Exchange (NSE) was number two, but China is fast becoming one of the world’s largest and most active futures trading markets. Last month saw China oil futures contracts, tradeable in renminbi, launched by the Shanghai International Energy Exchange, with international commodities traders allowed to buy and sell for the first time.
The Capital.com app service is adding no less than 15 agri-commodities: Coffee C; Robusta Coffee; Cotton No 2; London No 7 Cocoa; NY Cocoa; Orange Juice; Sugar No. 11; Sugar No. 5; London Wheat; Soybean Meal; Soybean; Corn; Oats and Wheat; and Lumber.
Coffee C and Robusta coffee
The two largest coffee futures exchanges are located in New York (Arabica) and London (Robusta). Coffee futures first traded in New York in 1882 and today their home is ICE Futures US. Options on coffee futures were added in 1986. Futures and options on futures are used by both the domestic and global coffee industries to price and hedge transactions. The ICE Futures US Coffee ‘C’ contract is the global benchmark for world Arabica coffee prices and the exchange is the exclusive global market for Coffee ‘C’ futures and options.
The contract trades under the contract symbol ‘KC’. The contract size is 37,500 pounds and trades are in US dollars and cents per pound. Most of the world’s coffee is purchased by the multinationals Procter and Gamble, Kraft, Nestle and Sara Lee and demand is regarded as price inelastic, as consumers don’t significantly reduce their consumption when prices rise.
Brazil is the world’s largest coffee producer and prices have recently been subdued on the prospect of a good crop there this year, although Vietnam has developed as a major producer of robusta beans. The coffee market is typically quiet for prolonged periods, but an adverse weather report can trigger major price volatility.
Coffee is measured in 60kg bags and traded in US dollars, so the exchange rate impacts on the price with coffee often moving in line with the dollar exchange rate. If the dollar goes down against the euro, the price of coffee should increase and vice versa.
Cocoa and NY Cocoa
Cocoa is regarded as a niche commodity compared with other agricultural contracts such as corn or soybeans. In 2013, ICE, which operates the New York cocoa contract, acquired New York Stock Exchange (NYSE Liffe), owner of the London cocoa futures, so now has both products.
Cocoa trees typically take five years to reach maturity and bear fruit. West Africa accounts for about 70% of global market share, with Cote d’Ivoire, Ghana and Indonesia the main producers. Latin America is another key player, with Brazil, Ecuador, Mexico, Peru, Dominican Republic, Columbia, Venezuela and Guatemala all major producers. The prospect of good crop yields this year from producer the Ivory Coast has recently been keeping cocoa prices lower.
Price volatility can be caused by adverse weather conditions, geopolitical unrest, climate change that adversely affects healthy growth and regulation that pushes up the price of labour.
The London cocoa futures contract is a long-established global benchmark for pricing physical cocoa. It is actively traded by producers, exporters, trade houses, processors and chocolate manufacturers as well as by managed funds and both institutional and short‑term investors. The cocoa contract is the world benchmark for the global cocoa market. The contract prices the physical delivery of exchange-grade product from African, Asian and Central/South American producers to any of five US delivery ports.
Cocoa trades on CME Globex under the symbol ‘CJ’ and on ICE under ‘CC’. The contract size is 10 metric tons.
The commercial orange juice industry was transformed in 1945 with the invention of frozen concentrated orange juice (FCOJ). As millions of post-war consumers acquired refrigerators, an international marketplace developed. Before then juice was always freshly-squeezed and the commercial orange juice industry was much more vulnerable to supply shocks, as it was a perishable commodity. Frozen concentrate was the most popular form of juice until 1985, when reconstituted and not-from-concentrate juices overtook it.
The US, where the state of Florida is the main grower, is still a major orange juice producer but the crop is vulnerable to frosts and hurricanes. Brazil has become the world’s top producer and the US is followed by Mexico, the European Union, China and South Africa. Orange trees take about four years from planting to bear fruit, eight years to reach their prime and continue to produce for 20 to 25 years. In addition to cold weather, prices rose in 2012 when the US detained juice imports from Brazil and Canada upon finding they contained traces of an illegal fungicide.
Orange juice futures trade on the ICE under the symbol ‘OJ’ and the contract size is 15,000 pounds of orange juice solids.
Sugar No. 11 and Sugar No. 5
Once known as “white gold”, refined table sugar has become a staple food despite rising concerns that it is a major cause of obesity and other health-related problems. About 80% of world production comes from sugarcane, grown in tropical and subtropical areas and 20% from sugar beets in the temperate zones of the Northern Hemisphere. Around 70 countries produce sugar from sugarcane, 40 from sugar beets and 10 from both, with Brazil, India, China, Thailand and Pakistan the top producers.
“Europe’s sugar taxes in Europe might dampen demand, but in recent years consumption has been flat anyway – unlike Southeast Asia and Africa, where demand has been increasing annually by around 5%,” says Warren Patterson, commodities strategist at ING. “Prices are currently fairly low due to large surpluses, although this will help keep demand buoyant.
“European Union farmers, who had their production limited by quotas imposed on production, are free to increase their acreage as the quota scheme was scrapped last October. Also, as sugar is a cheap form of energy Brazil is attempting to boost production for use in the alternative fuel ethanol.” Add to this output from Russia, which in recent years has gone from being an importer of sugar to a major exporter.
The Sugar No.11 contract is the world benchmark contract for the physical delivery of raw cane sugar. The contract includes shipping costs to the purchaser’s ship at a port inside the country of origin, known as free-on-board. Sugar usually adheres to a consistent seasonal pattern, so price movements may be fairly predictable depending on which harvest season is upcoming.
No. 11 sugar futures contracts trade on NYMEX under the symbol ‘SB’ and are quoted in dollars and cents per pound. Each contract represents 112,000 pounds. They also trade on the ICE with the same contracts offered on the NYMEX. Investors can also use India’s Multi Commodity Exchange (MCX) based in Mumbai.
While sugar is traded around the year, investors usually focus on the peak seasons. Where futures are concerned, prices typically bottom out around April and May. In recent years, they have then spiked in June and July as peak harvesting has got underway and the demand for sugar increases.
Sugar No. 5 is the futures contract for white crystal cane or beet sugar at a minimum of 99.8 degrees polarisation and is used as the global benchmark for pricing physical white sugar. It is actively traded by the international sugar trade, sugar millers, refiners and manufacturers as well as by managed funds and both institutional and short-term investors
The No. 5 contract is traded on the London LIFFE exchange (part of NYSE Euronext) for delivery in March, May, August, October and December. The contract size is 50 tons and pricing is displayed in dollars per tonne
Soybeans and Soybean Meal
The US and Brazil are the world’s two biggest producers of soybeans, with Brazil a major exporter. However, Argentina has significant processing capacity and is a major exporter of soybean meal. The first quarter of 2018 has seen Argentina’s soybean crop yields steadily reduce due to drought, offset by Brazil which has enjoyed its second successive record crop.
“China is the biggest buyer of soybeans and even before the recent trade war conflict with the US was increasingly moving its purchases to South America,” says ING’s Warren Patterson. “However, seasonality of supply means that China can’t become entirely independent of the US, whose soybean crops peak at a different time to those of Brazil.”
US farmers debate spring plantings each year, when soybeans compete for acreage with corn, spring wheat, cotton and other crops. The US Department of Agriculture publishes its Prospective Plantings report in late March on how much acreage is likely to be allocated to respective crops. The forecasts can produce volatility on the Chicago Board of Trade.
The USDA estimates that for the first time this year more space will be allocated by US farmers to soybeans than to corn – although this forecast was before President Trump escalated the trade war and China responded by threatening tariffs on US soybeans. Nonetheless, soybeans have grown in popularity – higher expected returns on the oilseed over corn saw American farmers plant a record 90.1 million acres last year, 8% more than in 2016.
Crop rotation is a major consideration, as planting soybeans in consecutive years can make disease management more difficult and accelerate soil erosion. Soybean planting gets underway in May, with more than two-thirds of the crop sown during the month and harvesting takes place from late September.
The US is the world’s biggest producer, followed by Brazil, Argentina, China, India, Paraguay and Canada. In the early 1920s, the AE Staley Manufacturing Company in the US began to crush soybeans, developing soy oil for cooking and soy meal for feeding chickens and hogs. The soybean developed into a major soft commodity and is an important source of protein. Today, most of the crop is allocated for vegetable oil and animal feed, despite the growing popularity of tofu, soy milk and other soy products.
Soybean traders often use a strategy called the crush spread, buying one contract of soybeans and simultaneously selling one contract of soybean oil and one contract of soybean meal. This creates a hedge against supply and demand factors. Soybean prices are affected by several factors, including the demand for biodiesel, real and perceived health hazards, the strength of the dollar, emerging market demand and growing conditions.
Soybean futures are traded on CME Globex under the symbol ‘ZS’ and the contract size 5,000 bushels. For soybean oil, the symbol is ‘ZL’ and the contract size is 60,000 pounds.
Soybean meal, produced by grinding high-quality residues from soybean oil production into a yellowish-green flour, is popular for livestock and poultry diets due to its high protein levels, amino acid balance, and overall nutrient content. US soybean meal futures are traded on CME Globex under the symbol ‘ZM’ and the contract size is 100 short tons.
Corn is among the world’s most versatile grains. In addition to being a dietary staple, its uses extend to animal feed, biofuels, sweeteners and other consumer products. The US accounts for 40% of global production, harvesting more than 15 billion bushels per year and other major producers include Argentina, Brazil, China and the European Union.
Like several other soft commodities, trading corn futures also tends to be subdued over the winter months. Corn is planted in the spring and harvested in the autumn, so most of the volatility in corn prices occurs during the growing season. The summer months can be marked by drought or other extreme weather conditions, with each updated weather report impacting on prices. The December futures contract is the new-crop contract each year and usually has the greatest price volatility over the growing season.
Corn plantings in the US last year were 90.2 million acres, down 4% from 2016, but yields have improved to reach a record 176.6 bushels per acre. As US farmers plant corn earlier than soybeans, deciding how much is influenced by weather conditions in late April and early May. If the perfect planting window opens up, a farmer may opt to take advantage and put some corn in the ground. Periodically, fears of crop damage result in sharp price spikes, such as in 2012, when drought took the price of corn to an all-time high.
Other factors impacting on the price include demand for the fuel ethanol, which is derived from corn (and sugar beet), the strength of the dollar, government regulation, drought, floods and extreme weather conditions and the increasing demand for meat from emerging markets, which means more corn is used for livestock feed.
Although corn production has been buoyant and inventory levels high, export demand for US corn has been at record levels since the start of 2018. Coupled with strong demand from ethanol, this could sharply cut current inventories over the summer. ING’s Warren Patterson says that lower oil prices since 2014 hasn’t reduced demand for ethanol, as motorists have been encouraged to use their cars more and sales of traditional ‘gas guzzlers’ have revived
“The US is the biggest producer of ethanol and Brazil, which currently gets much of its ethanol from sugar cane, is looking to increase the proportion derived from corn,” he adds. “Demand for ethanol will also increase in China, which is adopting a serious attitude to environmental issues and last September mandated that from 2020 all gasoline has a 10% ethanol content. Corn prices probably haven’t yet started rising in response to this guaranteed increase in demand.”
Corn trades on CME Globex under the symbol ‘ZC’. Corn futures are also traded at the Chicago Board of Trade (CBOT), NYSE Euronext (Euronext) and Tokyo Grain Exchange (TGE). CBOT corn futures prices are quoted in dollars and cents per bushel and are traded under the symbol ‘C’ in lot sizes of 5000 bushels (127 metric tons).
Euronext Corn futures are traded under the symbol ‘EMA’ in units of 50 tonnes and contract prices are quoted in dollars and cents per metric ton. TGE Corn futures prices are quoted in yen per metric ton and are traded in lot sizes of 50 tonnes.
Oats and wheat
Displaced to some extent in recent years by soybeans and corn, oats continue to be a major food source and their high nutritional value make them a staple food in many countries. Oats are also used as animal feed, for cosmetics and as a winter cover crop in no-till rotations.
Displaced to some extent in recent years by soybeans and corn, oats continue to be a major food source and their high nutritional value make them a staple food in many countries. Oats are also used as animal feed, for cosmetics and as a winter cover crop in no-till locations.
Oats are planted in the spring and early summer in colder areas and harvested in late summer and early autumn. Russia is the world’s biggest oats producer, representing more than 20% of total world output. Other top producers include Canada, Poland, Finland, Australia and the US. In addition to adverse weather conditions, prices are also affected by the comparative price of corn and other feed grains.
Oats are traded on CME Globex under the symbol ‘ZO’ and the contract size is 5,000 bushels.
Cultivation of wheat dates back at least 9,000 years to southwest Asia. Its versatility means that it is grown on more land area worldwide than any other crop and it is only surpassed by corn and rice in total production. Wheat is harvested somewhere in the world each month of the year, with the European Union, North America, China, India, Russia and Australia among the top producers.
“The biggest change has been the dominance of Russia, which has produced record crops and become a major exporter of wheat,” says ING’s Warren Patterson. “Sanctions and the resulting weakness of the rouble have meant good returns for Russian farmers.”
Wheat is one of the world’s most important agricultural commodities, with two-thirds of global production going to foodstuffs. Milled into flour, wheat is used in foods including bread, pasta and cake and other baked goods. Much of the remaining one-third of production is used for livestock feed.
Wheat prices are liable to severe volatility, with extreme weather and natural disasters causing supply chain disruptions. Although price volatility is more likely in the summer, when weather conditions are scanned regularly, recent months have seen particular concerns over the quality of the US winter wheat crop, much of which has been rated as ‘poor’ or ‘very poor’. Price is also vulnerable to import and export restrictions, changing interest rates, energy costs, stock levels or inventories and the strength of the dollar.
Wheat trades on CME Globex under the symbol ‘ZW’ and the contract size is 5,000 bushels.
The UK feed wheat futures contract is established as the European benchmark for the pricing of physical feed wheat. It is actively traded by cooperatives, merchants, traders, exporters and processors who include feed compounders, millers and starch manufacturers.
Feed wheat futures trade on LIFFE under the symbol ‘ICEU’. Each contract is for 100 metric tonnes of feed wheat and prices are quoted in €0.25 per tonne. A set of guidelines is applicable to the quality of the wheat, such as that it should be sound and sweet, in good condition, containing not more than 3% heat damage and with a moisture content of 15% maximum.
Wheat prices in the UK have recently bucked global trends with ongoing demand from end users and merchant shorts underpinning the market.
Cotton No 2
Cotton is the world's most popular fibre, thanks to its lightness and absorbency, enabling it to be spun and woven into yarn or textiles to for clothing, bedsheets and towels. Its popularity has endured despite growing competition from synthetic materialst.
China, India and the US are the world’s top three cotton producers and the commodity has recently been in focus due to the threat of an escalating US-China trade war. China is a major buyer of US cotton, which it uses to blend with its own production. The US also sells much of its output to Southeast Asia, some of which ultimately goes to China in the form of finished products.
Good yields depend on sunshine, moderate rainfall and heavy soils, so the top producing US states for cotton are Florida, Mississippi, California, Texas and Arizona. Planting begins in February and the harvest takes place in the autumn. In addition to the pricing factors of drought, flood and natural disasters, cotton is among the most subsidised crops in the US and any change to subsidy levels could also affect the price.
Currently, increased price protection for US cotton growers could mean farmers opting to plant more of the crop over soybeans and corn this year. The US Department of Agriculture forecasts 13.3 million cotton acres for 2018, up 5.5% from 12.61 million last year.
Cotton No. 2 Futures trade on the NYCC under the symbol ‘CT’, CME Globex under the symbol ‘TT’ and the ICE under the symbol ‘CT’. The contract size is 50,000 pounds net weight.
Lumber differs from many other agricultural commodities as it has industrial applications. The building and furniture industries are major users of lumber from trees, and manufacturers in several sectors use the rubber produced by latex trees.
The lumber industry fells trees, removes branches and creates logs for trucking to sawmills, where it is cut to various sizes before shipment. The industry produces two types of wood: softwood and hardwood. Softwood comes from trees whose seeds are protected by cones and are the primary lumber used in construction as they are easy to saw and nail. Hardwoods have seeds protected by a covering, such as an acorn and are ideal for furniture manufacturing, wood flooring, construction, panels and kitchen cabinets.
The world’s top wood products exporters are Canada and the US, Sweden, Finland, Germany, Russia and Brazil. Factors affecting the price include the state of the housing market, with the US Department of Commerce’s housing stats report a key publication for investors. The US/Canadian dollar exchange rate, interest rates, demand for other wood-derived products such as paper, natural disasters and infestations – such as that from the mountain pine beetle – also influence the price.
Economic recovery around the world has seen the price of wood rising since late 2015. Last year it reached new records, surpassing $400 per 1,000 board feet in April and the rally has extended into 2018.
However, lumber is a highly illiquid commodity as regards the futures contracts offered by the CME Globex, where it trades under the symbol ‘LBS’. The contract size is 110,000 board feet of lumber, although the CME contract quotes the price of wood in dollars per 1,000 board feet. Earlier this month, May futures settled at $536.20, making a contract of lumber worth nearly $59,000.
Potential investors are cautioned that trading lumber on the futures market can be risky due to its lack of volume and open interest. Price action in the lumber market is a good indicator of the state of several other markets – for example retail – that are equally sensitive to economic conditions.
The Capital.com app service is adding three commodities under this category: Heating oil; Gas oil; and Carbon Emissions (EUA).
Heating oil is an essential fuel for furnaces and boilers that heat homes and business premises. As a by-product of crude oil, its price is directly affected by West Texas Intermediate (WTI) crude oil prices. These are, in turn, driven by periods of cold weather that spike increased demand, typically between the months of October to March. Other factors include refining costs, the price of alternative heating fuels, improved to building insulation and other heat efficiency and government regulation.
Consumers and producers of heating oil can manage heating oil price risk by purchasing and selling heating oil futures. These are standardised, exchange-traded contracts in which the contract buyer agrees to take delivery, from the seller, a specific quantity of heating oil at a predetermined price on a future delivery date.
Producers can use a short hedge to lock in a selling price for the heating oil they produce while their business customers can employ a long hedge to secure a purchase price for the commodity they need. NYMEX heating oil futures prices are quoted in dollars and cents per gallon and are traded in lot sizes of 42000 gallons. Heating oil also trades on CME Globex under the symbol ‘HO’.
Gas oil accounts for a quarter of the yield from a barrel of crude, the second-largest proportion after petrol and is used for heating and generating power. Gas oil price fluctuations are therefore similar to those of crude oil.
Trading for gas oil futures contracts is conducted on the ICE and NYMEX. Gas oil trading options and futures are widely used by companies to hedge against diesel and jet fuel costs and by traders to take advantage of profit-making opportunities. Traders can conduct trade in gas oil via futures, options, crack spread options or average price options contracts. The options give traders improved flexibility in managing their price risks.
The underlying physical asset for gas oil futures contracts offered on the ICE exchange, which include a low sulphur gasoil futures contract, is gas oil barges delivered in Antwerp, Rotterdam and Amsterdam (ARA). Gas oil futures contracts are used as the pricing reference for all distillate trading across Europe and other countries.
Pricing for gas oil futures is in dollars per metric ton. Low sulphur gasoil futures trade under the symbol ‘ULSD-ARA’ and the contract size is 100 metric tonnes.
The market for carbon emissions trading is one of the more recent and fastest-growing. Worth an estimated $176 billion in 2011, the figure could surpass $1 trillion by 2020. At least 84% of this total is derived from the European Union’s emission trading scheme, aka the ‘cap and trade’ programme. Launched in 2005, the scheme imposes limits on the emissions for any company doing business in the EU. Emissions trading specifically targets carbon dioxide, calculated in tonnes of carbon dioxide equivalent (tCO2e).
This form of permit trading has been developed by countries to meet their obligations in reducing carbon emissions and attempting to minimise future climate change, as set out in the Kyoto Protocol signed in December 1997. Governments distribute a finite number of – or ‘cap’ – CO2 “credits” to companies. Carbon trading enables companies to then buy or sell these government-granted allotments
The EU issues about two billion European Union Allowances (EUAs) each year. As companies can only emit as much CO2 as they have credits for, trading results from those below their CO2 limit selling their credits to companies that exceed the limit. Those businesses that burn coal and other fossil fuels, such as utilities and companies in heavy industries, are therefore the biggest traders. There is currently no cap and trade programme in the US, despite attempts at legislation.
In addition to EUAs, the Kyoto Protocol was also the genesis for Carbon Emission Reductions (CERs) – credits issued to projects in developing countries that reduce emissions – which are traded. There are also greenhouse gas emission credits, covering other pollutants in addition to CO2, which can meet nation-specific caps in the North America, the UK, New Zealand and Japan.
Trading jn EUAs, CERs and other units has been likened to the creation of a new form of currency, with traders extending beyond the emitters themselves to include banks, hedge funds and other investors, which provide liquidity and increase market efficiency. A unit of carbon trading equals the reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases.
The Capital.com app service is adding copper to the metals category.
No metal has been used by humans longer than copper. Like the more highly-valued silver and gold, copper is highly ductile, malleable and a good conductor of electricity. As a non-precious metal it is also suited to numerous industrial applications, including wiring, plumbing, circuitry, generators, motors, vehicle radiators, and home heating and cooling systems.
Copper is also second only to silver as an efficient conductor of electrical current. Its resistance to corrosion and malleability mean that it is heavily used by the construction and electrical industries. Demand has grown due to a boom in the construction industry in developing and industrialised countries, such as China.
“Doctor Copper – as it’s dubbed – is known as the metal with a PhD for its ability to track the global economic health of the economy for its widespread use across manufacturing and construction sectors,” says Oliver Nugent, commodities strategist at ING. “With 40% of demand coming from China it is especially correlated to the Chinese economy. This feature sees copper a firm favourite of funds and as the second largest traded metal on the LME after aluminium even though it is of relatively smaller physical market size.”
Copper is found in ore deposits around the world and extracted through two basic mining methods: open pit and underground mining. In open-pit mining, the most widely-used technique, terraces are created that gradually reach deeper into the earth’s surface. In underground mining, miners dig vertical shafts and horizontal tunnels to reach copper ore further from the surface. Under both methods, mined ore is transported to a plant for processing and refining.
Chile and the US together account for 20% of world copper reserves, with most US copper production in Arizona, Utah, New Mexico, Nevada and Montana. Other major producers include China, Peru and the Democratic Republic of Congo. In addition to mining, over recent years copper has also been obtained through recycling processes. Pricing is influenced by the strength of the dollar, collateral demand from China, extraction costs, unforeseen events such as strikes and political instability and oil prices (due to copper mining being an energy-intensive process).
Nugent adds that copper is principally traded across three exchanges: CME Globex under the symbol ‘HG’ and a contract size of 25,000 pounds, the Shanghai Futures Exchange and the LME, all yielding a wide array of opportunities for arbitrage.
“Copper mining is relatively diversified but South America dominates so news of earthquakes, strikes and floods in Peru and Chile can be major drivers of the price. Scrap plays a major role satisfying demand for the red metal and those flows are highly price re-active, should scrap supplies dry up at low prices then they are likely to rebound and the opposite when prices get too high.”
Recent copper prices have been subdued thanks to rising inventories, risks to global trade and the absence of strikes. However, analysts predict that the metal’s long-term outlook is strong. Underlying demand is robust and many investors are confident that demand will surge in the years ahead, helped by renewable energy and the advent of electric vehicles just as supply shortages start to develop in the early 2020s.
The Capital.com app service is adding the trio of Feeder Cattle, Live Cattle and Lean Hogs under the livestock category.
Cattle have been domesticated for at least 10,000 years and were brought to North America by European settlers in the 1500s. They were originally used for their skins and tallow and by the 1850s, beef gained in popularity, especially in Northern markets.
By the early 19th century, the growing US population was accompanied by a developing commercial cattle industry across the Western frontier. Growth was encouraged by the introduction of the refrigerated rail car in the 1860s, allowing farmers to transport beef from the West to crowded East Coast markets and helped the industry expand rapidly. The creation of the US federal highway system in the 1950s saw further growth.
Feeder cattle are weaned calves raised to a weight of 600-800 pounds. On reaching this minimum weight, the calf is sent to a feedlot to be fattened for slaughter. A period of four to five months is usual for transforming feeder cattle to fully-grown or ‘live’ cattle, which are also a tradeable commodity.
The US is the world’s largest producer of beef in the world, followed by Brazil and the EU. The three regions combined account for 47% of global beef supplies. Pricing is affected by feed prices, global demand for beef driven by income growth, food safety issues, extreme weather, energy prices, the value of the dollar and how beef prices compare against those for lamb, chicken and pork.
Feeder cattle trades on CME Globex under the symbol ‘GF’ and the contract size is 50,000 pounds.
The origins of modern cattle-raising go back at least 8,500 years to Europe and the Middle East. In the US, Spanish explorer Ponce de Leon brought cattle to Florida in 1521 and organised ranching began in the state in 1565.
Calves are born after a nine-month gestation period, weighing between 55 and 100 pounds. Once feeder cattle reach a certain weight, they are sent to feedlots, where they are fattened into live cattle and sold to meat packers. Live cattle are those attaining the necessary weight for slaughter, typically about 1,250 pounds, although they can grow to 1,900 pounds. Their typical natural lifespan is around 15 years.
The US is the world’s biggest producer of beef, producing around 19% with other major producers including Argentina, Brazil, the EU, China and India. The price of live cattle is affected by extreme weather, which affects crops used for feed, global demand for beef, seasonality, food safety recalls and outbreaks such as the bovine spongiform encephalopathy (BSE) epidemic and the value of the dollar.
Live cattle trades on CME Globex under the symbol ‘LE’ and the contract size is 40,000 pounds.
Hogs are both the male and female pigs raised for pork production. Pork is among the world’s most widely-consumed meats and is relatively cheap, so demand has always outstripped that for other meats. Each year, over 100 million hogs are brought to slaughter as the pig farming industry has become intensive. Lean hogs are the most common source for pork meat in the US demand for pork meat is strongest in China.
Hogs’ period of gestation averages only three and half months and they are typically bred twice a year to ensure constant production flow. A litter bears around nine piglets; one month after birth they are weaned from the mother and raised on a special diet to ensure quick weight gain. By the age of six months they weigh about 250 pounds and are ready for the butcher. A matured hog yields around 88 - 190 lbs of meat judged as suitable for consumption.
The lean hog production cycle is cyclical with prices peaking in the period May to July when the number of hogs in the market is lowest and meat producers start the procurement process and storage for the winter. China and the US are the world’s main producers of lean hogs, with China’s pork industry shifting since 2014 from a market that was oversupplied to one of tight supply.
Germany and Spain have become the largest exporters within the eurozone, which is one of the top three producers and consumers. China, Mexico and South Korea are among the major export markets for the US. China’s demand for pork is tied closely to the economy and also seasonal patterns, for example it peaks in January when the Chinese Spring Festival takes place
As with the cattle industry, pork production us vulnerable to epidemic and disease outbreaks, which can impact on the production cycle prices of lean hog futures as a result. A virus outbreak in 2014 called porcine epidemic diarrhoea damaged the guts in the pigs leading to severe dehydration and high mortality rates. Over seven million piglets across 30 US states died from PED Lean hog futures contracts are cleared on the CME Group exchange on the livestock futures complex, which also covers live cattle, feeder cattle and pork belly futures. They trade on CME Globex under the symbol ‘HE’, with each contract unit controlling 40,000 pounds or about 18 metric tons.
Lean hog futures contracts are cleared on the CME Group exchange on the livestock futures complex, which also covers live cattle, feeder cattle and pork belly futures. They trade on CME Globex under the symbol ‘HE’, with each contract unit controlling 40,000 pounds or about 18 metric tons.