Monday, June 5, 2023
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Market Analyst Worried About Commodity Demand

The commodity markets found a little optimism in an April weather forecast that should allow planting to get rolling in rural America. Mike Zuzolo, president of Global Commodity Analytics, says he’s worried about demand for American commodities rebounding in the near term.

“The demand has really never come back in the ag sector in part because of some of these frictions, and these increasing frictions, I would say, that we’re seeing in these relationships with our major trading partners. And I think that’s why the market is very quick to sell and very slow to really buy and be able to change momentum to where the longs have the upper hand for maybe greater than 24 or 48 hours.”

He says that lack of demand is showing up in a couple of key commodities.

“Soft red wheat and hogs are down the most since the beginning of the year. Soft red is down 15 percent and hogs are down 16 percent. First, notice how closely those two are aligned in terms of percentage losses. That’s kind of a footprint of the funds, and if I think of it that way And I go over to the Managed Money Report on the Commitment of Traders, it then lines up even better. That in soft red wheat, we just recorded the biggest net short position since 2017. And in the hogs going all the way back to 2006, in my research, I show a record net short as of last week in futures and options managed money positions, when it comes to the lean hogs.”

Fund buyers in the commodity markets are playing close attention to the supply and demand numbers and it affects price swings.

“That shows you that the hog and the soft red wheat are the ones with the two weakest demand bias and also the two weakest physical demand, it would seem, based upon the numbers that we’re seeing year-to-date on exports, and so the funds, the managed money people, do look at supply-demand fundamentals. They just accelerate and maybe extend out or magnify and overdo the move to the upside and especially the move to the downside.”

It doesn’t take much to move the markets one way or another, but the news isn’t all bad.

“We are really fishing on thin ice when we buy into this market, and that’s why the momentum and sentiment indicators can seem to be so important. Now, does that mean there’s a big wave to the downside coming? No, I don’t think so. I don’t think the fundamentals justify that, especially given the grain stocks report, given the acreage report that USDA just gave us, given the fact that we have extremely bad droughts in parts of France and almost all of Spain, given the fact that Argentina is experiencing its worst drought in over 100 years in some parts. There Again, it goes back to the funds and how they can make worse the supply-demand fundamentals and create a much bigger ripple in the pool once they throw a rock in it.“

Mike Zuzolo of Global Commodity Analytics. For more information, go to

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