Coffee prices surge to 6-year high as extreme cold threatens Brazil’s crops

coffee beans

Extreme frost in Brazil’s coffee-growing region is set to harm next year’s crop, sending prices of coffee to a six-year high.

Futures for arabica beans jumped to $2.08 a pound Tuesday, the highest level in New York since 2014, according to the Wall Street Journal.

Exacerbating the price surge is the fact that the frost is the second major weather shock to hit farms in Brazil, the world’s largest coffee producer. This spring, the region’s rainy season hardly saw any rain during one of its worst droughts in almost a century. The drought hurt the 2021 crop and dropped the coffee supply output in Brazil as plants withered.

Now, traders are spooked that the frost will harm the 2022 coffee harvest, and have pushed coffee futures up 30% in July.

José Marcos Magalhães, president of the Minasul coffee cooperative and also a grower, told the Journal that he expects to lose two-thirds of the 2022 harvest on his farm.

“I normally produce 12,000 bags, and now I think I’ll lose about 8,000,” José Marcos Magalhães said.

The frost is the latest weather shock to spoke commodity traders into bidding up prices. Last week, lumber futures spiked as concerns grew that wildfires in Canada and the Western US will harm supply chain routes.

Read more: Top 16 meme stocks this week on Reddit: Tesla tops the charts after record earnings while Chinese stocks get smacked amid brutal regulatory crackdown

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Lumber prices just dropped for a 9th straight week amid slowing DIY spending

lumber and building materials store
  • Lumber prices notch their ninth consecutive weekly loss after a brief resurgence earlier in the week.
  • The price of the key building material has slid about 60% from its peak in early May.
  • A shift in spending away from DIY home projects is impacting the market, says Bank of America.
  • See more stories on Insider’s business page.

Prices for lumber suffered another weekly loss and descended to levels not seen in roughly six months as the market contends with signs of softening demand and easing shortages.

Lumber prices on Friday fell about 4% to trade at $689 per thousand board feet. That move brought lumber below $700 for the first time since mid-January. Lumber during the holiday-shortened week had pushed higher, stoking the possibility of finding relief. But the advances proved short-lived, leading to the material notching its ninth consecutive weekly loss.

Prices have tumbled by roughly 60% since their peak of $1,670 per thousand board feet on May 7.

One potential factor in pushing lumber lower is consumers allocating funds to businesses such as those specializing in hospitality and travel as more Americans get vaccinated against COVID-19. About 48% of the population has been fully vaccinated, according to the Centers for Disease Control and Prevention.

“Our recent research … suggests a combination of high housing and wood product prices and the shift of expenditures to services in the reopening (from do-it-yourself [DIY] home projects) has negatively impacted new and repair/remodel construction expenditures,” wrote Bank of America analysts on Friday.

Meanwhile, dealers and builders are likely decelerating purchases leading up to a slowdown in construction that’s typical in summer months, they said. “This is especially true given long lead times – the concern being that today’s order of lumber shows up at the beginning of August just as prices move down at an even stronger pace.”

Signs of easing in lumber shortages have also fostered the pullback in prices. Sawmills have reportedly ramped up output after the pandemic prompted producers to stop work.

Lumber prices leapt to nearly $1,700 this year in part on a surge in demand for the building material as people stuck at home by the pandemic took up home improvement projects.

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Lumber prices just dropped for an 8th straight week – and they’re down more than 50% from highs as record-setting demand slows

  • Lumber prices on Friday marked eight consecutive weeks of losses.
  • Prices for the key building material have slumped 56% from their peak set in early May.
  • Lumber prices have pulled back on signs of easing inventory shortages and some demand softening.
  • See more stories on Insider’s business page.

Lumber prices extended a string of losses last week, leaving prices for the key building material slashed by more than half from their peak on a mix of factors including easing shortages.

Lumber prices fell for an eighth straight week as they lost roughly 5%. The weekly decline was spared from a deeper contraction, however, as prices on Friday picked up about 1% to trade at $741 per thousand board feet.

But the weekly performance highlighted persistent weakness that’s been stalking prices since they began descending from their peak of $1,670 per thousand board feet on May 7. Wednesday marked the end of trading in June and prices closed the period with a fall of 45%, the worst monthly drop since 1978.

Prices as of Friday from the May peak have tumbled about 56%.

Lumber prices soared earlier this year, building on gains from mid-2020 as demand for the material kicked higher as people stuck at home by the COVID-19 pandemic embarked on home improvement projects. Meanwhile, demand for new homes was strong in an environment of low inventory of existing homes.

But the direction of lumber prices reversed course and moved lower, in part as sawmills have picked up the pace of output after the coronavirus crisis forced work stoppages. About 3,000 sawmills in the country have ramped up production, according to The New York Times, with a large focus on Southern yellow pine found in East Texas to the Carolinas.

Prices also softened on signs of slowing demand with homebuilders delaying projects partly to keep hold of their inventory of building materials.

Bank of America on Friday noted it’s seeing signs of inventory shortages for lumber and other home improvement categories such as appliances and cabinets beginning to ease.

“For retailers like Home Depot and Lowe’s, lumber/building materials and appliances are two of the largest categories as a percentage of sales,” wrote Elizabeth Suzuki, a research analyst at BofA, in a note published Friday.

“While improving supply is likely a positive for the retailers’ transaction counts (as in-stocks are particularly critical to professional customers who purchase frequently), it may be met with an offsetting decline in average ticket as pricing normalizes,” she wrote.

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Gold prices have jumped more than 10% since the start of April amid a weaker dollar and falling bond yields

Gold bars
  • Gold prices have risen more than 10% since the start of April to near $1900 per ounce.
  • OANDA’s Sophie Griffiths says the rise is a result of “falling Treasury yields and a softer tone surrounding the greenback.”
  • “Speculative financial investors are also betting increasingly on rising gold prices,” according to Commerzbank.
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Gold prices have jumped more than 10% since the start of April to nearly $1,900 per ounce. Since the start of May alone, gold is up roughly 7%.

According to Sophie Griffiths, a market analyst for the FX solutions provider OANDA, the rise in prices is a result of “falling Treasury yields and a softer tone surrounding the greenback.”

Griffiths also said that a recent cryptocurrency sell-off could have pushed investors toward gold amid inflation concerns.

According to Cameron Brandt, the Director of Research at EPFR, an Informa Financial Intelligence business, flows into gold hit 19-week highs in the third week of May as well.

A new research report from Commerzbank also shows gold ETFs tracked by Bloomberg have registered almost continuous inflows for the last 2.5 weeks.

Daniel Briesemann, a precious and industrial metals analyst at Commerzbank, said in the new report that “speculative financial investors are also betting increasingly on rising gold prices.”

Traders have expanded their net long positions in gold for the third week in a row and net longs are now 82% higher than they were at the start of May, according to data from the report.

Briesemann said that he believes there is still “upside potential” in the gold market due to the Fed’s insistence on maintaining “ultra-expansionary monetary policy.”

He also said gold could see support from increased Chinese government buying throughout this week.

Despite the recent rise in gold prices, the precious metal still trades below where it did nearly a decade ago in September of 2012. Since the end of 2018, however, Gold is up roughly 40%.

Gold isn’t the only precious metal on the move, either.

Copper prices are up some 87% over the past year. The commodity has made a slight retreat over the past two weeks, but experts are still calling it the new oil and making predictions for the price to hit $15,000 per ton by 2025.

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Lumber prices fall for an 8th straight day, deepening a roughly 30% pullback

lumber and building materials store

Lumber prices fell for an eighth straight day on Wednesday, deepening a roughly 30% pullback in the commodity.

Specifically, lumber futures fell roughly 5% to $1,201 per thousand board feet on the day.

Despite the pullback, lumber futures are still up 224% since May 19 of last year, and retailers like Home Depot have made it clear demand remains strong.

Home Depot’s chief financial officer Richard McPhail said in a Tuesday interview with Bloomberg that lumber sales are comparable to “a storm environment where literally as soon as you bring it in, it’s selling.”

“We’re really just focused on making sure we stay in stock and making sure we have the appropriate level of staff to serve our customers. The market will go where it goes,” McPhail added.

On Home Depot’s post-earnings conference call, Edward Decker, the executive vice president of merchandising, said the company had seen a “record-setting quarter for lumber prices.”

“At the end of the first quarter of last year, a sheet of 7/16 OSB [oriented strand board] was approximately $9.55. As we exited the first quarter this year, that same sheet of OSB more than quadrupled in price to $39.76,” Decker said.

Lumber prices have increased so much that CBS Denver reported thieves have taken to stealing the commodity from construction sites.

And KUTV Utah reported builders are looking for alternative materials to get around the rising costs of lumber, with some even turning to Bamboo.

US home construction also fell 9.5% in April, according to US Census Bureau data, as homebuilders struggled with rising commodity prices in lumber, copper, and steel.

Still, lumber prices are falling in the past week due to the end of a “de facto short squeeze” on the commodity, according to Stinson Dean, the owner of Deacon Lumber Company.

Brian Leonard, an analyst for RCM Alternatives in Chicago, also noted lumber futures are being driven down by “computerized trading and other platforms not related to the physical product, so it may end up going lower than the real market need to go,” per Bloomberg.

“The mills know there’s a lot more buying than needs to happen,” he added.

Lumber stocks like Weyerhauser and West Fraser Timber fell as much as 4.58% and 5.77%, respectively, on Wednesday in lock-step with declining lumber future prices.

Read more: ‘If lumber crashes, stocks might be next’: An award-winning portfolio manager who’s tracked lumber prices for years breaks down why futures hitting a record high of $1,600 is an ominous sign – and shares what investors can do ahead of the eventual crash

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