Rise in speculative positions. While the open interest in most soft commodities has manifested in recovery trends in the past few months, it is key to note that speculative positions have registered a sharper increase. For example, speculative positions in corn futures have risen to near 20%, just a shade below peak levels in 2008.
Watching supply-side constraints. Agriculture markets have been buoyed by supply-side constraints – the effects of the curtailed use of fertilisers due to the sharp rise in prices last year, which will be felt even into the next season, and the negative impact of adverse weather (eg, the Argentina soy crop has gone down by up to a third from peak levels two years ago due to the extremely dry weather) While there may have been reduced meat demand in developed markets, developing markets such as China are still registering growth in pork consumption. Demand in volume terms for most soft commodities is expected to be resilient despite current macro weakness.
12-month price target: S$1.95 based on a PER methodology. Catalyst: Overall volumes growing beyond 13% YoY this year. Strong operating results for calendar 1Q09 and successful risk management (avoided major writedowns in receivables and inventory 2H08) have strongly boosted the share prices of the three listed traders we cover. We believe Noble is the stock with further upside potential .For the other agri traders, we expect share price catalysts to come from the companies’ respective capital market plans for the next 12 months (eg, Noble using another listed vehicle to raise capital for its more capex-intensive units).
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