There were signs this week that agricultural prices may be starting to play catch-up to the bull run seen in other commodities.
Hedge funds are becoming increasingly active in soft commodity markets as well as selling down their positions in metals and energy.
The heatwave across Europe and North America this summer has triggered concerns that wheat and corn crops will fall short of expectations at a time when global cereals inventories are at relatively low levels.
The agricultural commodities recorded some of the biggest gains this week. French wheat futures, the benchmark for European wheat prices, rose to a two-year high of €131.25 a tonne, up more than eight per cent on the week.
UK wheat futures rose by a similar magnitude, up 8.5 per cent on the week to a two-week high of £84.50 on Friday. Some traders predict that UK wheat futures could exceed the record highs of £116.25 a tonne set in December 2003 as the hot weather has caused wheat to mature early, which will affect yields – the volume of the crop that grows per hectare.
Countries from Australia to France, Italy and the UK to the US have in the past week either cut or hinted that they intend to trim wheat production forecasts – mainly due to damage from hot weather.
In the US, wheat futures in Kansas, Chicago and Minneapolis are up between 22 and almost 30 per cent so far this year. The dry weather has combined with relatively low stockpiles. The US Department of Agriculture is expected to announce next month that global wheat stocks have fallen to their lowest level relative to the rate of consumption since records began in 1978.
The USDA, which is considered the world’s most authoritative forecaster, is expected to forecast global wheat stockpiles will drop below 130m tonnes by the end of the year to June next year from a current estimate of 133m. The 130m tonnes would be the lowest tonnage in storage since 1982.
European rapeseed prices struck a two-year high of €260 a tonne this week.
In energy markets, oil prices fell on the week despite the continued fighting between Israeli and Hizbollah forces. ICE Brent futures for September delivery added 70 cents to $74.42 a barrel in mid-afternoon trade on Friday, but were down more than 3.7 per cent on the week.
September West Texas Intermediate crude futures were 58 cents firmer at $74.85 a barrel in late morning New York trade, but more than 2.7 per cent down on the week.
Power prices in the UK and Europe soared this week as the hot weather boosted demand for air conditioners and refrigerators. On Tuesday, UK power reached an average of £260 per megawatt hour, triple the price of the previous day. Power was trading at about £100 MWH on Friday.
Cooling water problems at some of France’s nuclear power plants this week forced Europe’s largest exporter of power to buy from countries it normally supplies, causing prices in France and Germany to also rise this week.
Gold fell back to levels traded at just before the latest Middle East clash began.
Bullion was trading at $628.50/$628.90 a troy ounce, down more than $4 on the day, and a slide of more than five per cent on the week.
Base metals continued to be one of the more volatile areas of the commodities market.
The three-month nickel price soared to a record high of $26,900 a tonne on the London Metal Exchange on Monday as inventories of the metal at LME registered warehouses shrunk to less than a day’s worth of global demand.
At its peak, the nickel price had almost double from the start of the year. This saw prices fall to $23,675 a tonne on Friday or 12 per cent down from its record peak.
Three-month copper prices dropped 10 per cent this week to $7,225 a tonne, zinc fell more than nine per cent to $3,115 a tonne and aluminium eased six per cent to $2,460 a tonne.