The agriculture sector has seen the strongest one-month performance since July 2012, with gains seen across all three sub-sectors of grains, softs and livestock. Agriculture commodity prices are the most exposed to wild weather swings and that has been the key positive price driver so far this year. Coffee, together with sugar, stands out with its double digit gains but also the grain sector — led by soybeans and wheat — have recovered, the latter from a 3.5-year low.
Momentum remains positive across the board, with the DJ UBS Agri Index rallying to a 10-month high. Cotton is one of the two exceptions as its impetus could potentially turn negative today after an exceptionally long period of propulsion that has endured since last November. Support has slipped over news that imports into China — the world's biggest consumer of the fibre — dropped by 36 percent in January from a year earlier, while the US National Cotton Council is projecting an eight percent increase in US planted acreage in 2014.
Arabica Coffee has been the strongest performer by far, rising by more than 50 percent in February. However, local government study reports and comments by an eminent exporter have added to market fears that Brazil has suffered significant losses of up to 15 percent of its crop. This is due to the dry and hot weather since December that, the conditions of which have damaged as much as 45 percent of the Arabica beans that will be harvested in May. To stem some of the speculative buying currently supporting the rally, the ICE Futures US exchange on Wednesday raised the initial margin requirements for holding coffee futures to USD 7,200 per contract. This, the sixth consecutive margin increase since mid-November, has so far only had a limited impact on hedge funds involvement. Today, the price is once again challenging the Tuesday high at 181.25 cents/lb.
More than half of the commodities in the table below are currently overbought, and with the month-end approaching some risk of profit-taking may be seen ahead of the weekend. This is apparent not least in the grains markets in which the uptick in the value of the dollar may create some headwind for US exports. Soybeans have been subject to harvest delays in Brazil, where a record crop is still being amassed.