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Thread: Katrinas ill wind hits commodities

  1. #1
    CoffeeSnobs Owner Andy's Avatar
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    Katrinas ill wind hits commodities

    Gene Cafe Coffee Roaster $850 - Free Beans Free Freight
    Katrinas ill wind hits commodities
    Kevin Morrison, London
    September 05, 2005

    THE effect of Hurricane Katrina has been felt in all corners of the commodity market.

    The toll on the US Gulf oil and gas industry has pushed energy prices to new records, while damage to coffee stocks in New Orleans warehouses sent coffee prices up 11 per cent in a week.

    Even timber markets were affected. US timber prices rose more than 17 per cent last week on reports that the hurricane destroyed several sawmills and wiped out timber inventories in the affected areas around the US Gulf coast.

    The hurricane may create problems for US grain markets, with producers worried that the damage done to the New Orleans port, where more than half of US grain exports leave for foreign destinations, may have forced some buyers to seek grain from more secure suppliers in South Africa or Europe.

    The potential economic effect has caused a fall in the US dollar and a rise in metal prices from gold to copper, which are often seen as a hedge against dollar movements.

    Copper reached a record $US3725 ($4869) a tonne on Friday.

    Commodity price rises in turn pushed the Reuters/Jefferies CRB index to a 25-year high of 336.56 last week.

    Tanker rates for carrying petrol from Europe to the US rose 60 per cent last week as oil trading companies booked tankers to transport supplies across the Atlantic to alleviate tight petrol supplies in the US.

    The most acute effect of Katrina has been on the energy sector, with oil and petrol products and natural gas prices all reaching record peaks.

    Petrol prices had reached levels that could force US motorists to change their driving habits, said analysts.

    Deutsche Bank said in a research note that petrol costs were now about 5 per cent of average disposable income.

    This is back to the levels of the late 1970s before the second oil crisis in 1980 when petrol prices accounted for more than 7 per cent of the household budget.

    Petrol costs are now above the long-term run rate of 4 per cent of personal income.

    "The burden of higher gasoline prices is likely to be disproportionately greater among low-income and fixed-income households, but in our view is likely to influence most drivers," said an energy strategist at Deutsche Bank, Adam Sieminski.

    US retail petrol prices have shot up to more than $US3 a gallon in some places, while wholesale petrol prices hit a record $US2.92 last Wednesday, up more than 50 per cent on the previous Friday.

    But on Friday they slipped to about $US2.22 as European countries said they would dip into emergency petrol stockpiles to help the US overcome its energy crisis.

    In spite of the loss in petrol and other petroleum product output, refiners will not feel too much pain as they are receiving bumper profit margins for each barrel of petrol, diesel, heating and jet fuel they make.

    Refiner petrol margins jumped to more than $US50 at one stage during the week before falling back to $US25 a barrel on the weekend, a stark contrast to the bleak days of the 1990s when losses were commonplace for the refining industry.

    The rise in petroleum product prices highlights the fact that supply problems are more severe for finished products than crude oil.

    US benchmark crude peaked at $US70.85 last Tuesday and was trading at $US68.85 on Friday, up more than 4 per cent on the week.

    But the biggest problem the US energy industry may face is natural gas supply.

    Natural gas futures rose 20 per cent last week, with winter gas prices hovering near record levels of about $US12.60 per million British thermal units.

    Unlike oil or petrol, there are no emergency global stockpiles of gas that can be transported to the US.

    Energy analysts said the damage done by Katrina could be considerably worse than the disruption caused by Hurricane Ivan last year when production shut-ins continued for six weeks.

    They said this would make it difficult to attain comfortable levels of storage before the northern winter began.


  2. #2
    Super Moderator Javaphile's Avatar
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    Re: Katrinas ill wind hits commodities

    Quote Originally Posted by Andy Freeman link=1125962018/0#0 date=1125962018
    Katrinas ill wind hits commodities
    Kevin Morrison, London
    September 05, 2005

    ...while damage to coffee stocks in New Orleans warehouses sent coffee prices up 11 per cent in a week...

    27% of all coffee imported into the US enters at New Orleans and is warehoused there prior to distribution.

    Fortunately we are between harvests and so there shouldnt be a huge stockpile of beans in New Orleans. What is there however is most likely ruined. There have been reports that the largest coffee warehouse in New Orleans was flooded and its contents ruined.

    The outlook for coffee on the world market actually looks pretty good as oppossed to most other commodities.

    There will be an immediate spike in coffee prices accross the board for all types as people attempt to replace the stock lost in New Orleans which will cause an increase in bean prices. This is especially true currently as there are relatively small stockpiles of beans sitting around due to the higher prices farmers have been getting (so they sell rather than sitting on the beans) and the shortages from the 2 biggest growing countries (Brazil and Vietnam) due to drought.

    Thats the bad news.

    The good news for those outside of the United States is that this is a temporary increase.

    Other than a small amount from Hawaii the US imports all of its coffee with very little of the rest of the worlds coffee passing through the US. Katrina had little impact on any coffee growing region. Because of this once the stock lost in New Orleans is replaced, which should coincide with the big fall harvest, coffee prices should return to normal at the source level.

    In the US its a different story however. The loss of the big stockpiles of beans in New Orleans has already led to significant price increases with more expected to follow. Prices will also remain high in the US even once the lost stock has been replaced due to higher shipping costs for the beans that normally enter the US in New Orleans. They will now have to be shipped to the east or west coast to existing coffee storage facilities or new facilities will have to be built in another Gulf port as neither the port of New Orleans nor the storage facilities there will be usable for months.

    So, the direct impact of Katrina on coffee prices world-wide will be pretty short lived, with the only long term effect being an indirect one via higher oil prices and hence higher shipping costs. This indirect impact of Katrina will be felt world-wide for virtually every commodity and good for some time to come.

    So on the coffee front the world is sitting pretty good as far as any effects from Katrina. However, odds are we will not see prices fall by very much once the short term effects of Katrina is over. According to the last estimates Ive seen theyre still predicting a 20% reduction of the harvest in both Brazil and Vietnam in the upcoming harvest. This coupled with the increase in the price of oil virtually guarantees that there will be little easing of coffee prices for at least the next 6 months and possibly not for a year or longer.

    This would be a good time for all the roasters out there to build up their stockpile of beans before the price increases reach them.

    Java "Pets his stockpile of beans" phile

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