Hot Commodities: June 7, 2021

Hot Commodities

Latest Hot Commodities: Carbon Credits, Breakfast Food, Wheat, and Oil

[June 7th, 2021]

Hi all,

This week we look further into carbon credit markets and how farmers can participate. We will also look into rising costs of raw materials for traditional western breakfasts, European wheat, and oil prices.

Carbon Price Boom Attracts Investors To Emissions-Trading Market

Investors have helped carbon credit trading funds become one of the best-performing commodities-related investments in the past year. The price of credits traded in the EU rose by 135% during the same period.

According to The Wall Street Journal, government controls have also helped the growth of the carbon credit markets as investors seek returns from economies that are leading to cutting reliance on fossil fuels.

The EU’s carbon trading platform launched in 2005 as part of the Kyoto Protocol commitments to cut emissions is now the world’s largest and most traded carbon market. The EU grants credits to countries that then auction them to local industries that are the key polluters required to purchase the credits for their carbon emissions.

The Intercontinental Exchange European carbon futures traded 51.34 Euros per metric ton this week, having slipped from a previous 56.65 Euros. However, traders remain bullish on the price and expect it to reach 100 Euros per metric ton.

The price for carbon credits increases when demand outstrips supply.  In a cap and trade system like Europe, factories and power plants need more of them to increase their industrial output. Investors and consumer companies seeking to reduce their carbon footprint also play a role in increasing the price by bidding up the credits.

What Questions Should Farmers Ask About Selling Carbon Credits

Agricultural carbon markets gain more interest globally through public and private initiatives for the single goal of reducing carbon emissions. Lowering emissions will be achieved through the trade of carbon credits sequestered from farms.  

The Wisconsin State Farmer looks at what the farmer should be looking for when planning to sell carbon credits with the fundamental questions;

What approaches are there for entering a carbon marketplace?

Farmers need to consider all available marketplaces and their terms and conditions. Using an aggregator or a data manager are the two usual approaches to enter the carbon marketplace.

An aggregator buys the entire project, control, and credits of the farmer.

The farmer pays a data manager to help them enter the carbon marketplace. The farmer remains in control of their carbon credits.

How much will the farmer be paid?

Pay depends on the companies, but it ranges from $10 to $20 per metric ton of CO2-eq. This amount may include fees for the farmer.  PanXchange believes the price of agricultural carbon credits will rise in the next couple of years as demand will outstrip supply.

Can the carbon credits be stored? If so, how long can they be stored? 

Yes, but this varies with different companies.

How much will it cost to sell my carbon credits?

Farmers would usually be expected to pay a fee for soil sampling or third-party verification, but some companies may cover these initial costs.

How many years does the contract last?

Contracts could vary depending on the companies, but usually between 10 and 20 years.

What The Soaring Cost Of Breakfast May Signal For Global Food Price Inflation

Raw materials that make up the traditional western breakfast have increased in price for consumers during the pandemic, with milk, coffee, sugar, wheat, oats, and orange juices seeing sharp rises according to US futures markets.

The world’s largest food companies, including Anglo-Dutch Unilever and Switzerland’s Nestlé, all saw increased costs of raw materials. This increase has raised concerns about food prices becoming political in developing countries such as Ethiopia and Nigeria, as reported in The Financial Times.

Wheat prices have seen a 16% increase since the start of last year, coupled with the new export tax for the Russian grain, while corn has increased by more than 60%, which the Chinese demand has driven. 

Shortages of containers and shipping delays at major ports have strained the availability of coffee beans and therefore increased costs for roasters and coffee shops. Higher vegetable oil prices have also affected the traditional breakfast meal as soya oil futures are up almost 90% since last year, while soybeans have increased by nearly 60% during the same period.

European Wheat Prices Rise

European milling wheat prices saw a rise this past week, with the benchmark September contract on the Paris-based Euronext closed at 213.75 Euros per ton after peaking at 232 on May 11th. 

According to Reuters, this price rise was supported by a prominent Saudi Arabia tender of 562,000 metric tons and prospects of higher demand for the high protein European origins, with the Baltic countries and Poland leading the initial preference.

European traders had anticipated purchasing more than 720,000 metric tons by Saudi Arabia, but it is now understood that the Arab state may be awaiting lower prices than the current market levels.

Oil Price Rises To Two-Year High As OPEC And Allies See Higher Demand

Oil prices have hit a two-year high reaching above $70 a barrel as OPEC and its partners forecast a higher demand. The global economic outlook has also seen higher prices in a range of other essential commodities.

Brent crude’s international energy benchmark saw a rise of 1.3% to $70.25 a barrel, its highest point since May 2019. The West Texas Intermediate gained 2.1% to $67.72 a barrel, near its highest level since June 2018, as reported in The Wall Street Journal.

Demand is expected to increase due to the rapid economic activity forecasted, with the OECD expecting global output to increase by 5.8%, the most substantial growth since 1973. OPEC and its allies, known as OPEC+, are also expected to increase the oil supplies by 450,000 barrels a day from July 2021.

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-Editors, Ronnie Luwero and Emily Shoemaker