From corn to copper, raw materials are refreshing with China in the spotlight

(Bloomberg) – Wild swings in commodities ranging from U.S. agricultural commodities to industrial metals are the latest sign traders should brace for dizzying months ahead.

Prices have cooled this week for commodities such as corn, wheat, copper and iron ore, although traders and analysts say it is too early to count agricultural crops and metals . The Bloomberg Commodity Spot Index, which includes energy, has fallen 2.4% in the past two weeks, reducing returns to 19% for the year.

“This is not a market for the faint of heart,” said Matt Bennett, an Illinois corn and soybean grower who is a co-founder of commodity brokerage “More volatility is likely, especially as we enter the height of the growing season in the United States.”

It’s not just crops, including soybeans and canola, that are slowing down. Copper, iron ore and steel have collapsed since China introduced various measures to contain the rapid surge in industrial product prices. Copper, seen as an economic indicator, fell from a record low after Beijing moved in mid-May and last week recorded its worst week since September.

China’s policy goal is to curb the pace of price hikes “but not to completely kill the rally,” Citigroup analysts said in a note on Tuesday. “We expect another round of steady commodity price increases once the current instinctive price corrections run their course.”

The break in commodities may help temper inflation in food, cars and appliances as more of the global economy reopens after months of pent-up consumer demand, though signs abound that the reprieve may be short-lived. Poor crop weather conditions and mining labor issues persist, fueling concerns over China’s supply and demand for raw materials is expected to remain robust. All of this suggests that further gains are likely – as well as the kind of volatility that has hit corn markets.

Corn prices have fluctuated 59 cents in the past two days, with news that China is restricting some imports over fears overseas purchases could get out of hand, prompting several feed factories to cancel their shipments to the United States. On Tuesday, corn saw its biggest drop in nearly six years. Corn rebounded later Wednesday as traders determined scrapped shipments were not substantial and over widespread belief that Chinese demand for grain imports should continue as the world’s largest pork producer in the world is working to feed its herds of pigs and replenish national stocks.

“Everyone knows China is a big buyer,” said David Martin, founder of Martin Fund Management, a New York-based institutional investment advisor specializing in commodities.

The weather can be the wild card for fluctuations in agricultural products. Crop conditions over the next few months must be intact so as not to disrupt an already tight supply, analysts say.

“If the weather isn’t perfect, the price can go up,” Martin said.

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