Commodities Today: Brazilian Stocks Rallying, Iron Ore And Agriculture In Focus

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Includes: BHP, DE, MOS, NTR, PBR, PBR.A, VALE
by: Matthew Smith

Summary

PBR is rallying once again as management discusses various ways to shore up the balance sheet.

VALE is rallying along with iron ore prices, which have been on a tear all month.

It appears farmers will plant a lot of corn this year, even though there is still a lot of corn in storage from previous years.

After yesterday's big move higher, we are a bit surprised to see WTI Crude holding on to gains, and the $57/barrel level for that matter. The precious metals are all lower on the session and leading the way higher. We would point out to readers that copper is rebounding and once again above the $2.70/pound level, a level which it fell below recently after running into resistance at the $2.80/pound level.

For the most part, energy stocks are marginally lower; however, we would point out that they have been getting stronger throughout the session, reflecting the strength in oil. We would not be surprised if oil equities actually ended higher today as it is a Friday and speculators are pushing a number of high beta names in other sectors higher.

Chart of the Day:

For economy watchers and those invested in the refiners, pay attention to the RBOB gasoline price which is testing the $2.00/gallon level now that oil prices have rallied. Gasoline prices have been creeping higher across the country the last few weeks by noticeable amounts and this could get economists talking about the impact upon consumers. This might also impact interest rate increases by the Federal Reserve.

Source: CNBC

Commodity prices are as follows (at time of submission):

  • Gold: $1,176.70/ounce, down by $17.60/ounce
  • Silver: $15.68/ounce, down by $0.149/ounce
  • Oil: $57.26/barrel, down by $0.48/barrel
  • RBOB Gas: $1.9974/gallon, up by $0.0018/gallon
  • Natural Gas: $2.533/MMbtu, up by $0.002/MMbtu
  • Copper: $2.7515/pound, up by $0.0575/pound
  • Platinum: $1,125.70/ounce, down by $12.00/ounce

The American Farmer

This year could shape up to be another bumper harvest for corn if you listen to the experts, which will be good for fertilizer companies such as Potash Corporation of Saskatchewan (POT), Mosaic (NYSE:MOS) and Agrium (AGU), but could actually hurt farmers as they continue to hold inventory from last year and will have to sell what is in inventory and this year's crop which will drive down prices and increase shipping costs. If corn prices do take a hit due to another successful growing season one could also expect Deere (NYSE:DE) to take a hit as many farmers use profits from bumper harvests to reinvest in the capital assets they need to run their farm.

Readers need to keep in mind that early planting data is often skewed as farmers shift their strategies and sometimes target a mix of higher priced crops to generate maximum revenues and profits. We have seen the corn-to-soybean ratio swing drastically in some years as farmers realize that one crop will generate significantly higher revenues than the other and large swaths of acreage are switched from soybeans to corn, or vice versa. When this happens it impacts the market prices and anyone who did not hedge can be forced with the decision to sell at a lower price or move crops to storage.

Brazilian Stocks Surge

All things Brazil are rising today after yesterday's release of audited financial results from Petrobras (NYSE:PBR) (NYSE:PBR.A) and investors continued to warm up to Vale (NYSE:VALE) shares after iron ore prices increased in China. In both cases investors are breathing a sigh of relief as the worst case scenarios appear off the table and both companies look to get back to business.

The good news for Vale shareholders is that any increase in iron ore prices has historically meant that profits increase by about the same amount due to its low costs and because most of its costs are fixed and not variable. If shareholders want to thank anyone for this past week's rally, they can thank rival BHP Billiton (NYSE:BHP) which has lowered production and shelved plans to expand production. It now appears that the iron ore market is in better shape from a supply/demand perspective, but we think that it might be best to wait for a pullback before piling in. Prices have advanced dramatically this month and a pullback or consolidation period should be expected.

Petrobras' shares are rallying again today as the company's debt looks stable and the company announced plans to monetize some assets currently on its balance sheet via the IPO market. This would help the company deleverage, while allowing it to avoid issuing fresh equity or debt. Selling shares in assets it owns that are undervalued on its balance sheet could dramatically deleverage the balance sheet, as the company would not only get much needed cash while avoiding issuing fresh debt but would also unlock value not recognized by the market. The market likes this scenario as it allows Petrobras to avoid tapping the debt market at a time when creditors would most likely demand higher rates given the company's recent corruption issues.

Management does believe that Petrobras will be able to tap international bond markets later this year.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.