Crude Oil Could Lead Commodities Higher After Accord on Production
Cuts
(Repeats story published March 12; adds details on oils
supplies in eighth paragraph.)
New York, March 13 (Bloomberg) -- Crude oil could lead
commodities higher in the days ahead following an agreement among
producers to cut world supply by more than 2 million barrels a
day, or about 2.7 percent.
The promised cutback ''is considerably more than we and the
market were expecting,'' said John Saucer, an analyst at Salomon
Smith Barney in Houston. ''It may even be more than is needed and
may lead to a tighter market later in the year.''
Saudi Arabia, the world's top producer, and a dozen other
countries will take part in the latest round of oil out
reductions aimed at boosting prices that fell to a 12-year low in
December. The agreement was announced Friday in The Hague by Saudi
oil minister Ali Al-Naimi following a meeting of oil ministers
from five countries.
The Bridge-Commodity Research Bureau Index rose 1.74, or 0.9
percent, this week to 188.27; while the energy-weighted Goldman-
Sachs Commodity Index rose 5.66, or 4.1 percent, to 142.88.
Crude oil for April delivery rose $1.19, or 9 percent, this
week to $14.49 a barrel on the New York Mercantile Exchange.
During the day, the contract briefly rose above $15 a barrel for
the first time in five months.
As a result of the announcement in The Hague, ''we are now
more confident of our $12-$17 a barrel'' price forecast for crude
oil the second and third quarters, Saucer said.
To be sure, the size of price gains in coming weeks is
likely to be limited, as traders await signs that producers are
honoring their new reduction pledges.
The Paris-based International Energy Agency estimates the
industrialized nations have 83 days' supply of crude and petroleum
products on hand. That's little changed from the 82 days at the end
of 1997, even after OPEC pledged last June to cut 2.6 million
barrels a day from world markets. OPEC next meets on March 23.
Further details on the output-cutting plan will be announced
at the March 23 meeting of the Organization of Petroleum
Exporting Countries in Vienna. The cuts are to begin in April.
Wheat
Wheat futures could rise in the days ahead on speculation
that U.S. farmers will plant less wheat this spring as they seek
higher profits by planting soybeans instead.
Sparks Cos., the Memphis, Tennessee-based crop forecaster,
said U.S. farmers will sow almost 4 percent less spring wheat
than a year ago, traders said. On Thursday the government reduced
its forecast for wheat stockpiles.
''The worldwide wheat situation is fundamentally a little
bullish,'' said John Walsh, president of Walsh Trading in
Chicago. ''Once we see these domestic stockpiles start to
dwindle, then wheat prices will start to perform better.''
For the week, wheat for July delivery, after the winter
wheat crop is harvested, rose 5 cents, or 1.8 percent, to $2.8225
a bushel on the Chicago Board of Trade, the second straight week
of advances. Still, wheat prices are almost 22 percent lower than
they were a year ago.
Sparks said U.S. farmers will cut acres of durum and other
spring wheat 3.7 percent to 18.3 million acres this year, from
19 million a year ago, traders said. Spring wheat grows during
the summer months and is harvested in the fall.
On Thursday, the U.S. Department of Agriculture lowered its
forecast of wheat supplies on May 31, at the start of the winter
wheat harvest, to 955 million bushels, down from 980 million
expected a month ago. Analysts expected the wheat forecast would
be little changed from last month.
The department said world wheat supplies will likely fall to
127.38 million metric tons, down from last month's forecast for
127.91 million and 137.88 million a year ago.
Hogs
Hog futures could fall in coming days, extending a five-week
rout, on speculation that cheap feed costs discouraged farmers
from shrinking their herds as much as projected, meaning the
current glut of supplies won't ease anytime soon.
In its last inventory report, the Agriculture Department
said farmers held back 4.1 percent fewer breeding sows as of
Dec. 1 than a year earlier. Now traders aren't sure those numbers
are accurate. Instead, some farmers may have chosen to endure low
hog prices as the cost of corn, the primary ingredient in
livestock feed, is down 20 percent from a year ago.
''The feed's so cheap,'' said Ted Hoover, a broker at
Allendale Inc. in McHenry, Illinois. ''We're not sure how many
were liquidated.''
Hogs for April delivery fell 0.75 cent, or 1.8 percent, this
week to 42.075 cents a pound on the Chicago Mercantile Exchange,
the lowest closing price since Jan. 29.
Farmers still are trying to sell hogs from a herd that as of
Dec. 1 was the largest since 1980 for that time period. There are
no signs supplies have tapered off, with the weekly slaughter
still coming close to 2 million hogs. The biggest weekly
slaughter last year was about 2.2 million hogs, while a more
typical weekly slaughter runs about 1.7 million, analysts said.
The large herd reflects expansion by large commercial
producers two years ago, when prices were about triple what they
are now. Since then, the amount of shackle space to hang the
hogs before dressing them has decreased because there are fewer
slaughterhouses.
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