Commodities Daily: Strong Metals Through 2014, Southwest Drought & Wheat Prices (CGA, BP, RDS-A, HMY, SLW)

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Time now for our daily look at commodity prices and news. The Royal Bank of Scotland Group plc (NYSE: RBS) has issued its latest version of the ‘Commodity Companion,’ and the bank is expecting commodity prices to stabilize somewhat this year and next before showing stronger gains in 2013 and 2014. As summarized at Mineweb, “On a view through to 2014, the bank favours aluminium, copper, platinum and palladium, while arguing that ‘gold, silver, coal and iron ore are now richly priced and set to fade.’  Overall, over this period, RBS is neutral with respect to gold, and the ‘least preferred’ are the bulk commodities, crude oil, and silver.”

RBS is particularly bullish on nickel and copper. Nickel consumption, which is used for making stainless steel, is expected to grow at an annualized rate of 5% over the four-year period. Copper demand is expected to grow by 4% annually in the same period. On the downside, zinc consumption is touted to grow 6% annually over the same period, but inventories remain high and are expected to grow in 2011.

Food giant ConAgra FoodsInc. (NYSE: CGA) reported third fiscal quarter EPS today of $0.50 on revenue of $3.15 billion. Analysts were expecting EPS of $0.47 on revenue of $3.13 billion. The company noted that adjusted profit at its flour milling segment grew 5% as it was able to sell its wheat products for higher prices, effectively overcoming the rapid rise in wheat prices.

Wheat prices are also set to continue rising, partly as a result of a continuing drought in the wheat-growing parts of Texas and other southwestern states. Bloomberg reported that Texas is suffering from its worst drought in 44 years.  Wheat prices could climb to $10-$12/bushel by August if the weather stays dry in the southwest and continues dry in other parts of the world.  Wheat prices in Kansas City were up more than $0.23/bushel today, to $8.5325, and more than $0.25/bushel, to $7.395 in Chicago. The US Department of Agriculture estimated that the US wheat crop could fall by 5.8% year-over-year if the dry weather persists.

On a more liquid front, the UK imposed a supplementary tax on North Sea oil and gas production in a surprise move that is drawing fire from small- and medium-size producers. The tax rose from 20% to 32% of profits on crude priced above $75/barrel. Big oil companies like BP plc (NYSE: BP) and Royal Dutch Shell plc (NYSE: RDS-A) won’t see much impact because their North Sea production represents a small part of their revenues.

And while we’re on the subject of taxation, China has imposed new taxes on rare earth minerals. Light rare earths will now be taxed at about $9.10 per metric ton and heavy rare earth elements will be taxed about half that amount. The new taxes are expected to cost one mining company nearly $110 million annually. With the minerals now selling for around $100,000 per metric ton, the tax should have little impact on consumers.

South African gold miner Harmony Gold Mining Ltd. (NYSE: HMY) has been rumored as a takeover target by RBC Capital Markets, and the company’s rating was raised from ‘sector perform’ to ‘outperform’. Shares in Harmony rose more than 6% today, to a new 52-week high of $14.68.

Silver miner Silver Wheaton Corp. (NYSE: SLW) rose to within pennies of its 52-week high of $46.38 before falling back to around $43.70 later in the day. The downward move probably had more to do with the drop in gold to around $1,435, from a new all-time high of near $1,447.

Paul Ausick