Commodities Watch: Aluminum Prices Reach 3-Year High; Silver Still Sliding; Not Much US Corn in the Ground Yet; USDA Lifts Cotton Import Quota (CORN, DBA, BAL, AA, RIO, SLV, ZSL)

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Today’s commodities news starts off with new highs for aluminum, and still falling silver prices, low numbers on corn plantings, and lowering of the outlook for cotton.

As prices for some commodities have weakened, aluminum prices have remained relatively strong. Partly this is due to manufacturing constraints in China, where aluminum’s heavy demand for electricity has forced the government to idle some of the country’s plants to maintain¬† power supplies to the general population.

Supply has been forecast by HSBC to rise 8% in 2011 and demand is forecast to rise 9%, with prices rising gradually throughout 2011 to $2,535/metric ton ($1.15/pound). Prices are projected to continue climbing, to $2,600/metric ton ($1.18/pound) in 2012, and to $2,645/metric ton ($1.20/pound) in 2013. Aluminum on the LME today closed at $2,798/metric ton, as demand from South America has increased.

The most significant risk to these prices is a sudden change in smelting capacity. China’s restrictions on electricity have slowed the country’s smelter-building, but once the juice came back on in the first two months of 2011, China’s smelters were running at an annualized rate of up to 17 million tons.

In the US, Alcoa Inc. (NYSE: AA) has performed well in the past several quarters and there are rumors that Rio Tinto plc (NYSE: RIO) is putting together financing for an offer for Alcoa in the neighborhood of $25 billion. Alcoa shares are up around 3% today, to $17.68, near the top of the 52-week range of $9.81-$18.47. Rio Tinto shares are down about -2%, to $70.93, within a 52-week range of $39.30-$76.67.

Finally, a look at the second straight day of falling silver prices. The gray metal is selling down more than -5% today, at around $43.50, following yet another margin increase on the CME. The third increase in little more than a week has raised the margin requirement to $16,200/contract of 5,000 ounces.

It might be working. The iShares Silver Trust (NYSE: SLV)is down about -1%, to $42.40, after falling as low as $42.02 earlier today. The 52-week range of the shares is $16.73-$48.35. The opposite side is doing a bit better. The ProShares UltraShort Silver Fund (NYSE: ZSL) is up nearly 2.5%, to $16.29, in a 52-week range of $12.83-$164.80.

US farmers have planted just 13% of their expected corn acreage so far this year, far below the 40% average and last year’s 66% by the first of May. Cold weather and heavy rains have stalled planting in Illinois, Indiana, and Ohio. Ohio farmers have planted just 1% of their corn acreage this year, down from 61% a year ago.

Corn futures have been drifting downward too, although they have picked up a little today, posting a price of about $7.37/bushel at around noon. If US planting continues to suffer weather delays beyond mid-May, the outlook for the US corn crop could send prices back to near $8/bushel or even higher. The Teucrium Corn Fund (NYSE: CORN) is up about 0.5% today, at $45.51 in a 52-week range of $23.79-$48.77. The PowerShares DB Agriculture Fund (NYSE: DBA) is off fractionally.

The US Department of Agriculture has announced a limited global market quota for upland cotton that will allow an additional 104 million pounds of cotton imports into the US. The quota is effective for 90 days.

The quota results from the high price of cotton in the month of April. Whenever the average monthly price of upland cotton exceeds 130% of its average price for the past 36 months, an import quota may be established that is equal to 21 days of domestic mill consumption. In April, the price of upland cotton of a certain grade was 243% of the 36-month average.

The odd thing about this, though, is that cotton prices are falling again. Lower demand, mostly due to higher prices, have led the International Cotton Advisory Committee to forecast a significant decline in the 2011-2012 crop year, although the Committee expects prices to remain above the 10-year average of $0.60/pound. Just last month the Committee projected an average price of $1.38/pound. Cotton posted a record price in March of $2.27/pound. Cotton is trading today at about $1.56/pound, up slightly more than 1% from yesterday. The iPath DJ-UBS Cotton Total Return Sub-Index ETN (NYSE: BAL) is up more than 2% today, to $87.30, within a 52-week range of $35.64-$117.33.

Paul Ausick