Welcome to the second edition of Hot Commodities.
This bi-weekly newsletter is available here, and directly to you by email, and uses the PanXchange team’s experience and knowledge to bring you exciting insights into the thrilling world of physical commodities. And, of course, we're going to keep you up to date on blockchain-- what's working, what's practical, and what's downright lunacy. Speaking of lunacy, expect some re-posted tweets at the bottom from time to time. We're a pretty snarky bunch over here.
Wheat is Feeling the Heat
As U.S. soybean farmers struggle with the combination of a bumper harvest and the impact of Chinese tariffs, wheat farmers and traders are seeing multi-year high prices. Falling yields continue to trim Black Sea and Northern U.S. and Canadian production forecasts, giving support to cash wheat prices around the world. Black sea wheat CIF Asia was quoted at $240/MT, FOB gulf HRW prices sit around $228/MT for spot through M2, and Australian APW1 hit $268/MT.
It’s becoming more expensive to rob a liquor store in L.A.
Frac Sand Update
If you missed the last Hot Commodities newsletter and are wondering what the heck frac sand is, or need a refresher, we included the spiel below.
Weekly Market Update:
Oilfield activity has decelerated at a rather quick pace, causing sand pricing to resume its move lower last week. The current oilfield dynamic is rather perplexing, considering the overall bullish outlook of the downstream crude oil market. There is a fundamental disconnect in the U.S. upstream E&P market and the global products (crude, gasoline, diesel, etc.) markets, largely due to a lack of pipeline and rail infrastructure, export infrastructure, and Wall Street interest in share buy-backs and debt financing vs. production growth. Based on oilfield conversations in the past couple of weeks, we’ve heard that E&P companies are beginning to slow down drilling and completion programs for the remainder of 2018 and focus on 2019, during which it seems we should see another boom in the upstream market.
What is frac sand?
To say it as simply as we can, frac sand, also known as proppant, is a special type really round, really hard silica sand that is mixed with water and a small amount of chemicals. After a well is drilled, the mix of water and sand is pumped at high pressure into the ground. The pressure creates cracks in the shale rock, the water flows in, the sand fills the cracks propping it open, and the oil and gas flows out. For our visual learners out there who want more than an oversimplified explanation, click here for a quick video explaining the whole process.
Why is frac sand important?
Frac sand is both a leading indicator of hydrocarbon production, and the closest variable input to the wellhead. Oftentimes, the procurement of frac sand can comprise as much as 25% of the total cost of converting the well from a hole in the ground to a producer of oil and natural gas. In addition, the frac sand market has grown to become a multi billion dollar industry itself. he market is relatively new, booming, and constantly evolving and innovating. That’s why we are so excited about it.
Houston WTI Futures
The repeal of the U.S. crude oil export ban and the buildout of export capacity shook up global petroleum markets. U.S. crude oil exports surged to an average of 2.4 million barrels per day in June, according to the EIA Monthly Energy Review. As the export market continues to boom, the CME West Texas Intermediary contract deliverable to Cushing, OK, is seemingly becoming less relevant on the global scale. Much of the crude previously delivered to Cushing bypasses the storage hub to head straight to the gulf for refining and export.
Two weeks ago, Intercontinental Exchange (ICE) announced a third- quarter launch of a physically delivered Permian WTI crude oil delivered to Houston. With settlement and delivery at Magellan Midstream Partners, L.P.’s terminal in East Houston, ICE is banking on the changing global scene and the integration of the U.S. into a global exporting power. Will the proximity to the export market be enough to attract sufficient liquidity away from the CME contract, which continues to make new records in daily open interest? As with the LNG contract, we’ll be following this closely.
Squeezed by the Truckers
It looks like a trader was caught short trying to make delivery against the July Robusta futures. After a trucker strike held up shipments from Brazil to Europe, the July September spread jumped to as much as $100 as a large trader was buying every spot bean on the market to deliver against his position.
A New York roastery, Brooklyn Roasting Company, partnered with IBM to trace a coffee shipment from Ethiopia to a festival full of lens-less glasses and epic mustaches. Using the blockchain, they tracked the delivery of coffee beans from grower to end user. This was the first ever use of blockchain for this purpose.
While successful use cases are always intriguing, as Daily Coffee News notes, a few pretty important points are missing:
“It’s an admirable effort, but there are some key omissions, first and foremost the price paid for the coffee, which is not shown in the blockchain ledger. Secondly, the suggestion that ‘fairness’ or some vague concept of supply chain equity is bolstered by blockchain seems unfounded. IBM and Brooklyn Roasting show only the Fairtrade premium-associated investments back into the coffee-growing community — investments made in 2016, with or without blockchain technology.”
The theoretical value of blockchain is irrefutable. Now show me a real world, mass market adoption success story. - JL
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Shameless, Snarky or Serious? From CEO Julie Lerner