In the past few months, many commodities have gone up like crazy. The price of corn has risen from 1,900 yuan/ton to the current 2,600 yuan/ton. Palm oil has risen from 4,500 yuan/ton in May to 7,000 yuan/ton now. The price of aluminum rose from 11,000 yuan/ton to 16,000 yuan/ton, the price of copper rose from 42,000 yuan/ton to 59,000 yuan/ton, and the craziest iron ore rose from 500 yuan/ton to 1,100 yuan/ton.
I thought that in 2020, under the influence of the new crown epidemic, commodities would be a bear market. Unexpectedly, commodities in 2020 would go out of a vigorous super bull market!
What is the reason?
The most important thing about commodities is the relationship between supply and demand.
Using the simplest theory of political economics we have learned in junior high school, we can explain: when supply is greater than demand, commodities fall; when supply is less than demand, commodities rise.
To explain in detail the super bull market of commodities in 2020, everyone must first have a basic concept: Although China quickly controlled the 2020 COVID-19 epidemic, the epidemic abroad is more severe than we imagined. Much more serious.
How serious is it? Heads of state in the United States, the United Kingdom, and France have all contracted COVID-19, not to mention ordinary people. A total of more than 74 million people have been infected and 1.65 million people have died around the world. The number of new infections is still increasing at 750,000 people every day. There are 13,000 new deaths. This is still a number that can be officially counted. The number of infection deaths in marginal rural areas and war-torn areas has been ignored.
The Chinese people are well protected by the Chinese government and heroic medical workers. People in other countries and regions are not so lucky. There are 1.3 million confirmed COVID-19 patients in Germany and 2.4 million confirmed COVID-19 patients in France. The medical system is on the verge of collapse. This is still a traditional developed country. The situation in developing countries is even more severe.
When the COVID-19 vaccine was not widely administered, isolation was the best method. Many workers in mines and farms were quarantined. Therefore, the epidemic had a huge impact on the supply side of bulk commodities. There was a lack of manpower and an inability to maintain. The supply of commodities is severely constrained.
On the demand side, although it has also been affected by the epidemic, the impact is not that big. First of all, although people are quarantined at home and cannot go out, food consumption has not decreased much. It is understandable that there are still three meals a day. Well, just eating out becomes a solution at home. Secondly, due to the significant impact of the epidemic on the economy, various countries have launched a large number of economic stimulus plans, issued large amounts of money, and launched various infrastructure projects. Therefore, although the demand side has been affected, the impact is far less severe than the supply side.
Especially China, because China took the lead in controlling the epidemic, it is in full swing to produce for the world. As the world's largest manufacturing factory, it exports various goods to the world. In November, China's trade surplus reached 74.8 billion. US dollar, a historic record. Nowadays, the freight charges for China's overseas shipments have increased 2 to 3 times compared with previous years. Even containers are hard to find at ports because they are all shipped abroad.
Corresponding to its huge exports, China has imported a large number of basic commodities. This year, China’s imports of metals, petroleum, iron ore, crude oil, and soybeans have all reached new highs.
In the first 11 months of 2020 alone: ??
China imported 1.073 billion tons of iron ore, a year-on-year increase of 10.9%.
China imported 504 million tons of iron ore. tons of crude oil, a year-on-year increase of 9.5%,
China imported 92.8 million tons, plus the soybeans shipped in December, China will import 100 million tons of soybeans throughout the year, a year-on-year increase of 17%,
China imported 90.43 million tons of natural gas, a year-on-year increase of 3.9%.
China imported 6.17 million tons of copper, a year-on-year increase of 38.7%.
Only coal imports in China were 10% less than last year. %, imported 265 million tons of coal, and then sadly discovered that because companies had too many orders, factories stepped up production, and there was not enough electricity. Because many provinces still rely on coal to generate electricity in winter. Without coal, there is a shortage of electricity. For example, Hunan, Zhejiang and other places have begun to cut off power, all corridor lights are turned off, and the air-conditioning temperature cannot exceed 20 degrees. . .
Due to the scarcity of coal, coal prices also skyrocketed at the end of the year. Thermal coal exceeded 750 yuan/ton, while the long-term coal price was only 640 yuan/ton. Not to mention high-end coal types such as coking coal, all exceeded the historical highs.
In the global commodity market, the supply side has been greatly affected, while the demand side has had little or no impact, or even improved. Global commodities have started to rise. . .
It’s time to review junior high school political economics. If the relationship between supply and demand is unbalanced and supply is less than demand, what specific impact will it have on the price of goods?
Take grain as an example. Global grain production has decreased this year. As mentioned earlier, the epidemic has affected farm manpower, and it also includes local bad weather. For example, U.S. soybeans have been hyped by drought. Food is an extremely needed commodity. If the world's food shortage is 10%, will food prices only rise by 10%? No, a 10% shortage will cause an increase of more than 50%. If there is a 20% shortage of food, the price of food will skyrocket. For a commodity that is particularly urgently needed, a slight shortage will double the price of food. of rise.
However, for China, grain is the key staple food and there is not much pressure, because China’s grain harvest is still abundant this year (thanks to agricultural workers and farmers). In 2020, China’s grain sown area is 1.752 billion acres. , the total grain output was 1.339 billion kilograms, close to 670 million tons. China's staple food crops of wheat, corn, and rice have achieved an increase in production for five consecutive years. China has done a very good job in guaranteeing the most critical staple food. Our self-sufficiency rate in staple food exceeds 95%, and we have increased strategic grain reserves. Now China has more than 600 million tons of grain reserves on the ground, which means that even if China does not The country produces grain and reserves enough grain to feed the entire Chinese population for a year. Moreover, if it really doesn't work, if the food shortage increases, you can save the food used to feed livestock, eat less meat and eat more vegetarian food, which can save a lot of food.
China is well aware of the importance of staple food. Staple food is an urgent need that cannot be eliminated. The problem of feeding 1.4 billion people cannot be left to chance.
Once the staple food problem is solved, China will need to import large amounts of other cash crops and oil crops.
Especially soybeans. Soybeans can be said to be an important crop besides staple foods. Soybeans can be eaten directly, or used to make tofu and various soy products. Compared with other agricultural products, soybeans have several key advantages: 1. Soybeans are rich in plant protein. Other crops such as wheat, corn, and rice mainly contain starch. Soybeans have a high plant protein content, with a protein content of 75% to 85%. %. Moreover, soybeans not only contain a lot of protein, but are also of good quality. The amino acid composition of soybean protein is similar to that of animal protein. The amino acids are close to the ratio required by the human body, so it is easily digested and absorbed. Therefore, if you are a pure vegetarian, you will definitely eat a lot of soy products to supplement protein.
In addition to protein, soybeans are also rich in oil. The 5-liter soybean oil we buy in supermarkets is extracted from soybeans. So soybeans are a very good agricultural product. They not only contain 75% to 85% protein, but also contain 15% soybean oil, which is a treasure for the whole body.
In industry, we use a low-temperature extraction method of 40 to 60 degrees to extract oil from soybeans and make soybean oil for people to cook and eat. The remaining bean dregs, which are rich in more than 75% protein, we It is called soybean meal, and it is also very useful. It is used as feed to raise livestock. Soybean meal is a high-quality source of high-quality protein for pigs, cows, and sheep. You can also use soybean meal/rapeseed meal (rapeseed meal is pressed from rapeseed) Use the vegetable residue left over from the vegetable oil to raise fish, ducks and chickens. Small animals not only eat vegetarian food, but also need protein supplements to grow well and fast. . .
China’s own soybean production in 2019 was 18 million tons, but the demand for edible oil and feed soybean meal is too great. We also import a large amount of soybeans from the United States and Brazil, the world’s major soybean producers, and the import volume is increasing every year. . Because the Chinese people's demand for meat is increasing, we need more soybean meal to feed chickens, ducks, cattle, sheep, and pigs. . .
In 2018, we imported 88 million tons of soybeans.
In 2019, we imported 88.5 million tons of soybeans.
In 2020, we will set a record import of more than 100 million tons of soybeans.
In 2019, 19% of the soybeans we imported came from the United States and 65.2% came from Brazil. We also imported soybeans from Argentina, Russia, Ukraine and other countries around the world. In order to ensure the supply of soybeans, our country has also made a lot of efforts in recent years to restore and expand the soybean planting base in Northeast China, and contracted a large amount of land to grow soybeans in Russia and Ukraine. There is no way, China's demand is too great. Global soybean production in 2019 was 360 million tons, and China's consumption accounted for a quarter.
China imports a lot, and a slight disturbance on the supply side can easily cause huge price fluctuations.
Due to the COVID-19 epidemic this year, the number of soybeans in the United States and Brazil has reduced farm manpower. Coupled with the hype of dry weather, U.S. soybeans have risen to the highest level in five years. The cost of soybean imports exceeds 3,800 yuan/ton. Soybeans in 2019 The import cost is only 2,700 yuan/ton. Soybeans rose 40%.
This year’s palm oil, due to the new crown epidemic, the main producing countries: Malaysia and Indonesia have reduced farm manpower, palm oil lacks fertilization and pest control maintenance, and palm tree production has decreased. Palm oil has risen to an 8-year high. In 2019, palm oil Oil was only 4,500 yuan/ton, but now it is 7,000 yuan/ton, an increase of 55%, and it is still rising.
This year, the prices of copper and aluminum have also risen sharply due to the reduction in manpower in mines caused by the new crown epidemic and the increase in demand on the demand side.
Copper is very useful. Due to its good electrical conductivity, it can be widely used in the power and electronic industries to make wires, integrated circuits for computers, cables, etc.
Aluminum is used everywhere. Aluminum has a low density and is very light. Although it is very soft, it can be made into various aluminum alloys, which are both light and strong. It is widely used in aircraft, automobiles, and shipbuilding industries. Aluminum is a good conductor of heat and can be used in industry as various heat exchangers, heat dissipation materials and cookware. Aluminum also has good ductility and is widely used in various cans and candy packaging supplies. The surface of aluminum has a dense oxide protective film that is not susceptible to corrosion. It is also used to manufacture chemical reactors, medical equipment, oil and natural gas pipelines, etc.
Moreover, the emerging new energy industry’s demand for copper and aluminum is three times that of traditional industries. Copper rose to a 7-year high, close to 60,000 yuan/ton. In 2019, it was only 45,000 yuan/ton. Copper rose by 33%. Aluminum rose to its highest level in three years, 16,500 yuan/ton. In 2019, it was only 11,500 yuan/ton, an increase of 43%. Moreover, global inventories of copper and aluminum are currently declining, and it is estimated that they may continue to rise in the future.
Finally, let’s talk about the metal most used in industry: iron. Iron comes from iron ore, one of the biggest rising commodities this year. Iron is the skeleton that supports modern society. It can be said that without iron, there would be no modern civilization. Iron accounts for 95% of the metals consumed in the world every year. China is vigorously carrying out infrastructure construction, building roads and bridges, building cars, high-speed railways, and building houses. However, China has very little high-grade iron ore, and most of the iron ore needs to be imported.
Due to the COVID-19 epidemic, mines in Australia and Brazil, the main producing countries of high-grade iron ore, are understaffed and have reduced production. With the prospect of economic recovery, iron ore consumption has increased, so iron ore has started a journey of skyrocketing prices.
The spot price of iron ore has exceeded 1,100 yuan/ton, close to US$160/ton. The cost of iron ore in Australia is only US$25/ton. Rio Tinto and Rio Tinto expect the average iron ore sales this year to be 50 US dollars/ton, now sold for 160 US dollars/ton. Iron ore has more than tripled this year, and iron ore prices are still rising every day. The craziest time in history for iron ore was only 200 US dollars/ton. .
For China, which imports 1 billion tons of iron ore a year, the situation is quite passive. Each ton of iron ore costs an extra US$100/ton, which is an extra US$100 billion a year! It’s just that the global production areas of high-grade iron ore are more concentrated and monopolized than crude oil. The world's crude oil producing countries include Saudi Arabia, Russia, the United States, Libya, and Iran. . . But the main producing countries of iron ore are Australia and Brazil. Of the 1 billion tons of iron ore China imported in 2019, Australia accounted for 66% and Brazil accounted for 30%. Iron ore has skyrocketed, and China has to spend a lot more money. It is especially uncomfortable for Australia, which is extremely unfriendly to China, to make money. . . The National Development and Reform Commission has stated the risks of iron ore several times and hopes to reduce iron ore prices as soon as possible.
My best investment this year is to buy BYD, palm oil and iron ore. Iron ore has already closed its position after making a big profit. Although it is expected that iron ore will continue to rise in the future, we do not want to contribute to the craziness of iron ore. Our ability to make good money here ultimately relies on the destiny of the country, and we must stand firmly with the country. Although, it still hurts my heart to see the iron ore growing so fast every day. But if we want to be people of faith, not all money must be earned. The way I can think of to lower the price of iron ore is to negotiate with Australian imported beef, timber, coal, lobster, and red wine. The price of iron ore must be lowered. Regarding the current status of China’s imported iron ore and steel industry, I recommend reading the article I wrote previously: “The Current Situation of China’s Steel Industry.”
Finally, regarding iron ore, because the land of China does not produce high-grade iron ore and crude oil, the starting map is in hard mode. There is nothing we can do. We can wait until the price of iron ore drops in the future. Buy iron ore as a strategic reserve. The storage of iron ore is much more convenient than crude oil. The storage of crude oil is very troublesome. It needs to be stored in special crude oil storage tanks. Even so, it will face the problem of volatilization and deterioration. Too much talk about crude oil storage makes me cry. The storage of iron ore is much simpler. This is stone, which is non-volatile and does not deteriorate. It can be transported back by ship and buried in a large hole on the beach, and then dug out when it is needed. This matter must be done slowly. China's demand is too great. If it buys too much, the price of iron ore will easily go up.
Then if you want to invest in commodities, what is the most important thing? After a long exposition in the previous section, we can clearly draw a conclusion. When investing in commodities, the most important thing is the relationship between supply and demand. We must choose the variety with the most obvious change trend in supply and demand, and decisively go short when supply exceeds demand. When the price is lower than the demand, go long decisively.
Supply and demand-》Trends are our good friends!
Once the supply and demand relationship begins to change, the trend formed will not change in the short term. At this time, you can happily invest in the direction of the trend.
For example, palm oil is the vegetable oil with the largest production volume and consumption in the world. It is an oil squeezed from the fruits of palm trees. Palm oil is widely used in the food industry, and the main producing countries are Indonesia and Malaysia. China imports at least 6 million tons of palm oil every year.
Palm trees that produce palm oil grow very slowly. It takes 6 years from planting to starting to produce oil. As long as the palm trees mature, they can produce oil continuously for 30 years. Therefore, if there is a shortage of palm oil and prices skyrocket, it will be too late to start planting palm trees now. It will take at least 6 years before new palm oil will be available. Similarly, if palm oil plummets due to too many palm trees, farmers will not cut down trees easily because they have spent six long years raising palm trees. As long as the price of palm oil can cover the processing costs, palm oil will It will be produced continuously. Therefore, historically, the price of palm oil has fluctuated greatly, with the highest reaching 10,000 yuan/ton and the lowest reaching 4,000 yuan/ton.
As long as you grasp the trend of palm oil, whether it is an upward trend or a downward trend, you should follow the trend to go long or short.
This is just a general direction. Each commodity has specific details. For example, the off-season for palm oil production starts in November every year, but it is also the off-season for demand, because palm oil can easily solidify in winter. If you can't sell it, it depends on whether the demand drops more or the oil production drops more in winter. Only by carefully comparing the details can you know whether the current trend is upward or downward.
This winter, palm oil reached new highs, as the decline in supply clearly exceeded the decline in demand. India has lowered import tariffs to import palm oil. India imports more than 7 million tons of palm oil every year, more than China, because palm oil is the cheapest vegetable oil among all vegetable oils. Compared with soybean oil and rapeseed oil, palm oil is very popular in India.
Last time a friend asked me, what is the most important thing in investing? The answer is: Be passionate and sensitive to the world. The world is changing every day. Feel the changes in the world, then find the trend of change, and then invest resolutely.
Then he asked, can you be more specific and how to find trend changes?
The answer is the amount of information. The great people I know have at least 10 times the amount of information as ordinary people.
In addition to completing your own work every day, spend at least 3 hours reading through major domestic and international events, industry news, commodity information, etc., and then stick to it. After reading for half a year, you will find that your understanding of many things will become better and better. Be more and more detailed, and once changes occur, you can make some judgments about the future trend, and then revise your logic based on the actual situation, and then you are almost ready. . . Investing is actually a hard job, and you have to really love this world to persevere.