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 COMMODITY
MARKET
TRADING and
INVESTMENT
A Practitioners Guide
to the Markets

TOM JAMES

GLOBAL FINANCIAL MARKETS

Global Financial Markets
Global Financial Markets is a series of practical guides to the latest finan-
cial market tools, techniques and strategies. Written for practitioners across
a range of disciplines it provides comprehensive but practical coverage of key
topics in finance covering strategy, markets, financial products, tools and
techniques and their implementation. This series will appeal to a broad read-
ership, from new entrants to experienced practitioners across the financial
services industry, including areas such as institutional investment; financial
derivatives; investment strategy; private banking; risk management; corporate
finance and M&A, financial accounting and governance, and many more.

More information about this series at

http://www.springer.com/series/15011
 Tom James

Commodity Market
Trading and
Investment
A Practitioners Guide to the Markets
Tom James
Navitas Resources Group
Navitas Resources Pte Ltd & NR Capital Pte Ltd
19th Floor, Royal Group Building, 3 Philip Street,
Singapore, 048693 Singapore

Global Financial Markets

ISBN 978-1-137-43280-3    ISBN 978-1-137-43281-0 (eBook)
DOI 10.1057/978-1-137-43281-0

Library of Congress Control Number: 2016958281

© The Editor(s) (if applicable) and The Author(s) 2016

The author(s) has/have asserted their right(s) to be identified as the author(s) of this work in accordance with
the Copyright, Designs and Patents Act 1988.
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the
whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations,
recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or informa-
tion storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does
not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective
laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this book are
believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors
give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions
that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps
and institutional affiliations.

Printed on acid-free paper

This Palgrave Macmillan imprint is published by Springer Nature

The registered company is Macmillan Publishers Ltd.
The registered company address is: The Campus, 4 Crinan Street, London, N1 9XW, United Kingdom
 I would like to dedicate this book to all my family and friends around the world
and I would like to give a special thanks to all the people who during my long
career have provided me with the opportunities to develop and offered me the
guidance and mentoring to support that development.
I now hope that through my publications I can succeed in passing on my collected
experience and help to support others in their development and career growth.
 Preface

Increased competition for natural resources is one of the inevitable conse-

quences of globalization. Previously, this has manifested itself mainly in terms
of energy security, though in recent years a succession of poor harvests among
key producers has even brought volatility and higher underlying prices to
global food markets as well.
The problems inherent in tight supply markets have on occasion been
exaggerated further by government actions intended to protect their own
national resource security. What is different about resource competition in
the twenty-first century is its global nature and the speed with which it is
intensifying. Price volatility has become the new “normal” situation across
energy and other commodity markets. This volatility presents challenges for
the markets and opportunities for investors and traders. These opportunities
and challenges encouraged me as a commodity market professional to author
this book to help investors explore the world of commodity market invest-
ment and trading.

Prof. TOM JAMES

Unlocking Value in the Commodity & Energy Markets
Navitas Resources Group
tomjames@navitasresourcescapital.com
www.navitasresources.com

vii
 Contents

1 Setting the Scene  1

2 Investment and Trading in Commodity Markets  7

3 The Financial Commodity Markets 19

4 Trading Versus Investment in Commodities  83

5 Hedge Funds and Alternative Investments in Commodities  95

6 Understanding the Fundamentals of the Commodity Markets  109

7 Applied Technical Analysis for Commodities  143

8 Building a Disciplined Trading Approach  173

9 Trade Like a Professional  187

10 Trading Psychology  199

ix
x Contents

11 Commodity Market Risk Management  207

Index  233
 List of Figures

Fig. 5.1 Apex Global Platform 102

Fig. 5.2 Ranking of commodity hedge funds versus other types of asset
classes107
Fig. 6.1 The Baltic Dry Freight Index 113
Fig. 6.2 Raw sugar production (tonnes) 116
Fig. 6.3 Water withdrawal as a percentage of total available water 118
Fig. 6.4 Average industrial metals returns and the business cycle,
January 1970 to end 2009 126
Fig. 6.5 Uses of copper 127
Fig. 6.6 Copper production 128
Fig. 6.7 Aluminium use 129
Fig. 6.8 Aluminium production 130
Fig. 6.9 Zinc production 131
Fig. 6.10 Global Zinc Demand split 132
Fig. 6.11 Nickel Global Consumption Percentage split 133
Fig. 6.12 Nickel Global Production Percentage split 133
Fig. 7.1 Typical futures bar chart 146
Fig. 7.2 Bulls and bears 148
Fig. 7.3 Bar charts 150
Fig. 7.4 Uptrend or bull trend 1 151
Fig. 7.5 In this illustration the market is hanging around support
trendline but does not close below trendline and volume
did not increase 152
Fig. 7.6 IPE Brent Crude Oil 152
Fig. 7.7 NYMEX WTI Crude Oil 153
Fig. 7.8 Trendline and breakout 153
Fig. 7.9 Volume associated with the price breakout 154
Fig. 7.10 DOJI formation 156

xi
xii List of Figures

Fig. 7.11 DOJI formation example 156

Fig. 7.12 Another example of the VIP relationship 158
Fig. 7.13 Example of price gaps 159
Fig. 7.14 Price gap chart 1 159
Fig. 7.15 Price gap chart 2 160
Fig. 7.16 Fibonacci retracement levels 160
Fig. 7.17 NYMEX WTI Crude Oil showing RSI and Trendline information 164
Fig. 7.18 NYMEX WTI Crude Oil 166
Fig. 7.19 Dow Jones snapshot 168
Fig. 7.20 Symmetrical triangle at the beginning of an uptrend 169
Fig. 7.21 Continuation pattern 169
Fig. 7.22 Symmetrical triangle in the downtrend (continuation pattern) 170
Fig. 7.23 Symmetrical triangle at the beginning of a downtrend
(continuation pattern) 170
Fig. 7.24 Ascending triangle in an uptrend (bullish continuation pattern) 171
Fig. 7.25 Ascending triangle in an uptrend (bullish continuation pattern):
flat top 171
Fig. 9.1 The self-conscious trader: own composition 191
Fig. 9.2 The market-conscious trader: own composition 192
Fig. 11.1 The risk matrix 208
Fig. 11.2 Credit, market, and operational risk 209
Fig. 11.3 Complementary risk measurement methods 212
 List of Tables

Table 1.1 The Six core categories of world commodities 3

Table 3.1 Comparison of the cash and future markets of soybeans 29
Table 3.2 Comparison of the cash and future markets of soybeans with
price modification 29
Table 3.3 Comparison of the cash and future markets of corn 30
Table 3.4 Comparison of the cash and future markets of corn with
price modification 30
Table 3.5 Comparison of the cash and future markets of wheat 31
Table 3.6 Comparison of the cash and future markets of wheat:
weaker-than-expected basis 32
Table 3.7 Comparison of the cash and future markets of wheat:
stronger-than-­expected basis 32
Table 3.8 Comparison of the cash and future markets of soybeans 33
Table 3.9 Comparison of the cash and future markets of soybeans 33
Table 3.10 Comparison of the cash and future markets of soybeans 34
Table 3.11 Basis record example 34
Table 3.12 Comparison of the cash and future markets of corn 37
Table 3.13 Comparison of the cash and future markets of corn 38
Table 3.14 Comparison of the cash and future markets of corn 39
Table 3.15 Alternatives comparisons 39
Table 3.16 Comparison of the cash and future markets of corn 41
Table 3.17 Comparison of the cash and future markets of corn 42
Table 3.18 Comparison of the cash and future markets of corn 42
Table 3.19 Alternatives comparison 43
Table 3.20 Exercise position table 45
Table 3.21 Commodity standard vs serial months 46
Table 3.22 Future position after the option exercise 55
Table 3.23 Strategy 1: example results ($)62

xiii
xiv List of Tables

Table 3.24 Premium for the December wheat call and put options ($)63
Table 3.25 Comparison between a $9.40 call and a $9.50 call 64
Table 3.26 Strategy 2: example results ($)65
Table 3.27 Selling put options: example results 66
Table 3.28 The premiums for December wheat call and put options ($)67
Table 3.29 Buy a call and sell a put: example result ($)68
Table 3.30 Strategies comparison ($)69
Table 3.31 Soybeans: selling futures example ($)72
Table 3.32 Soybeans: buying put options example ($)73
Table 3.33 Soybean: price increase example 74
Table 3.34 Soybean: selling call options Example ($)76
Table 3.35 Option premiums: call vs put comparison ($)77
Table 3.36 Long $11.50 put and short $11.80: scenarios ($)78
Table 3.37 Comparison of four commodity selling strategies ($)79
Table 3.38 Corn: long call net gain or loss 81
Table 6.1 Most internationally traded agricultural commodities 115
Table 6.2 Production information on other key staple agricultural
markets116
Table 6.3 Major exporters of food and agricultural products 123
Table 6.4 Major importers of food and agricultural products 124
Table 6.5 Commodities and Major Producers 125
Table 7.1 Open interest explication 157
Table 7.2 Schedule of moving averages 165
Table 9.1 Number of trades going wrong versus capital left, based
on 2 %, 5 %, 10 %, and 20 % capital stop loss on each trade 193
Table 11.1 VaR and stress testing comparison 211
 1
Setting the Scene

Commodities are the world’s raw materials. As natural resources, they are used
in the production process of all manufactured goods, putting them at the
heart of the economic cycle. The vital role in the world’s economy, combined
with the specific characteristics of commodity markets, make this an asset
class that can add real value to your investment portfolio.
Commodities are materials in every product we use: the grains in our food,
the wooden table on which that food is served, the steel in the car outside the
restaurant. There are many different commodities and many different com-
modity classifications. From non-perishable or “hard” commodities, such as
metals like copper, lead, and tin, to perishable “soft” commodities, such as
agricultural products, coffee, cocoa, and sugar.
Trends in resource prices have changed abruptly and decisively since the
turn of the century. During the twentieth century, resource prices fell by a
little over a half per cent a year on average. But since 2000, average resource
prices have more than doubled. Over the past 15 years, the average annual
volatility of these prices has been almost three times what it was in the 1990s.
This new era of high, rising, and volatile resource prices has been char-
acterized by many observers as a resource price “super-cycle”. Since 2011,
commodity prices have eased back a little from their peaks, prompting some
to question whether the super-cycle has finally come to an end. But the fact
is that, despite recent declines, on average commodity prices are still almost
at their levels in 2006–2008 when the global financial crisis was building up.
International crude oil prices used to trade in the range of US$9–$40 dol-
lars from 1988 to 2004; since then we have seen US$30–148. Even since

© The Author(s) 2016 1

T. James, Commodity Market Trading and Investment,
DOI 10.1057/978-1-137-43281-0_1
2 Commodity Market Trading and Investment

the 2008 crash and peak in commodity financial contracts called “futures”
US$125 has been tested several times.
Commodity futures are financial contracts on regulated markets around
the world that allow investors to trade directly the wholesale price of a huge
variety of everyday commodities. These futures contracts are still a relatively
unknown asset class, despite being traded around the world for many hun-
dreds of years. This may be because commodity futures are strikingly differ-
ent from stocks, bonds, and other conventional assets, plus, historically, the
controls around marketing them to the general public have been very strict
as they tended to be much more volatile than other investment products and
were therefore aimed at high net worth investors and professional traders.
Among these differences are:

(1) commodity futures are derivative securities: they are not claims on long-­
lived corporations;
(2) they are short maturity claims on real assets;
(3) unlike financial assets, many commodities have pronounced seasonality
in price levels and volatilities.

The economic function of corporate securities such as stocks and bonds,

that is, liabilities of firms, is to raise external resources for the firm. Investors
are bearing the risk that the future cash flows of the firm may be low and may
occur during bad times, like recessions. These claims represent the discounted
value of cash flows over very long horizons. Their value depends on decisions
of management. Investors are compensated for these risks. Commodity futures
are quite different: they do not raise resources for firms to invest. Rather, com-
modity futures allow firms to obtain insurance for the future value of their
outputs (or inputs). Investors in commodity futures receive compensation for
bearing the risk of short-term commodity price fluctuations.
Commodity futures do not represent direct exposures to actual commodi-
ties. Futures prices represent bets on the expected future spot price. Inventory
decisions link the current and future scarcity of the commodity and conse-
quently provide a connection between the spot price and the expected future
spot price. But commodities, and hence commodity futures, display many
differences. Some commodities are storable and some are not; some are input
goods and some are intermediate goods.
World commodities can be broken down into six core categories
(see Table 1.1).
Commodities are clearly crucial to everyone’s daily life. Without food, we
cannot eat. Without energy many aspects of developed society cease to func-
 1 Setting the Scene
   3

Table 1.1 The Six core categories of world commodities

Categories Typical examples
Energy Crude oil, natural gas, gasoline, power
Precious metals Gold, silver, platinum, palladium
Base metals Aluminium, copper, nickel
Ferrous metal Steel, iron ore
Agricultural Wheat, coffee, cocoa, sugar
Livestock Feeder cattle, live cattle, lean hogs

tion. This fundamental role of natural resources is a strong driver of demand

for commodities: a demand that will only intensify with the world’s grow-
ing population, increasing urbanization, and rising living standards, trends to
which emerging markets like China are contributing heavily.
As producers, such as mining and oil companies or large-scale farms, try to
meet this growing demand, their output relies on the availability of and their
access to the relevant commodities. A variety of factors play an important role
here, including weather conditions and regulations, as well as the geopoliti-
cal environment, as seen for example in 2011 when unrest in oil-producing
countries affected oil prices (e.g. the Libyan crisis).
In recent years, investible commodity indices and commodity linked assets
have increased the number of available commodity based products. Alongside
this a fast growing commodity-related hedge fund industry, commonly
referred to as alternative investments, has enabled investors to gain access to a
variety of interesting new commodity markets and strategies.
Historically, commodities like precious metals have always been valued by
people as important possessions, often as jewellery. Today, private investors are
increasingly keen to own commodities alongside their investment portfolio.
The main reasons for this trend are:

• commodities offer diversification within the overall investment portfolio;

• the fundamental link between the economic cycle, commodities, and infla-
tion means investing in real assets offers some protection from inflation;
• commodities can from time to time offer considerable returns, though
prices are volatile.

Despite these advantages, investors need to be careful, as investing in com-

modities also carries considerable risks due to the volatility in commodity
returns being generally on the high side: adverse market circumstances can
result in losses. In addition, the historical fundamental characteristics and
mechanics of commodity markets can evaporate quickly in times of market
 2 Investment and Trading in Commodity Markets
   15

Industrial Metals

Industrial metals are sold by the metric ton through the London Metal
Exchange and New York Metal Exchange. The London Metal Exchange
trades include copper, aluminium, lead, tin, aluminium alloy, nickel, cobalt,
and molybdenum. The Rotterdam Metal Exchange trades recycled steel. In
2007, steel began trading on the London Metal Exchange.

Agriculture

Agricultural commodities include grains, food, and fibre as well as livestock

and meat; various regulatory bodies define agricultural products.
On July 21, 2010, the US Congress passed the Dodd–Frank Wall Street
Reform and Consumer Protection Act with changes to the definition of
“agricultural commodity”. The operational definition used by Dodd–Frank
includes “all other commodities that are, or once were, or are derived from,
living organisms, including plant, animal and aquatic life, which are generally
fungible, within their respective classes, and are used primarily for human
food, shelter, animal feed, or natural fiber”. Three other categories were
explained and listed.
In February 2013, Cornell Law School included lumber, soybeans, oilseeds,
livestock (live cattle and hogs), and dairy products. Agricultural commodities
can include lumber (timber and forests), grains excluding stored grain (wheat,
oats, barley, rye, grain sorghum, cotton, flax, forage, tame hay, native grass),
vegetables (potatoes, tomatoes, sweetcorn, dry beans, dry peas, freezing and
canning peas), fruit (citrus such as oranges, apples, grapes) corn, tobacco,
rice, peanuts, sugar beets, sugar cane, sunflowers, raisins, nursery crops, nuts,
soybean complex, aqua cultural fish farm species (such as finfish, mollusc,
crustacean, aquatic invertebrate, amphibian, reptile, or plant life cultivated in
aquatic plant farms).
In 1900 corn acreage was double that of wheat in the USA. But from the
1930s through the 1970s, soybean acreage surpassed corn. Early in the 1970s
grain and soybean prices, which had been relatively stable, “soared to levels
that were unimaginable at the time”. There were a number of factors affecting
prices including the surge in crude oil prices caused by the Arab Oil Embargo
in October 1973 (US inflation reached 11 % in 1975).
16 Commodity Market Trading and Investment

Diamonds

As of 2012 diamonds were not traded as a commodity. Institutional inves-

tors were repelled by the campaign against “blood diamonds”, the monop-
oly structure of the diamond market, and the lack of uniform standards for
diamond pricing. In 2012 the SEC reviewed a proposal to create the first
diamond-backed exchange-traded fund that would trade online in units of
one-carat diamonds with a storage vault and delivery point in Antwerp, the
home of the Antwerp Diamond Bourse. The exchange fund was backed by a
company based in New York called Index IQ, which had already introduced
14 exchange-traded funds since 2008.
According to Citigroup analysts, the annual production of polished dia-
monds is about $18 billion. Like gold, diamonds are easily authenticated and
durable. Diamond prices have been more stable than metals, as the global
diamond monopoly De Beers once held almost 90 % (by 2013 reduced to 40
%) of the new market.

Other Commodity Markets

Rubber trades on the Singapore Commodity Exchange in units of 1 kg, priced

in US cents. Palm oil is traded on the Malaysian Ringgit, Bursa Malaysia in
units of 1 kg, priced in US cents. Wool is traded on the ASX (Australian Stock
Exchange) in Australian Dollars AUD, in units of 1 kg. Polypropylene and
linear low density polyethylene trade on the London Metal Exchange in units
of 1000 kg, priced in US dollars.

Regulatory Bodies and Policies

USA

In the USA, the principal regulator of the commodity and futures markets is
the Commodity Futures Trading Commission (CFTC). The National Futures
Association (NFA) formed in 1976 is the futures industry’s self-regulatory
organization. The NFA’s first regulatory operations began in 1982 and fall
under the Commodity Exchange Act of the CFTC Act.
Dodd–Frank was enacted in response to the 2008 financial crisis and called
for “strong measures to limit speculation in agricultural commodities” requir-
ing the CFTC to limit positions further and to regulate OTC trades.
Another random document with
no related content on Scribd:
"It is probably unknown to the inhabitants of the Transvaal
and Orange River Colony that nearly 15,000 of their
fellow-subjects are now prisoners of war, not one of whom will
be released until those now in arms against us surrender
unconditionally. The burghers must by this time be cognisant
of the fact that no intervention on their behalf can come from
any of the Great Powers, and, further, that the British Empire
is determined to complete the work which has already cost her
so many valuable lives, and to carry to its conclusion the war
declared against her by the late Governments of the South
African Republic and Orange Free State, a war to which there
can be but one ending. If any further doubts remain in the
minds of the burghers as to Her Britannic Majesty's
intentions, they should be dispelled by the permanent manner
in which the country is gradually being occupied by Her
Majesty's Forces, and by the issue of the Proclamations signed
by me on the 24th May and 1st September 1900, annexing the
Orange Free State and the South African Republic respectively,
in the name of Her Majesty.

"I take this opportunity of pointing out that, except in the

small area occupied by the Boer army under the personal
command of Commandant-General Botha, the war is degenerating,
and has degenerated, into operations carried on in an
irregular and irresponsible manner by small, and in very many
cases, insignificant bodies of men. I should be failing in my
duty to Her Majesty's Government and to Her Majesty's Army in
South Africa if I neglected to use every means in my power to
bring such irregular warfare to an early conclusion. The means
which I am compelled to adopt are those which the customs of
war prescribe as being applicable to such cases. They are
ruinous to the country, and entail endless suffering on the
burghers and their families, and the longer this guerrilla
warfare continues the more vigorously must they be enforced."

Great Britain, Papers by Command:

1900, Cd. 420, page 78, and Cd. 426, page 17.
SOUTH AFRICA: The Transvaal: A. D. 1900 (October).
Proclamation of annexation to the British Dominions.

In terms similar to those used in proclaiming the annexation

of the Orange Free State (see above: MAY) the annexation of
the Transvaal to the Dominions of Her British Majesty was
proclaimed with great ceremony at Pretoria on the 25th of
October.

SOUTH AFRICA: The Field of War: A. D. 1900 (November).

Return of Lord Roberts to England, leaving Lord Kitchener
in command.

Having been appointed Commander-in-Chief of the British Army,

in the place of Lord Wolseley, Field-Marshal Lord Roberts, on
the 29th of November, delivered the command in South Africa to
Lord Kitchener, and returned to England. At the same time,
Lord Kitchener was raised to the rank of Lieutenant-General.

SOUTH AFRICA: Cape Colony and the Transvaal:

A. D. 1900 (December).
Afrikander Congress.
Lord Kitchener to the burghers of Pretoria.

From 6,000 to 8,000 persons were reported to be in attendance

at an "Afrikander Congress," held at Worcester, in Cape
Colony, December 6, which adopted the following resolutions:

"1. We men and women of South Africa assembled and represented

here, having heard the report of the people's deputation to
England, and having taken into earnest consideration the
deplorable condition into which the people of South Africa
have been plunged, and the grave danger threatening our
civilization, record our solemn conviction that the highest
interests of South Africa demand, first, the termination of
the war now raging with untold misery and horror, such as the
burning of houses, the devastation of the country, the
extermination of the white nationality, and the treatment to
which women and children are subjected, which will leave a
lasting heritage of bitterness and hatred, while seriously
endangering further relations between civilization and
barbarism in South Africa; secondly, the retention by the
Republics of their independence, whereby alone the peace of
South Africa can be maintained.

2. The congress desires full recognition of the right of the

people of this colony under its Constitution to settle and
manage their own affairs and to express grave disapproval of
the policy pursued and the attitude adopted in this matter by
the Governor and High Commissioner, his Excellency Sir Alfred
Milner.

3. The congress solemnly pledges itself to labour in a

constitutional way unceasingly for the above resolutions, and
resolves to send a deputation to his Excellency Sir Alfred
Milner, asking him to bring the resolutions officially to the
notice of her Majesty's Government."

On the 21st of December Lord Kitchener addressed a meeting, at

Pretoria, of burghers who had surrendered to the British and
who desired to bring about peace. In his remarks he was
reported to have said: "The Boers had fought a good fight, but
they were overpowered. There would be no dishonour in the
leaders recognizing this fact. The proclamations that had been
issued were of little use, as means were adopted to prevent
them from reaching the burghers. He trusted that the committee
would endeavour to acquaint the Boers in the field with the
true position. He desired to give them every chance to
surrender voluntarily, and to finish the war by the most
humane means possible. If the conciliatory methods now being
adopted failed he had other means which he would be obliged to
exercise. He would give the committee notice if the time
arrived to consider conciliation as a failure. The principal
 difficulties were that burghers desirous of surrendering were
afraid they would not be allowed to remain in their own
districts or that they would be punished for violating their
oath of neutrality. General Kitchener declared that he had
issued instructions that burghers who surrendered would, with
their families and stock, be protected in their own districts.
Those who had broken the oath of neutrality under compulsion
would be accorded the same treatment. Deserted women and
children would be kept in laagers, where their friends could
freely join them. It was essential to clear the country. While
food remained the commandos were enabled to continue in the
field. General Kitchener added that it must be understood that
the British would not be responsible for stock unless it was
brought in and kept within protected limits. In conclusion
General Kitchener said that he had come to speak to the
burghers personally in order that they might be able to tell
their friends what they had heard from his own lips."

{508}

SOUTH AFRICA: The Field of War: A. D. 1900 (December).

Numbers of British troops employed in the war from the
beginning, and their losses.

See (in this volume)

ENGLAND: A. D. 1900 (DECEMBER).

SOUTH AFRICA: British Colonies: A. D. 1901 (January).

New heads of the Colonial Governments.

The following appointments were announced by the British

Colonial Office on the 4th of January, 1901: Sir Alfred Milner
to be Governor of the Transvaal and British High Commissioner.
The Honourable Sir Walter Francis Hely-Hutchinson (Governor of
Natal and Zululand since 1893) to be Governor of Cape Colony.
Lieutenant-Colonel Sir Henry C. McCallum (Governor of
Newfoundland since 1898, and aide-de-camp to the Queen since
 1900) to be Governor of Natal. Major Hamilton John Goold-Adams
(Resident Commissioner of the Bechuanaland Protectorate) to be
Lieutenant-Governor of the Orange River Colony.

SOUTH AFRICA: Cape Colony: A. D. 1901 (January).

Boer invasion.
Declaration of martial law.

On New Year's Day, 1901, the Cape Town correspondent of the

"London Times" was compelled to write: "The immediate aspect
of affairs in Cape Colony at the opening of the new year is
scarcely less gloomy than at the beginning of 1900. The number
of Boers invading the country to-day may be less than it was a
year ago, but they have penetrated further south, and their
presence near such centres of hostile Dutch feeling as Graaf
Reinet constitutes an element of danger which was not present
last January. The proclamation issued this morning by the High
Commissioner calling for volunteers to defend the lines of
communication proves that the military authorities are at last
alive to the critical nature of the situation, but the measure
comes very late in the day."

On the 17th of January a cable message from Cape Town

announced: "An extraordinary gazette issued this afternoon
contains a proclamation placing the whole of the Cape Colony
under martial law, with the exception of the Cape Town,
Wynberg, Simonstown, Port Elizabeth and East London districts
and the territories of the Transkei, Tembuland, Griqualand and
East Pondoland. The gazette also states that the
peace-preservation act will be enforced in the Cape Colony,
Wynberg and Simonstown districts. Under this act all the civil
population will be called upon to deliver up their arms."

SOUTH AFRICA: Orange Free State: A. D. 1901 (January).

Peace movement.
Condition of country described.
Defiant proclamation of Steyn and De Wet.
Early in January, a "Central Peace Committee," formed at
Kroonstad, addressed an open letter to their fellow citizens,
appealing for submission and peace, saying: "The country is
literally one vast wilderness. The farmers are obliged to go
to the towns for protection, and huge refugee camps have been
formed by the British for them and their families. These
people have lost everything, and ruin and starvation stare
them in the face. All this misery is caused by a small and
obstinate minority, who will not bow to the inevitable and who
make the majority suffer. Any encouragement to the men still
on commando to continue the hopeless struggle can only injure
us and cause us further misery. We have done our best and
fought to get Africa under one flag, and we have lost. Let
there be no mistake about this. England has spent millions and
sacrificed thousands of lives, and no reasonable being can
believe for one moment that she will now give up the fruits of
victory. It is, therefore, a duty for us, her beaten foe, to
accept the terms offered by our conqueror. … We appeal to you
and ask you to appoint another congress, and nominate men of
influence out of your midst to visit Mr. Steyn and General De
Wet, and try to persuade them to accept the terms offered by
England. These two men are the only obstacles to peace. We ask
you to believe us when we say that Mr. Kruger and the late
Transvaal Government have been willing twice already to accept
British terms, but Mr. Steyn refused to have anything to do
with surrender. He continued the war and encouraged the
burghers in the hope that we should get European assistance.
To-day he is cut off from all communication with the outside
world. You know and we know how unfounded that hope is and it
is your duty to assist us to make him understand this. We
appeal to you to help us to make an end to this unhappy state
of affairs, which is plunging everybody into poverty and
despair."

As if in response to this cry for peace, Steyn and De Wet

issued the following proclamation a few days later: "Be it
known to all that the war which was forced on the Republics by
the British Government still rages in the Orange Free State
and in the South African Republic; and that the customs of
civilized warfare and also the Conventions of Geneva and The
Hague have not been observed by the enemy, who has not
scrupled, contrary to the Geneva Convention, to capture
doctors and ambulances and to deport them, in order to prevent
our wounded from getting medical assistance. He has seized
ambulances and material appertaining thereto, and has not
hesitated, contrary to the recognized primitive rules of
warfare, and contrary to his solemn agreement at The Hague, to
arrest neutrals and deport them, and to send out marauding
bands to plunder, burn, and damage the burghers' private
property. He has armed Kaffirs and natives and made use of
them against us in war. He has been continually busy capturing
women and children, old and sickly men. Many women's deaths
have been occasioned because the so-called Christian enemy had
no consideration for women on a sick bed or for those whose
state of health should have protected them against rough
treatment. Honourable women and tender children have not only
been treated roughly, but also in an insulting manner by the
soldiers, by order of their officers. Moreover, old mothers
and women have been raped, even wives and children. The
property of prisoners of war, and even of killed burghers, has
not been respected. In many instances the mother and father
have been taken from the house, which was thus left
unprotected, and all have been left to their fate, an easy
prey to the savage. The world has been untruthfully informed
by the enemy that he was obliged to carry out this destruction
because the burghers blew up the line and cut the wires, or
misused the white flag. Nearly all the houses in the two
Republics have been destroyed, whether in the neighbourhood of
the railway line or not; while with regard to the misuse of
the white flag, that is simply a continuance of the
everlasting calumny against which the Afrikander has had to
strive since God brought him into contact with Englishmen.
Robbing his opponent of his goods has not satisfied him; he
 will not be satisfied till he has robbed him of his good name
also.

{509}

"Then he wishes to inform the world that the Republics are

conquered and the war ended, and that only here and there
small plundering bands are to be found who continue the strife
in an irresponsible manner. It is an untruth. The Republics
are not yet conquered. The war is not finished. The burgher
forces of the two Republics are still led by responsible
leaders, as from the commencement of the war, under the
supervision of the Governments of both Republics. The fact
that Lord Roberts and Lord Kitchener choose to term the
burgher forces marauding bands does not make them such.
Similarly, saying that the war is over does not put an end to
it while fighting still continues. When was this war over?
After the battle of Spion Kop or after Paardeberg? After the
occupation of Bloemfontein or Pretoria? Or perhaps after the
battles of Dewetsdorp or Commando Nek, in both of which
irregulars were captured and the enemy totally vanquished. The
burghers would be less than men if they allowed the enemy to
go unpunished after ill-treating their wives and destroying
their homes from sheer lust of destruction. Therefore a
portion of our burghers have again been sent into Cape Colony,
not only to wage war, but to be in a position to make
reprisals as they have already done in the case of the
ambulances. Therefore we again warn the officers of her
Majesty's troops that unless they cease the destruction of
property in the Republics, we shall wreak vengeance by
destroying the property of her Majesty's subjects who are
unkindly disposed to us; but at the same time, to avoid being
misunderstood, we hereby openly declare that the women and
children will always remain unmolested, despite anything done
to ours by her Majesty's troops. We ask for nothing from our
brothers in Cape Colony, but we call upon them, as well as
upon the civilized world, to assist on behalf of civilization
 and Christianity in putting an end to the barbarous manner of
the enemy's warfare. Our prayer will always be that the God of
our fathers will not desert us in this unrighteous strife.

"On the field, January 14. STEYN. DE WET."

SOUTH AFRICA: The Field of War: A. D. 1901 (February).

Report of British military forces in South Africa from the
beginning of the war, with the number of killed and wounded
and the deaths from wounds and disease.

A Parliamentary paper issued on the 26th of February, 1901,

contained the following table, showing the strength of the
garrison in South Africa on the 1st of August, 1899, before
the beginning of the war, with the subsequent reinforcements
and casualties, and the total strength of forces on the 1st of
February, 1901:

|NON-COMMISSIONED
OFFICERS AND MEN.

OFFICERS|CAVALRY|ARTILLERY|INFANTRY|OTHERS|TOTAL|
TOTAL
AND
OFFICERS

MOUNTED AND MEN

INFANTRY
-------------------------------------------------
----------------------------
I. Garrison on
Aug. 1, 1899 318 1,127 1,035
6,428 1,032 9,622 9,940
-------------------------------------------------
----------------------------
II.
Reinforcements,
Aug. 1, 1899,
to Oct. 11, 1899
(outbreak of war)

(1.) From Home. 280 … 743

5,620 … 6,363 6,643
(2.) From India
(some of these did
not reach South
Africa until after
the outbreak of
hostilities) 259 1,564 653
3,427 … 5,644 5,903

-------------------------------------------------
-----------------------------
539 1,564 1,396
9,047 … 12,007 12,546
-------------------------------------------------
-----------------------------

III. Further
reinforcements
from Oct. 11,
1899, to end
of July, 1900

Regulars
(1.) From Home
and Colonies. 5,748 11,003 14,145
110,292 14,347 149,787 155,535
(2.) From India. 132 713 376
670 … 1,759 1,891

-------------------------------------------------
-----------------------------
5,880 11,716 14,521
110,962 14,347 151,546 157,426
-------------------------------------------------
-----------------------------

Colonials
(1.) From Colonies
other than
South African. 550 287 692
9,788 267 11,034 11,584
(2.) Raised in
South Africa. 1,387 … …
… … 28,932 30,319

-------------------------------------------------
------------------------------
1,937 … …
… … 39,966 41,903
-------------------------------------------------
------------------------------

Imperial yeomanry. 536 … …

… … 10,195 10,731
Volunteers from
United Kingdom. 342 … 358
9,995 434 10,787 11,129
Militia. 831 … 617
19,753 256 20,626 21,457

-------------------------------------------------
-------------------------------

Total all arms

sent to, and
raised in,
South Africa
up to Aug. 1, 1900,
including garrison
on Aug. 1, 1899. 10,383 … …
… … 254,749 265,132

-------------------------------------------------
-------------------------------

IV. Further
reinforcements
from Aug. 1, 1900,
to Jan. 31, 1901
(1.) Regulars 820 3,213 652
10,439 975 15,279 16,099
(2.) Militia 7 … …
1,141 … 1,141 1,148

-------------------------------------------------
-------------------------------

11,210 … …
… … 271,169 282,379
-------------------------------------------------
-------------------------------
{510}

NON-COMMISSIONED OFFICERS AND MEN.

Officers Cavalry.
Artillery. Infantry Others. Total. Total

and Officers

Mounted and Men

Infantry

V. Numbers
(1.) Killed to
Jan. 31, 1901 334.
3,346 3,680
(2.) Wounded to
Jan 31, 1901. 1,242.
14,914 16,156
(3.) Died of disease
or wounds or accidentally
killed in South Africa
to Jan. 31, 1001. 301.
9,008 9,309
(4.) Disbanded and
discharged in South Africa. 299.
5,231 5,530
(5.) In hospital in South
Africa on Dec. 28, 1900
(latest returns). 415.
13,716 14,131
VI. Numbers left
South Africa
(1.) For England
not invalids. 1,214
11,109 12,323
(2.) For England
sick, wounded, and
died on passage 1,703
39,095 40,198
(3.) Returned to India
direct from South Africa. 20
70 90
(4.) Returned to Colonies
direct from South Africa
(a) Regulars, including two
battalions to Ceylon. 98
2,041 2,139
(b) Colonials. 177
3,384 3,561

VII. Present strength of

Forces in South Africa,
Feb. 1, 1901
(1.) Regulars. 4,305 12,600
12,000 99,700 12,885 137,185 141,490
(2.) Colonials. 1,339
27,000 28,339*
(3.) Imperial yeomanry 495
7,500 7,995
4.) Volunteers. 200
7,500 7,700
5.) Militia. 725
18,700 19,425

TOTAL 7,064
197,885 204,949*

* Exclusive of recently raised Colonials whose numbers have not yet been
reported.

On the 9th of February the following announcement was issued

officially from the British War Office:

"In view of recent Boer activity in various directions his

Majesty's Government have decided, in addition to the large
forces recently equipped locally in South Africa, to reinforce
Lord Kitchener by 30,000 mounted troops beyond those already
landed in Cape Colony. The recruiting for Imperial Yeomanry
has proceeded so rapidly that it is anticipated not less than
10,000 will be shortly available. The South African Mounted
Constabulary, including those enlisted in the colonies, may be
relied upon to the extent of 8,000. The new colonial
contingents to replace those withdrawn will probably reach
5,000. The remainder of the force will be made up by cavalry
and mounted infantry from the home establishment. The
enlistment of Volunteer companies to replace those who have
served a year in South Africa is also being proceeded with.
Arrangements have been made for the prompt equipment and
transportation of the force."

In reply to a question in Parliament the 18th of February,

1901, Mr. Brodrick, the Secretary of State for War, stated
that the total number of cases of typhoid or enteric fever in
the British army, from the beginning of the war to the end of
December, 1900, had been 19,101; deaths 4,233; invalided and
sent home, 10,075.

SOUTH AFRICA: The Field of War: A. D. 1901 (February).

The declared policy of the British Government.

Speaking in the House of Commons on the 18th of February,

1901, the Colonial Secretary, Mr. Chamberlain, declared the
government policy of dealing with the Boers, with strong
emphasis, in the following words:

"From the moment when the invasion took place, and the first
shot was fired by the Boers, from that moment we declared our
policy, that not one shred of the independence which the Boers
had abused should ever again be conceded to them. That was the
policy stated by the Prime Minister in his answer to the
representations which were made to him by the Presidents of
the two Republics. That was the policy, is the policy, and
will be the policy of His Majesty's Government to the end. Let
there be no mistake about that. It is no use arguing with us
on the subject of independence. That, as far as we are
concerned, is a closed question. Raise it, if you like to
raise it, not in speeches, but by amendments. We are quite
ready. We challenged you at the last election. You have never
ceased to complain of the challenge. We challenge you in the
House of Commons. If you believe the annexation we have
announced ought to be repudiated; if you think, with the
honorable and learned gentleman who has just spoken, that we
ought to restore the independence of these two Republics, in
any form, it is for you to say so in a definite amendment. It
is for you to put the issue before the House of Commons and
the country and we are perfectly prepared to meet you.
Assuming that we are all agreed that annexation cannot be
undone, then the policy of the Government is to establish
equality and protection and justice for the native population
and to grant the fuller liberties involved in our definition
of self-government as soon as that can safely be conceded. …
The Boers know perfectly well, they have been told again and
again, directly and indirectly, and it has been repeatedly
stated in this House that at the earliest possible moment they
will be granted self-government."
{511}

The Liberal leader interrupted the speaker to intimate that he

understood a Crown colony government to be in contemplation,
and that his objection was to that. On which Mr. Chamberlain
proceeded to say: "Either the right honourable gentleman does
not know what Crown colony government is or else he is
quibbling about words. Will he be satisfied if I call it a
civil government, with Ministers and a Governor appointed by
his Majesty and a council to advise him? That is civil
government, and it has this about it—that the Imperial
Government has control in the last resort. That is what we
mean. … We are quite ready to establish the civil government
of which I have spoken, we are ready to maintain equality, we
are ready to secure justice to all the inhabitants of the
Transvaal and the Orange River Colony, but we are not prepared
to put into their hands the whole control of the
administration and civil government until we know it will be
safe to do so. It is said that our views have not been
communicated to the Boers and that a proclamation which I
promised I would endeavour to have circulated has not yet been
so distributed. I wish to say that, so far as the leaders are
concerned, I am convinced they know perfectly well what terms
we are willing to offer. There is no excuse on their part. It
is possible that many of their followers, being ignorant
people—when they come to us we find they have been deceived as
to what is going on—do not know the terms we are willing to
offer. We have by various means endeavoured to get to the rank
and file a knowledge of the terms which are being offered, and
we know what the result has been. The emissaries have been
sent—emissaries not sent by us, permitted by us to go, who
volunteered themselves in what they believed to be the
interests of their countrymen, to make these representations—
these emissaries have been apparently, as far as our
information goes, brutally ill-used, tortured before
execution, shot as spies after having been flogged. "
SOUTH AFRICA: The Field of War: A. D. 1901 (February).
Attitude of the English Liberal party towards the war.

See (in this volume)

ENGLAND: A. D. 1901 (FEBRUARY).

SOUTH AFRICA: The Field of War: A. D. 1901 (February-March).

Unsuccessful peace parley between Lord Kitchener and
Commandant Botha.

By the intermediation of the wife of the Boer Commandant Louis

Botha, an interview between that officer and Lord Kitchener
was brought about, on the last day of February, for discussion
"as to means of bringing the war to an end." The questions raised
in the conversation were reported by Lord Kitchener to Mr.
Brodrick, the British Secretary for War, in a telegram from
Pretoria, March 1, as follows: "I have had a long interview
with Botha, who showed very good feeling and seemed anxious to
bring about peace. He asked for information on a number of
subjects which he said that he should submit to his Government
and people, and if they agreed he should visit Orange River
Colony and get them to agree. They should all then hand in
their arms and finish the war. He told me that they could go
on for some time, and that he was not sure of being able to
bring about peace without independence. He tried very hard for
some kind of independence, but I declined to discuss such a
point, and said that a modified form of independence would be
most dangerous and likely to lead to war in the future.
Subject was then dropped, and—

"Firstly.—The nature of future government of Colonies asked

about. He wanted more details than were given by Colonial
Secretary, and I said that, subject to correction from home, I
understood that when hostilities ceased military guard would be
replaced by Crown Colony administration, consisting of
nominated Executive, with elected assembly to advise
administration, to be followed after a period by
representative government. He would have liked representative
government at once, but seemed satisfied with above.

"Secondly.—Whether a Boer would be able to have a rifle to

protect him from native? I said I thought he would be by a
licence and on registration.

"Thirdly.—He asked whether Dutch language would be allowed? I

said that English and Dutch would, I thought, have equal
rights. He expressed hope that officials dealing with farmers
would know Dutch.

"Fourthly.—The Kaffir question. This turned at once on

franchise of Kaffirs, and a solution seemed to be that
franchise should not be given to Kaffirs until after
representative government was granted to Colonies. Orange Free
State laws for Kaffirs were considered good.

"Fifthly.—That Dutch Church property should remain untouched.

"Sixthly.—Public trusts and orphan funds to be left intact. He

asked whether British Government, in taking over the assets of
Republics, would also take over legal debts. This he made
rather a strong point of, and he intended it to include debts
legally contracted since the war began. He referred to notes
issued amounting to less than a million.

"Seventhly.—He asked if any war tax would be imposed on

farmers? I said I thought not.

"Eighthly.—When would prisoners of war return?

"Ninthly.—He referred to pecuniary assistance to repair burnt

farms, and enable fanners to start afresh. I said I thought
some assistance would be given.
 "Tenthly.—Amnesty to all at end of war. We spoke of Colonials
who joined Republics, and he seemed not adverse to their being
disfranchised.

"I arranged with him that I should write and let him know the
view of the Government on these points. All I said during the
interview was qualified by being subject to confirmation from
home. He was anxious to get an answer soon."

Two days later, General Kitchener drafted and submitted to

High Commissioner Sir A. Milner the reply which he wished to
be authorized to make to the questions of Commandant Botha.
This was transmitted, in turn, by the High Commissioner to
Colonial Secretary Chamberlain, with approval of all the
suggestions of Lord Kitchener, except on the subject of
amnesty to the rebel "Afrikanders" of Cape Colony and Natal,
who had joined the ranks of the Boers. Lord Kitchener wished
to say that "on the cessation of hostilities and the complete
surrender of arms, ammunition, cannon, and other munitions of
war now in the hands of the burghers in the field or in
Government depots or elsewhere, His Majesty's Government is
prepared at once to grant an amnesty in the Transvaal and
Orange River Colony for all bona fide acts of war committed
during the recent hostilities; as well as to move the
Governments of Cape Colony and Natal to take similar action
but qualified by the disfranchisement of any British subjects
implicated in the recent war."
{512}
Sir Alfred Milner proposed to amend the latter clause as
follows: "British subjects of Cape Colony or Natal, though
they will not be compelled to return to those Colonies, will,
if they do so, be liable to be dealt with under the laws of
those Colonies specifically passed to meet the circumstances
arising out of the present war and which greatly mitigate the
ordinary penalties of rebellion." "While willing," he said,
"to concede much in order to strengthen Botha in inducing his
people to submit, the amnesty of rebels is not, in my opinion,