26 April 2015 | Online since 2003



Fund money coming 'back into agriculture'


EU grains finished mostly steadier, but off the day's highs, with Mar 14 London wheat ending GBP0.70/tonne firmer at GBP162.20/tonne, and with new crop Nov 14 London wheat closing GBP1.30/tonne higher at GBP153.30/tonne. Mar 14 Paris wheat was up EUR0.50/tonne to EUR207.75/tonne, Mar 14 Paris corn was down EUR0.75/tonne to EUR170.00/tonne, whilst May 14 Paris rapeseed rose EUR4.75/tonne to close at EUR406.75/tonne.

All eyes remain focused on Ukraine and Russia, and the situation there is changing by the minute. As of mid-afternoon today, things look less tense than they did on Monday, but that could all change in the blinking of an eye.

One thing that has already changed seem to be the recent, and sudden, flow of fund money coming out of equities and back into agriculture. They've been selling stocks and shares and instead featured as heavy buyers of corn, soybeans and wheat this past few days as a bit of "risk on" mentality returns to the market. Who wants to be long of Vodafone shares when there's a war on? Give me food commodities. That seems to be the new vibe.

How long it will last remains to be seen. Several media articles are already likening the latest situation in Ukraine to the Chernobyl nuclear disaster of 1986, when grain prices initially shot up for the first couple of weeks, only to subsequently retreat back to where they'd started from across the following 3 weeks. More recently than that we had Fukushima in 2011, when London wheat fell GBP38/tonne in a week before subsequently recovering almost all those losses back again within a few days.

Both those two periods of extreme volatility were borne out of a knee-jerk reaction to a relatively unprecedented event that took the market by complete surprise. On both occasions the market couldn't really decide whether the incidents unfolding before their eyes were actually bullish, or bearish. That certainly has parallels with current events unfolding in Ukraine.

Ukraine’s ports and shipping operations are said to be continuing virtually as normal, with the exception of the Crimean port of Sevastopol, which requires “special permission” to enter and exit.

It currently looks highly probable that Ukraine will comfortably be able to ship the 10 MMT of wheat and 18 MMT of corn that the USDA expects in 2013/14. After all, 7.5 MMT of wheat and almost 15 MMT of corn has gone already.

Meanwhile, crop conditions in the region remain good, warmer (GFS model) to much warmer than normal (CMC model) temperatures are in the forecast for the next fortnight, which gently coax winter crops out of dormancy and will also assist spring plantings too.

Rusagrotrans said that preliminary export figures show that Russia shipped 1.3 MMT of grains last month, up from 1.15 MMT in January. That total included 812 TMT of wheat, up 18.7% versus January. They estimated March grain exports rising to 1.4-1.5 MMT, up from a previous forecast of 1.3 MMT due to better weather and increased international demand due to the achingly weak rouble.

Russia still has plenty of wheat left to export, as was evidenced by the offers put up in last week's Egyptian tender, and especially so since the government recently gave up on their intervention purchase program with little more than 600 TMT in the bin versus the original target of 5-6 MMT.

Almost completely lost in yesterday's bull run (it certainly passed me by until today) was news that Informa Economics had increased their forecast for the 2014/15 Indian wheat crop to an astonishing 108 MMT. That's an increase of 15.5 MMT in last year, and the equivalent to almost double the entire production of America. That's a lot of wheat, especially as the USDA has them carrying over 20 MMT of old crop stocks into the new season. They'll begin harvesting the 2014 crop in just a few weeks.

Where we go from here most likely depends on fund money's next move. Note that US hog futures closed limit up last night, and went limit up again this afternoon, as swine flu sweeps across America. The reasoning is that this will lead to a sharp reduction in pig numbers in the US, and therefore prices have raced to all-time highs. Just remind me again, what do pigs eat?

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