US wheat prices hit eight-month low

The world’s financial focus seems to have switched away from commodities and back to economics. The Eurozone and US debt are back in the spotlights, with banker-bashing in the interlude.

The net casualties are currency and Banking organisations which may relocate beyond the reach of the EU. Sterling slid below $1.50 for the first time in more than two and a half years, so the £ has now fallen 8% against the $ in the last 2 months.

To add to the drama (or tragedy?) the Bank of England decided against more QE (printing money) this week. In the US the fiscal cliff that was postponed from the end of last year expires on 27th March.

Political indecision on both sides of the Atlantic is no way to manage a global financial crisis. As a result, the weak £ means that imported wheat (traded in €) and soya (traded in $) are more expensive.

From the money-market point-of-view, all the major commodities have lost ground with gold and silver posting losses of 4.9% and 8.8% respectively in February.

The combination of US-QE and ex-commodity investment had to go somewhere, so it is probably not surprising that the FTSE 100 hit a 5-year high this week (6461) and the Dow Jones hit an all-time high of 14,296.

Traditional funds are net long of 128,000 soya bean and net short of 48,000 wheat contracts. Index funds are long of 36,000 soya bean and 103,000 wheat contracts. Commercials are short of 169,600 soya bean and 52,300 wheat contracts.

Just after the stock exchange highs, May wheat futures fell £4/t and November futures about £3.50/t to new closing lows of £198.50/t and £180.70 not seen since August and October last year respectively.

US wheat prices hit an eight-month low at $6.91/b, the weakest for a spot contract since June last year. Apparently a series of snow storms is helping ‘to resolve the drought crisis’.

In Brazil the soya harvest is about 40% complete, but sellers are being forced to accept lower prices to help cover record demurrage costs. The dockworkers will stage their first strike on the 19th March. The ship queue is now said to be 60 days (45 days last week), and in two months’ time the sugar harvest will be competing for loading space. The total soya harvest is estimated at about 80mt, but less than 1mt has been exported in February compared with 1.5mt last year.

The Safrinha (the second corn crop) which is planted after early soya beans are harvested is about 70% complete. Apart from currency, the major concerns are about the slow pace of exports, which could force some buyers to switch to US soya; the US has already sold about 95% of its surplus soya, of which 80% has already been exported.

The US has already exported 28% more soya than last year, and they are only halfway through the marketing season; therefore sales from now to September must be limited to about 2mt. That seems unlikely as 330,00t of old crop soya has just been sold to China, so the US may become an importer of South American soya in May.

The US Court of Appeals gave Argentina until March 29th to submit a plan for the repayment of $1.33bn in debt on which it defaulted 11 years ago. Argentina is expected to offer $0.25 on the $.

Consequently Christina would benefit from a cash injection, so we would not be surprised to see more pressure on their farmers to sell, providing income tax from agricultural exports. Argentina is the world's largest exporter of barley, soya bean meal and soya oil, the second largest exporter of maize, and the third largest exporter of soya beans, so any upset to Argentinean farmers could cause a global upset.

An Icelandic feldspar crystal recently found in the remains of a shipwreck dating from 1592, could be an example of the almost mythical sun-stone. The polarising properties of the crystal can be used to diffract light which points to the direction of the sun, even when the sun is hidden by clouds or just over the horizon.