The $ has soared this week, and the exchange rate is now 1.53, as against 1.63 a month ago! Gold and silver have gone vertically upwards on the back of poorer-than expected US employment figures, so investors believe that QE3 will be announced at the end of this month. AO soya is still ÂŁ350/t with Non-GM at a premium of ÂŁ35, despite the fact that in $-terms, soya bean meal has fallen to end-of-April levels, and Soya beans have fallen from their height of $15/b to $13.3/b.
Chicago wheat futures continue to trade at a premium to maize. Maize is $5.25/b and wheat is $6.60/b for September. This is partly because in the last 10 trading days, the funds have turned a short wheat position of 50,000 contracts into a 15,000 long. Consequently wheat has spiked as funds had to buy back short positions. But US wheat is now in a down trend having been over $7.0/b recently.
The US wheat harvest has started in earnest this week, and is about 10% complete; so it is no surprise that we are now receiving daily weather maps of the US. Maps of weather in the Ukraine and Russia also abound, as fears of dry weather are needed to feed the bulls. Russia believes it will have an exportable surplus of 30mt of grain next year, and has a carry out stock of 20mt. It believes the damage from the spring drought is limited. The IGC forecast for global wheat production (2012-13) will be 671mt, about 5mt less than its previous estimate due to the dry conditions in the EU, Russia and Morocco.
UK wheat carry out stocks are estimated to be 1.53mt, which are about the same as last year, but still an historically low level. The initial estimates of UK wheat exports to the end of June are 2.45mt (8% less than last year) which indicates a fast start to the export drive, and a slow-down later, which is partly due to price, exchange rates and the tonnage left on farm. One weekly agricultural paper this week highlighted the volatility and price expectation for new crop wheat prices – `we could be £10 from the bottom, or £100 from the top’ – so it could be another challenging year.
In one day this week, Spanish banks lost $39bn in deposits yesterday as savers moved money out of Spain. One analyst believes Spanish banks may have lost €0.25tn. On the back of Spain’s problems, almost all commodity and equity markets went into a nose-dive this week. Commodity traders have been told to forget fundamentals, and concentrate on global economic conditions.