Humphrey Feeds Commodity Report - 13th August 2012
The USDA report said that 50% of the maize crop was poor or very poor (aka rubbish), as was 39% of the soya crop; the figures were already within trade estimates so the market did not react at all. The maize harvest has started in some regions and yields are poor.
Light and scattered rain has finally hit the mid-West which was very welcome for soya; but too late for maize which has been stuck at $8/b (and wheat at $9/b) for three weeks. Bulls need to be fed, and stale news inevitably means static prices.
The bulls were hoping that Friday's USDA survey report would serve up something fresh and meaty such as maize and soya yields below 125bpa (146 last month) and 36bpa (40 last month) respectively to drive prices further; they complied with 123bpa and 36bpa; the maize yield is the lowest for 17 years, with a carry-out of 650mb (1183mb last month).
Soya production is expected to be 2.69bb (3.05bb last month), the lowest since 2007. Although the markets have reacted strongly to soya, maize appears to be static – a peculiar state of affairs. In the UK, new crop wheat is dribbling into feedmills.
Strategie Grains has UK cut yields from 7.8 to 7.27 t/ha (7.75 t/ha last year) which equates to a loss of 1mt, giving 14.3mt (15.3mt last year). New contract highs were made immediately after the USDA report, at £198.50 for Nov. Spot AO soya is about £450 delivered to the mill.
Russia’s food security commission ruled out an export ban, but did not rule out tariffs next calendar year.
India has declared a drought as monsoon rainfall is now 20% below average, with some areas not having had rain at all this year; about 30m farmers are affected. Gujarat and Maharashtra are the driest for 30 years. India may have to import rice, cooking oil, sugar and proteins, which only serves to further stress the global food situation.
Various entities including the UN and 25% of US senators (non-maize states) have requested the EPA reduce the ethanol mandate. If the mandate really was put into place to replace farm subsidies, then it is doing its job. Morgan Stanley believes that the US still needs 12.9bn gallons of ethanol even if there was no mandate, and that ‘Economics, not politics, drives ethanol use’.
Bioethanol is profitable, so a zero mandate would have no effect on maize usage. If the mandate was dropped, the US does not have enough soya to replace DDGS.
Celeres consultancy of Brazil, believes that the soya acreage will be 27mha this year (of which 88% is GM), resulting in a record crop of 78mt (up 18% on last year).
Some 12mha will be planted with GM maize (75% of the total maize crop), compared to only 1.2mha of GM five years ago. The north of Brazil was once GM-free, now 26% of the cultivated area of Mato Grosso is GM, and 18% of Parana.
Farmers in Mato Grosso want to import 0.3mt soya from Bolivia – sounds like a danger signal to us? Boxing clever – a feint to the left then a right hook? China announces that it will not be buying any more soya for a while; soya prices fall $1.5/b over 12 days, then China pounces and buys 1.5mt. A technical knockout?
There has been much criticism of High Frequency Trading (HFT) – where computers loaded with algorithms look for tiny and temporary inconsistencies in prices between linked shares or commodities. If sufficiently high trades are made in milliseconds, it is possible to make profits between the wallpaper and the wall.
Last week Knight Capital upgraded its HFT software which trades 50m shares per day, and lost $440m (four times last year’s profits) ‘within a few minutes’. Apparently the computer misunderstood the instruction to trade over a 5 week period, and in seconds bought $7bn shares. It is estimated that 60% of stock exchange trades have a computer on one side of the transaction, and 40% of those have no human intervention.