Humphrey Feeds Commodity Report - 28/11/11
On Monday (21/11/2011) maize was testing $6.00/b then broke through to $5.85 by Friday; similarly UK January futures wheat closed at £144.50 last Friday and hit a low of £141 on Thursday – the lowest since the same week last year. The world’s largest maize importer, Japan, bought 0.8mt of Ukrainian maize last week, at $20-30/t less than the US quotes.
Korea bought feed wheat which was $40-60/t cheaper than US maize. South America is selling spring maize at levels well below US prices; and allegedly Argentina is selling wheat at levels competitive to Black Sea prices! The UK and Brazil have even exported wheat to the US. The message being sent to US exporters [very loudly] is that their maize and wheat is too expensive compared to world markets. Poor US exports, the strong $, US exposure to the Eurozone and investors reducing risk prior to Thanksgiving [Thursday] all conspired to weaken commodities this week.
In the last four and a half months, Russia has exported almost 14mt of grain (wheat 12mt). Prices have declined over the period to maintain competitiveness with the Ukraine and Kazakhstan. Egypt is an active wheat buyer from all three sources. In terms of next year’s crop, Russian winter wheat appears to be in good condition; up to 30% of Ukraine’s winter grain is being distressed by drought. Defra UK supply and demand estimates for 2011/12 has reduced human and industrial wheat usage by 4% (from 2010/11) to 6.9mt mainly due to bioethanol, and increased by a 5% feed usage to 6.5mt. The UK exportable surplus is 2.7mt, of which the trade believes that1.3mt will be exported by the New Year.
China’s compound feed production in the 10 months to Oct 2010 was 130mt, in the same period to 2011 was 153mt. To maintain this rate of growth, China will need an additional 6mt of soya beans per annum to crush.
The weakness in Brazilian currency has attracted China like moths to a flame, so China has been buying Brazilian soya rather than US. The net result is that US soya export commitment is lagging 35% behind last year’s exports, and 22% behind the previous year’s exports. So US exporters are being hammered. The US has a huge balance of payments problem, which can only worsen if this continues. If the US is squeezed more, will they have a go at China for currency manipulation, and will China retaliate by buying South American soya [only?]. If US exporters do not sell much soya by February – then checkmate, because of the Brazilian harvest. The weather in South America is almost perfect for its next soya crop; Argentina is on course to plant a record 19mha of soya, with an estimated production of 50-53mt. Brazil are expected to harvest 61-64mt.
A US-based consultancy issued a bulletin this week stating that the US investment community are becoming more certain that the Eurozone will fail; and that the next milestone will be France’s loss of its AAA rating. Belgium is also high on the list of targets. There are reports that a house price bubble and local government debt may threaten the banking system in China. Growth in China is slowing as its biggest customer – Europe – is buying less. So those who hoped that the BRIC’s would pull the world out of recession are a little less certain. Looking into the future, a global slow-down and deflation means that there could be a lessening of demand for US cereals and soya, more sedate purchases and less frenetic activity associated with price spikes. Buyers are more likely to buy for nearby positions.
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