Humphrey Feeds - Commodity report - 28th May 2012
The weather is currently driving markets. And the commodity focus seems (for the moment) to have moved from soya to wheat.
November wheat spiked last week from £146.25 and hit a high of £163 on Monday, following the US markets which jumped 10% in four days.
A storm in a tea cup, or is it real? Wheat hit £156 on Wednesday, and is now trading at £159. It appears that the markets have concerns about dry weather in the Black Sea (Russia, Ukraine and Kazakhstan) and some areas of the US winter wheat-producing areas (eg Kansas).
Although global wheat stocks are ample, people are jittery, and point to a number of production estimates around the world which have been trimmed, including Strategie Grains reduction of the EU wheat crop by 4mt (mainly in France, Germany & Poland), and the Russian analyst SovEcon which said that Russian wheat exports could be limited to 14mt next year (20mt this year).
To compound the issue, the US speculative funds are holding short positions on CBOT wheat (80,000 contracts), so for them to reduce risk and exit those positions, they have to buy them back, which adds to the volatility. Maize hit $5.78/b yesterday - the lowest price since Dec last year.
Soya beans peaked at $15/b at the end of April, since when is has slowly drifted to just under $14/b. Soya bean meal has followed suit, from $435 to $410. In UK terms AO soya was £340 at the end of April, and is now £344 because sterling has fallen from 1.62 to 1.57. Argentina has again reduced its crop estimate to 41mt as against the 42.5mt that the USDA last reported.
The energy infrastructure is poor in Argentina, and during winter (June-Sep) the government can ration electricity to industry to keep the home fires burning, which causes problems for soya crushers.
So if Argentina has a cold winter, supplies can be disrupted and more soya meal will have to be exported from the US. Brazil is expected to produce 66mt this year (75mt last year) and 79mt next year. There are rumours that China is selling some of its soya reserves and cancelling some US soya orders (old crop).
The need for the world to use sustainable sources of everything is growing - soya, palm oil and fish are the main areas that directly affect us, but we are not immune from energy, phosphorus, fertilizer, paper, etc. Paul attended the Round Table Responsible Soya (RTRS) conference this week to see how we can source sustainable soya for the long term.
The Eurozone is still not economically safe; currently €700m/day (£560m) is being withdrawn from Greek banks.
The crops around the world are subject to the weather, so they are not safe. Demand for soya and cereals could exceed supply. Ergo, the risks are high, prices are high, fear levels are high, and markets are jumpy.
One of the big banks looked over the abyss and asked what if Greece exited the €uro? When the government runs out of cash to pay social security and wages, and there is no bail-out money, Athens would pass a new currency law, convert all domestic contracts into drachma, impose exchange controls and introduce a new currency. Greek banks will go bust, and property prices will plummet.
Printing and distributing new notes (printed in Hamps) would take about three months, a squadron of Boeing 747s and an army of guards. The drachma would depreciate immediately, probably by 20% against the €uro. The debt to the EU would rise to about €420bn, with potential losses for France of €66bn and Germany €90bn.