Humphrey Feeds weekly feed report - 24th October 2011
UK November wheat futures have remained flat all week hovering around £147 until Friday, when `something’ happened: the price lifted £5 on the opening, then drifted back to less than £2 by the end of trading. DEFRA believes the UK will produce 15.36mt of wheat (14.88mt last year, of which 26% will be milling quality). Strategie Grains believes EU wheat production will be 129mt, which is 1.8mt more than estimated demand; and that despite ample supplies, they expect wheat prices to be ’well supported’. So after last week’s bearish cereals report from the USDA, the market seems a little undecided as to what direction to take in the short term. Longer term the use of cereals and oilseeds to make biofuels and food means that the price correlation between energy and agricultural commodities has become more pronounced. The International Energy Agency believes that global biofuel output in 2012 will average the equivalent of 2mb of crude oil per day (the UK produces 1mb crude oil per day). US bioethanol producers are making a (subsidised) profit of about $0.35/gallon, and blenders make a profitable $0.04/gallon, and currently ethanol production / maize usage is close to a record high. In January, the government subsidy of $0.45/gallon will end and ethanol producers will be in negative profit, so maize usage and prices could be depressed in January. The Ukraine grain harvest this year has been revised up by 1mt to 53mt (39mt last year), of which it expects to export 27mt. So contrary to our report last week, the law repealing the export tax is expected to be enacted this week, which is another bearish factor.
The US soya bean harvest is about 70% complete and it should be finished by early November. The Maize harvest is about 50% complete. Farmers are in no hurry to sell anything, as they have seen prices fall over the past month. US winter wheat planting is about 75% complete. GM soya is currently about £280 delivered to the mill.
Barclays report that investment money in agricultural commodities doubled from $45bn in 2006 to over $100bn this year. However that may be curtailed by the US Dodd-Frank (D-F) financial reform bill starting July 21st 2012. This wide-ranging legislation (2100 pages) is meant to address the ’evil speculators’ who allegedly caused the commodity price spike in 2007-8, and to make the US financially bullet-proof by ending the ’too big to fail’ mentality. The D-F gives the Commodity Futures Trading Commission (CTFC) the authority to impose trading limits, and this week they agreed to limit traders to 25% of deliverable supply in the month nearest to delivery on maize, wheat and soya and 25 other commodities. The CFTC has imposed more than 50 rules. It is argued that the net effect should be that global agricultural markets will become a little less volatile – unless the mechanics of speculation moves to countries where US legislation does not apply.
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