Monday, November 10, 2008

Caught in a vortex

Commodity markets seem to be caught in a vortex at the moment. For corn and beans, there are enough concerns about production to prevent heavy selling but not enough confidence in demand to turn sellers into buyers.

The USDA will release new reports tonight (Monday 10 Nov) with updated corn and bean yields – the last ‘special’ reports released just a fortnight ago focused only on acreage. Heavy winds in late October and only average bean harvest results should mean that there are no nasty surprises to the upside.

Plus, meat values have fallen enough to encourage value buying at the meat retail counter – the fall in oil values has left some fat in budgets this month. Lower livestock values and stabilizing retail prices should help re-build a demand base for corn and feed grains.

Lower bean production across South America
On the bean front, the main nearby positive will come from news of lower production across South America. CONAB has reduced its Brazilian estimate to 58-59mmt – down from 60-61mmt. Although planting is underway, there are concerns that dry conditions and access to finance will restrict planting before the window closes in late November. Fertilizer applications have already been trimmed to the bone and production costs at $11-12.50/bu ($8.50/bu) have taken the spring out of the South American farmer’s step.

Oilseeds set to lead comeback
Oilseed export activity and demand remains relatively brisk (at record levels out of the US), which will position this sector well to lead a comeback in commodities. Conversely, export demand for US corn and wheat has fallen in a hole. The bulk freight market has fallen to its lowest level in six years as contract defaults on higher priced earlier contracts start to wash through the system.

The best hope of a near-term recovery in wheat and barley would be poor winter weather across the Northern Hemisphere that may shut down exports for a period of time.

Local grower selling light
Locally, inclement weather, quality issues and poor prices are seeing growers stand on the sidelines, with grower selling very light despite not too many reasons for a nearby recovery in prices, particularly on cereals.

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