At the ProFarmer Christmas party in Perth last week a number of people commented how depressing last week’s newsletter was. The Christmas party involved a gathering of about 40 trade types - this year we played croquet and were entertained by Brian the maniac spit roast man. But it left me thinking....are we too bearish? Is there anything to cheer about this Christmas? What things might help fill our Christmas stocking?
1. Resumption of $US weakness
The $US tumbled after the US Federal Reserve cut interest rates to a range between zero to 0.25%. Gold spiked higher and grains gained as the slide in the $US encouraged some buyers to get off the fence. But the old black gold (oil) hardly budged, laden by US Fed Reserve comments that the outlook for economic activity has weakened further. But while a weakening $US may be longer term positive for commodities (if demand holds up), it threatens to hold the $A above 70USc.
2. Oil climbing off the canvas
Like with grains, in oil it is a race to see which falls quicker; demand or supply. OPEC agreed to cut production this week, but by just enough to cover the anticipated decline in demand. With little threat of inflation, the need to own oil as a hedge has diminished.
3. Wheat demand
This week’s Fed move and associated weakening in the $US brought some buyers out of the woodwork. With grain prices and the freight market settling down, the buying environment looks better than in recent times. Saudi launched a surprise tender for 500,000t of wheat this week. Recently Saudi has signaled it’s intention to move out of wheat production and increase wheat imports to conserve its water resource. Jordan, Morocco, Pakistan, Iraq, Japan, Taiwan and Syria are all in the market for wheat Jan/Mar.
4. Wheat Supply
Black Sea selling is expected to slow with the onset of winter. Argentina is selling but this is not expected to last for long. The EU, Canada, Australia and the US have plenty of supply for future need. Cold weather across parts of the US Southern Plains this week may have led to some winterkill. Otherwise the nth hemisphere winter plant is in good condition. Despite plenty of downgrading there should be enough quality grain to meet demand. Crop problems or weak spring wheat plantings would need to develop to significantly change this.
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