Monday, August 3, 2009

A bad to time to rethink price expectations

It has been a busy but successful week at ProFarmer. I finished my last presentation in a stretch of five at the Australian Grain Conference and spent most of the week in Melbourne discussing trade issues with nearly 500 delegates at the conference. While I was away my horse Silver Omen won at Belmont which was a bonus.

I have been telling my inner-self to hold the line that grain prices would rise towards our harvest, but lately, week by week I have been questioning our price expectations; right in the middle of the nth hemisphere harvest is never a good time to be rethinking price forecasts, as supplies often look overwhelming and price forecasters get jittery.

Northern hemisphere summer crops continue to look impressive resulting in the International Grains Council (IGC) raising its all grain 2009/10 end stocks by 18mmt or 1% in its latest report released last week. A big corn crop would take out some upside potential and open up some downside, but although yields appear to be moving, the trade wants the USDA to confirm the unexpectedly large plantings of its 30 June report.

But we might not have to. Despite posturing about making soybean sales, China last week stepped back into the oilseed market big-time. Traders reacted strongly to US weekly and daily export sales data reported last Friday morning where export sales were nearly double the top end of expectations.

The USDA confirmed market rumours of large new crop soybean purchases by announcing sales of 1.8mmt on 30 July - the third largest daily sale on record. Clearly, China continues to have a large appetite for imported beans and used the recent price retracement as an opportunity to extend bookings. Internal Chinese prices are still US$30/t above imported beans. This all gives hope that the Chinese economy has regained its footing quickly.

But while China’s enormous appetite for beans provides overall support, beans and cereal prices could start diverging which is something to keep our eye on. We suspect another rain and prices back towards A$300/t could prompt some local hedge selling.

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