ProFarmer was struck down by the flu over the weekend and has really struggled this week to put some coherent thoughts together. But healthy or not, we probably would have struggled - it seems the markets themselves are searching for direction.
Several important reports out this week might help. The first report is the USDA’s early thoughts on plantings and the second is its Quarterly Grain Stocks report (this report has gained prominence this year as it is the most accurate read we have on demand for US grain). At week’s end the US Labor Department will release its latest unemployment report. Any or all of these reports could cause wild market price swings.
Corn plantings are expected to be back by about 2m acres to around 84m acres, but the range of guesses is large (plenty of uncertainty) at between 82-89m acres. For what it’s worth, we think that a 2m acre fall will be close to the mark. The reason why markets aren’t getting excited by this…..they know that demand has fallen by at least this. The size of the uptick in corn stocks as at 31 March will be just as closely watched.
Ditto beans. The average pre-report trade guess is 79m acres vs. 76 last year with guesses ranging from 76-82m acres. If estimates come in at the high end, it could put plenty of pressure on global oilseed values. But aiding oilseeds are signs that demand is holding up - it is expected that the US will revise US beans stocks lower in its report.
If the initial response to these reports is muted, it may signal that traders are waiting for the unemployment report. If US unemployment numbers are decisive one way or another, this would give traders a reason to amplify any moves they were intending to make following the USDA reports.
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Monday, March 30, 2009
Monday, March 23, 2009
Return of the resurging $A
Most commodities made ground last week, although for Australian producers the benefits were eroded by strong gains in the $A.
Last week’s trading illustrates a key risk for Australian producers moving forward – one that ProFarmer has been warning its subscribers of. As the global economy gets back on its feet –money will pour out of US Treasury Bonds searching for better yields. This would see the $US start to weaken again, creating demand for commodities to offset the inflationary impacts of $US weakness and demand for commodity related currencies such as the $A. Last week the $A gained about 5USc (8%) on the back of a 8-10% rise in commodity prices.
This is more or less the same cycle of events that saw commodities post multi-decade highs last year. But much has changed since last year. Markets have deleveraged significantly, the hype has gone out of commodity fund investments (forecasts of $200/barrel oil prices now look foolish), physical grain stocks have been rebuilt and nearby demand has been seriously damaged.
But at the same time markets have been primed with lots of liquidity and the US Government has reinforced its support for bio-fuels – sending signals that it is prepared to do whatever it takes to protect this fledgling industries, including increased blending mandates. So never say never!
A resurgent $A poses a key risk to better returns moving forward. Over the past couple of weeks, despite good gains internationally, local grain prices have been flat-lining with gains virtually totally offset by the appreciation in the $A.
A key challenge in the coming year will be to manage $A exposure so that a rapidly appreciating currency does not erode commodity price gains. We will be watching the $A and looking to take some cover on any major dips.
If you are interested in receiving this information and more on a regular basis, please call us toll free on 1300 302 143 to organise your subscription. Click HERE to subscribe online or Click HERE for a 4-week FREE Trial
Last week’s trading illustrates a key risk for Australian producers moving forward – one that ProFarmer has been warning its subscribers of. As the global economy gets back on its feet –money will pour out of US Treasury Bonds searching for better yields. This would see the $US start to weaken again, creating demand for commodities to offset the inflationary impacts of $US weakness and demand for commodity related currencies such as the $A. Last week the $A gained about 5USc (8%) on the back of a 8-10% rise in commodity prices.
This is more or less the same cycle of events that saw commodities post multi-decade highs last year. But much has changed since last year. Markets have deleveraged significantly, the hype has gone out of commodity fund investments (forecasts of $200/barrel oil prices now look foolish), physical grain stocks have been rebuilt and nearby demand has been seriously damaged.
But at the same time markets have been primed with lots of liquidity and the US Government has reinforced its support for bio-fuels – sending signals that it is prepared to do whatever it takes to protect this fledgling industries, including increased blending mandates. So never say never!
A resurgent $A poses a key risk to better returns moving forward. Over the past couple of weeks, despite good gains internationally, local grain prices have been flat-lining with gains virtually totally offset by the appreciation in the $A.
A key challenge in the coming year will be to manage $A exposure so that a rapidly appreciating currency does not erode commodity price gains. We will be watching the $A and looking to take some cover on any major dips.
If you are interested in receiving this information and more on a regular basis, please call us toll free on 1300 302 143 to organise your subscription. Click HERE to subscribe online or Click HERE for a 4-week FREE Trial
Monday, March 16, 2009
Separating fact from fantasy
Is anyone else finding grain markets boring at the moment? I thought this week was the first week in the last 5yrs I might struggle to write a newsletter, but as normal the battle becomes what I leave out! By the way, when you start thinking markets are boring they have a tendency to kick like a drowning horse.
For the last 5yrs I have resisted the temptation to enter the GMO debate. Frankly, the anti-GMO lobby scares me and I have been more concerned with marketing issues. But this week’s announcement that the WA Gov’t was moving to abolish the GLA prior to this year’s harvest now means Australian grain growers everywhere can market their grain freely – see press release on the members page of our website. Woo Hoo! The anti-GMO lobby (Greenpeace...that’s why I never give those guys in the bear suits any money) is chaperoning (and no doubt paying for) two nth American farmers to conduct an anti-GM speaking tour across Australia.
Amongst other things the press release claims ‘Over a decade of growing GMO crops in North America has resulted in increased corporate control of farming and reduced profits for farmers.’ And that ‘Monsanto has sued thousands of US farmers for patent infringement since the introduction of GM crops.’Now we are not GMO experts but, we do have a duty to ensure that our subscribers receive objective and independent information that aids them in making profitable business decisions.
So we decided to check on the credentials of these guys and some of the claims they are making with Mike at ProFarmer Canada. Mike (is an absolute champion, hugely experienced and very well respected and well qualified to speak on the subject).Here’s how it went.
Mike, do you know these blokes?
“Nope...never heard of these guys, and quite frankly not sure why they are garnering attention from your country’s media and legislators. I don’t see them as authoritative sources of information...at least no more than any other individual farmer. And while there have been a couple of legal wranglings between Monsanto and potential patent infringements, I don’t see it as widespread...thousands of farmers sued...I don’t think so!”
Me again (ProFarmer Australia)
“A simple analysis of growth in your canola industry vs ours is about all the evidence (see chart of the week which is a repeat of the same chart we ran in Oct 2008) I need to show that GMO’s haven’t been the destructive force in nth America that these gentlemen are portending.”
Mike again:
“GMO has been a boon to the canola industry here...making it easily today the most important cash crop for Canadian farmers. The yield advantages, particularly in stressed conditions I think are pretty well documented and there is a reason why farmers here overwhelmingly use these canola varieties, because they work and generate the best return. Market acceptance is growing, EU yesterday announced the acceptance of more varieties of GMO canola and this has been the toughest market to crack in the world.”
ProFarmer Australia:
“So it appears a simple choice. We can continue to try and compete with outdated technology against a competitor that is growing bigger and stronger by the day or we can adopt technology that shows strong evidence of improving the sustainability and profitability of farming in countries using it around the world.”
If you are interested in receiving this information and more on a regular basis, please call us toll free on 1300 302 143 to organise your subscription. Click HERE to subscribe online or Click HERE for a 4-week FREE Trial
For the last 5yrs I have resisted the temptation to enter the GMO debate. Frankly, the anti-GMO lobby scares me and I have been more concerned with marketing issues. But this week’s announcement that the WA Gov’t was moving to abolish the GLA prior to this year’s harvest now means Australian grain growers everywhere can market their grain freely – see press release on the members page of our website. Woo Hoo! The anti-GMO lobby (Greenpeace...that’s why I never give those guys in the bear suits any money) is chaperoning (and no doubt paying for) two nth American farmers to conduct an anti-GM speaking tour across Australia.
Amongst other things the press release claims ‘Over a decade of growing GMO crops in North America has resulted in increased corporate control of farming and reduced profits for farmers.’ And that ‘Monsanto has sued thousands of US farmers for patent infringement since the introduction of GM crops.’Now we are not GMO experts but, we do have a duty to ensure that our subscribers receive objective and independent information that aids them in making profitable business decisions.
So we decided to check on the credentials of these guys and some of the claims they are making with Mike at ProFarmer Canada. Mike (is an absolute champion, hugely experienced and very well respected and well qualified to speak on the subject).Here’s how it went.
Mike, do you know these blokes?
“Nope...never heard of these guys, and quite frankly not sure why they are garnering attention from your country’s media and legislators. I don’t see them as authoritative sources of information...at least no more than any other individual farmer. And while there have been a couple of legal wranglings between Monsanto and potential patent infringements, I don’t see it as widespread...thousands of farmers sued...I don’t think so!”
Me again (ProFarmer Australia)
“A simple analysis of growth in your canola industry vs ours is about all the evidence (see chart of the week which is a repeat of the same chart we ran in Oct 2008) I need to show that GMO’s haven’t been the destructive force in nth America that these gentlemen are portending.”
Mike again:
“GMO has been a boon to the canola industry here...making it easily today the most important cash crop for Canadian farmers. The yield advantages, particularly in stressed conditions I think are pretty well documented and there is a reason why farmers here overwhelmingly use these canola varieties, because they work and generate the best return. Market acceptance is growing, EU yesterday announced the acceptance of more varieties of GMO canola and this has been the toughest market to crack in the world.”
ProFarmer Australia:
“So it appears a simple choice. We can continue to try and compete with outdated technology against a competitor that is growing bigger and stronger by the day or we can adopt technology that shows strong evidence of improving the sustainability and profitability of farming in countries using it around the world.”
If you are interested in receiving this information and more on a regular basis, please call us toll free on 1300 302 143 to organise your subscription. Click HERE to subscribe online or Click HERE for a 4-week FREE Trial
Tuesday, March 10, 2009
Commodities wait to bat a bouncer in long test series
While spending the weekend watching the reincarnation of Doug Walters (Phil Hughes is his name) carving out twin centuries against the arrogant Boks there was something bugging me – which I will come back to later. My infatuation with Doug Walters stems from him coming to speak at a sportsman night while I was at university. He arrived Friday night and left Sunday afternoon – he didn't unpack his bag or use his bed, and was not sighted without a smoke in one hand and a beer in the other. He is right up there with Boonie as one of my favourites. Oh, and by the way ProFarmer backed the Aussie to win the series in SA – not out of some misguided sense of loyalty but on the basis they were $11 and I thought they were not that far away in the series they lost in Australia. I was delighted to see Mitchell Johnson find his inswinger again, but someone needs to tell Graeme Smith that it works better if he hits the ball with his bat and not his thumb.
It was big weekend for cricket lovers....you can probably tell I enjoyed it. But the thing about my job is that you never totally switch off. Last week I went to some excellent presentations and flew to Sydney on Friday which gave me time to read the latest RBA statement on Monetary Policy (not for everyone but I found it a good read). So my subconscious was analysing these things over the weekend.
The thing that stuck me with the first presentation (from Luke Mathews a recently appointed Commodity Analyst with CBA – call him for a copy Luke.Mathews@cba.com.au 02 9312 4150) was that all the economic growth forecasts are V-shaped – low growth in the first half 2009 and then a big bounce and everyone lives happily every after. This is similar to our thinking about commodities – we believe demand for soft commodities and other commodities have to de-link at some stage. But do you know what, I think everyone is just guessing and that human nature is leading us to forecast a sharp recovery because that would be pleasant. Certainly this has been the experience in previous downturns, but I am increasingly getting the feeling that this is much more serious. The economic recovery after a financial crisis led recession (i.e., this recession) tends to be more drawn out compared to other recessions, therefore leading to a great risk of an L-shape recovery rather than a v-shape recovery.
The reason: the growth in the internet and the emergence of BRIC (Brazil, Russia, India and China) means that we are a much more truly global economy than ever before. The specialisation and division of labour has become so acute now that if one link of the chain breaks down it can cause dislocation right through the global economy.
The explosion in demand from China has taken us to great heights, which means the fall can be just as great if China doesn't manage its way through this appropriately. My Chinese friends tell me it is in disarray up there at the moment and it may take them a little while to work out how to manage things. They are currently drawing down stocks to help clear out their bulging warehouse inventories.
So, I have yet to see any evidence that supports any sort of nearby recovery and if anything the indicators are looking worse. If you read the RBA statement they are trying to talk things up but I don't believe the analysis really supports their proposition that our economy is on the road to recovery.
These stimulus packages will help, but from the AIG result it looks like that the US will need deep pockets to keep its financial sector afloat – and they still need to convince these guys to lend to each other (and businesses generally). The amount they spend to keep its banking sector afloat will limit the amount of real fiscal expenditure they have to play with.
So, as the facts change and evolve, so does our view. I am now thinking that we will not see a v-shaped bounce and that it could be more of a dead cat bounce. The interesting thing is – will the money be smart enough to recognise the difference between soft commodities and other commodities? The experience over the past month shows no indications of this. Without any significant production issues soft commodities turn to outside markets for direction.
We still reckon that commodities will bounce independently of everything else in the backend of 2009. I suspect that plantings will be lower and yields will fall because access to farm inputs will dry up. We are hearing reports that even Aussie farmers may find it difficult to get access to the required level of inputs, and if we are struggling how do you think the Eastern Europeans are going? (the Russian Rouble has turned to rubble).
We already have sold positions for 2009 and 2010. But for anyone who is bare naked and exposed to a prolonged global downturn you should look to take some risk off the table by using 2009 swaps at A$340/t. Given that we are already covered for some 20% at >$400/t we will look to be a bit cuter and wait for the $A to fall through US60c, a nth hemisphere spring weather scare, and a good general Autumn rain before extending our position.
Anyway, good luck and if you want to chat this through give me a buzz on 1300 302 143.
If you are interested in receiving this information and more on a regular basis, please call us toll free on 1300 302 143 to organise your subscription. Click HERE to subscribe online or Click HERE for a 4-week FREE Trial
It was big weekend for cricket lovers....you can probably tell I enjoyed it. But the thing about my job is that you never totally switch off. Last week I went to some excellent presentations and flew to Sydney on Friday which gave me time to read the latest RBA statement on Monetary Policy (not for everyone but I found it a good read). So my subconscious was analysing these things over the weekend.
The thing that stuck me with the first presentation (from Luke Mathews a recently appointed Commodity Analyst with CBA – call him for a copy Luke.Mathews@cba.com.au 02 9312 4150) was that all the economic growth forecasts are V-shaped – low growth in the first half 2009 and then a big bounce and everyone lives happily every after. This is similar to our thinking about commodities – we believe demand for soft commodities and other commodities have to de-link at some stage. But do you know what, I think everyone is just guessing and that human nature is leading us to forecast a sharp recovery because that would be pleasant. Certainly this has been the experience in previous downturns, but I am increasingly getting the feeling that this is much more serious. The economic recovery after a financial crisis led recession (i.e., this recession) tends to be more drawn out compared to other recessions, therefore leading to a great risk of an L-shape recovery rather than a v-shape recovery.
The reason: the growth in the internet and the emergence of BRIC (Brazil, Russia, India and China) means that we are a much more truly global economy than ever before. The specialisation and division of labour has become so acute now that if one link of the chain breaks down it can cause dislocation right through the global economy.
The explosion in demand from China has taken us to great heights, which means the fall can be just as great if China doesn't manage its way through this appropriately. My Chinese friends tell me it is in disarray up there at the moment and it may take them a little while to work out how to manage things. They are currently drawing down stocks to help clear out their bulging warehouse inventories.
So, I have yet to see any evidence that supports any sort of nearby recovery and if anything the indicators are looking worse. If you read the RBA statement they are trying to talk things up but I don't believe the analysis really supports their proposition that our economy is on the road to recovery.
These stimulus packages will help, but from the AIG result it looks like that the US will need deep pockets to keep its financial sector afloat – and they still need to convince these guys to lend to each other (and businesses generally). The amount they spend to keep its banking sector afloat will limit the amount of real fiscal expenditure they have to play with.
So, as the facts change and evolve, so does our view. I am now thinking that we will not see a v-shaped bounce and that it could be more of a dead cat bounce. The interesting thing is – will the money be smart enough to recognise the difference between soft commodities and other commodities? The experience over the past month shows no indications of this. Without any significant production issues soft commodities turn to outside markets for direction.
We still reckon that commodities will bounce independently of everything else in the backend of 2009. I suspect that plantings will be lower and yields will fall because access to farm inputs will dry up. We are hearing reports that even Aussie farmers may find it difficult to get access to the required level of inputs, and if we are struggling how do you think the Eastern Europeans are going? (the Russian Rouble has turned to rubble).
We already have sold positions for 2009 and 2010. But for anyone who is bare naked and exposed to a prolonged global downturn you should look to take some risk off the table by using 2009 swaps at A$340/t. Given that we are already covered for some 20% at >$400/t we will look to be a bit cuter and wait for the $A to fall through US60c, a nth hemisphere spring weather scare, and a good general Autumn rain before extending our position.
Anyway, good luck and if you want to chat this through give me a buzz on 1300 302 143.
If you are interested in receiving this information and more on a regular basis, please call us toll free on 1300 302 143 to organise your subscription. Click HERE to subscribe online or Click HERE for a 4-week FREE Trial
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