I couldn’t have had a better weekend all my footy teams won – the Wests, Tigers, Western Force and Fremantle – this is about as rare as a sighting of Halley’s Comet.I also managed to flee from the city with a few mates to Margaret River. We had a fantastic time – Margaret River definitely beats its SA counterpart. But I would have to say it’s progressing in its Greenies status; I had to pay 10c for a plastic bag at the supermarket – will have to remember to take a hessian bag down there next time.
Whilst in Margaret River I rediscovered how I am becoming more and more like my grandfather/father interrogating the locals about goings on. I was amazed chatting to a property guy who made me realize how hard the GFC has hit this region. A mate of his had 8 beachfront properties to sell in this area and thought he would get $4m pre-crash - he sold it the other day for $1.2m. The land alone would have cost that 6 months ago. It should make you feel a little better when wheat prices drop a bit ($10/t).
Even thing seems like a battle at the moment. But without knowing it we have a front row seat in a royal battle – the battle between fundamentals and outside markets for ascendency in grain markets. Last week was a perfect example. Worries over production in Sth America, the US Southern Plains and now the EU combined with better than expected profit announcements by major US banks pushed soybeans to six month highs. But before markets could celebrate and consolidate at higher levels, prognistations about rising debt levels from some of these banks, brought the sobering reality that the US banking system (the lifeblood of the US economy) is far from out of the woods.
Some leading growth indicators for the US economy suggest the period of negative growth will extend while market rumors were rife that an unofficial US Gov’t stress test revealed that only 3 out of 19 US banks are still solvent. What this week’s market rumbles did was give us a fleetingly look at the $A below 70USc (see inside for full analysis and strategy).
Our market view remains that global growth will recover in the second half of ‘09 and help support improved commodity demand. At the same time markets will realise they need to treat food commodities differently and this will combine with the reality that we haven’t produced enough to lift prices higher. The risk to this view is that this coincides with a period of $US weakness ($A strength), that wipes out many of the expected gains.
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Tuesday, April 28, 2009
Monday, April 6, 2009
$A wipes away gains in global grain markets
Well all of my football teams lost on the weekend and the racetrack certainty that I was tipped finished well down the track (next start apparently). Thankfully, international grain markets, assisted by better outside market sentiment and some positive fundamentals news had a winning week. But for Aussie producers the nasty late week rally in the $A wiped out the prospect of any gains in local prices which were either flat or slightly weaker. The appreciation in the $A is masking what feels like a positive change in global grain market sentiment over the past few weeks.
International financial markets ignored worsening US unemployment figures and dire international trade statistics to post strong gains last week. US equity markets have in fact posted the best March results since 2000, despite US unemployment reaching an all-time high during the same month (+13m out of work).
On cue, nth hemisphere spring weather is throwing some curve balls (floods, freezes and drought), which, when supported by a turn for the better in outside market sentiment, enabled markets to post solid gains.
Soybeans led the charge (up 10% for the week). Prices gained on lower than expected initial USDA planting estimates, another sizeable fall in Sth American production estimates, ongoing political issues in Argentina (which may affect export availability), and continued solid US exports (which ran counter to talks that Chinese purchases may slow).
The Paraguay bean crop is down 40% to around 4mmt and US Profarmer cut its Brazilian estimate by another 1mmt to 55mt vs. 59mmt last year. The Argentine crop which has endured the worst of it, was ‘officially’ revised downwards again from 41mmt to 39mmt. Some unofficial estimates have the crop as low as 35mmt.
The strong gains in beans did not fully translate to canola markets (up only 4%), with canola futures gaining CA$16/t (A$18/t) in Canada and rising €9/t ($A/17/t) in Europe.
Higher soybean prices supported the values of all other grains as they are still locked in a battle for what may not be sufficient plantings. According to the USDA, US growers will plant some 7m acres less across all crops this year and US ProFarmer reckons there could be between 3-7m acres in US plantings still up for grabs.
Although international grain markets look to be turning the corner, the rising $A is pushing our hedging targets further and further away. What we need is a week where nth hemisphere spring weather concerns push grains higher and at the same time financial market instability pushes the $A lower. This would break the current strong link between commodities and the $A and trigger our hedging targets. We think patience is required and reckon we will get this chance sometime over the next few months…but be warned, these opportunities could be fleeting.
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
International financial markets ignored worsening US unemployment figures and dire international trade statistics to post strong gains last week. US equity markets have in fact posted the best March results since 2000, despite US unemployment reaching an all-time high during the same month (+13m out of work).
On cue, nth hemisphere spring weather is throwing some curve balls (floods, freezes and drought), which, when supported by a turn for the better in outside market sentiment, enabled markets to post solid gains.
Soybeans led the charge (up 10% for the week). Prices gained on lower than expected initial USDA planting estimates, another sizeable fall in Sth American production estimates, ongoing political issues in Argentina (which may affect export availability), and continued solid US exports (which ran counter to talks that Chinese purchases may slow).
The Paraguay bean crop is down 40% to around 4mmt and US Profarmer cut its Brazilian estimate by another 1mmt to 55mt vs. 59mmt last year. The Argentine crop which has endured the worst of it, was ‘officially’ revised downwards again from 41mmt to 39mmt. Some unofficial estimates have the crop as low as 35mmt.
The strong gains in beans did not fully translate to canola markets (up only 4%), with canola futures gaining CA$16/t (A$18/t) in Canada and rising €9/t ($A/17/t) in Europe.
Higher soybean prices supported the values of all other grains as they are still locked in a battle for what may not be sufficient plantings. According to the USDA, US growers will plant some 7m acres less across all crops this year and US ProFarmer reckons there could be between 3-7m acres in US plantings still up for grabs.
Although international grain markets look to be turning the corner, the rising $A is pushing our hedging targets further and further away. What we need is a week where nth hemisphere spring weather concerns push grains higher and at the same time financial market instability pushes the $A lower. This would break the current strong link between commodities and the $A and trigger our hedging targets. We think patience is required and reckon we will get this chance sometime over the next few months…but be warned, these opportunities could be fleeting.
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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