It was another promising week for grains with prices grinding higher amid deepening production issues and demand showing ongoing signs of resilience. But with global economic sentiment rising, we ask ourselves the question; is the rally just a ‘mirage’ and will supportive grain market fundamentals hold if investor sentiment turns?
The production issues include further downward revisions to the Argentine bean crop – at almost 90% harvested you can almost be certain that these won’t be going up. There are also significant planting delays in key US wheat and corn producing states.
In nth Dakota, spring wheat seedings reached just 31% as of May 17, well behind the five-year average of 87% and in Minnesota spring wheat seedings reached only 34%, compared to a five-year average of 90%. The US normally produces 16mmt of spring wheat and the mounting premiums in Minneapolis spring wheat futures – up from 88USc/bu to 127USc/bu – indicates that the market is taking this seriously. But the planting pace should pick-up this week with some dry weather forecast. For local growers, the late plant (including similar issues across Canada too) augurs well for higher protein wheat producers.
In Illinois, one of the largest US corn producing states, it is getting to the stage where they should be planting soybeans (June bean plantings are considered late), but as at the end of last week just 20% of the corn crop has been planted. This is setting the scene for a wild ride this season as the bulk of this crop will be pollinating and yields will be forming in the ‘dog days of summer’. The threat of a big swing in plantings to beans has capped the rally, but plantings issues have lead to renewed fund interest in ownership of both corn and beans.
In Europe winter crops are travelling sweetly, but spring crops were planted into less than ideal moisture and are now starting to stress right across Europe. This is a situation that bears watching, particularly on the malt barley front.
Production wise, the only bright spot is a solid and general improvement in local planting conditions which should see the bulk of intended acres planted, albeit a bit late and with less than optimal subsoil moisture in most places – but you would take it given the run we’ve had in recent years.
We have been maintaining a consistent line that the world will be disappointed with how much grain is produced globally in 2009.
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Tuesday, May 26, 2009
Monday, May 18, 2009
Australia - a quiet harbour in a global storm
I had breakfast with the Reserve Bank of Australia (RBA) last Friday. They were relatively upbeat about the prospects of the Australian economy bouncing back from what they reckoned was the ‘worst contraction in global GDP since World War 2’. But get used to relatively weak levels of growth.
What the global economy has gone through has been shocking; however our local economy doesn’t provide any measure of how tough global conditions are. Australia has been a quiet harbour in a global storm. Most of the graphs which the RBA showed looked like someone falling off a cliff. The worst of the slowdown has been in developed countries leading to sharp falls in business and consumer confidence.
Conditions seem to be gradually improving, but very much linked to huge stimulus packages being unleashed by Governments around the world. The Chinese economy has been very responsive with Chinese banks being told to lend money - businesses didn’t even have to ask, it was just dropped into their bank accounts. It will be interesting to see whether the recovery will be sustained.
For me, the key signs will be unemployment and consumer sentiment in developed countries. While Australia has been one of the least affected developed countries, my gut-feel is that it will be very tough through 2009. Lower interest rates have been cushioning us from the impact, but private sector debt levels are high and further rises in unemployment will affect consumer sentiment. It is much worse elsewhere and I don’t think we can claim a recovery until unemployment in developed economies has been stemmed, enabling a recovery in consumer sentiment.
Another key risk to the outlook for a slow, steady recovery is further financial sector issues. It seems our eastern European mates have fallen foul of the old ‘Swiss francs lending’ scenario and defaults across the region are on the rise - the bulk of the fall seems to have been carried by Swiss, Austrian and Nordic banks. We wouldn’t be surprised to see some further financial market problems before the recovery is set in train.
Global Governments have turned bankers to overcome these, by taking over crimpled financial institutions and buying bonds (by printing money) to recapitalize these. With unemployment still rising, Government’s have been writing blank cheque’s to cover future losses - incurring almost unlimited liability.
At what cost you might ask? Well taxpayers will need to pay back these loans and the cost will be future levels of growth.
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
What the global economy has gone through has been shocking; however our local economy doesn’t provide any measure of how tough global conditions are. Australia has been a quiet harbour in a global storm. Most of the graphs which the RBA showed looked like someone falling off a cliff. The worst of the slowdown has been in developed countries leading to sharp falls in business and consumer confidence.
Conditions seem to be gradually improving, but very much linked to huge stimulus packages being unleashed by Governments around the world. The Chinese economy has been very responsive with Chinese banks being told to lend money - businesses didn’t even have to ask, it was just dropped into their bank accounts. It will be interesting to see whether the recovery will be sustained.
For me, the key signs will be unemployment and consumer sentiment in developed countries. While Australia has been one of the least affected developed countries, my gut-feel is that it will be very tough through 2009. Lower interest rates have been cushioning us from the impact, but private sector debt levels are high and further rises in unemployment will affect consumer sentiment. It is much worse elsewhere and I don’t think we can claim a recovery until unemployment in developed economies has been stemmed, enabling a recovery in consumer sentiment.
Another key risk to the outlook for a slow, steady recovery is further financial sector issues. It seems our eastern European mates have fallen foul of the old ‘Swiss francs lending’ scenario and defaults across the region are on the rise - the bulk of the fall seems to have been carried by Swiss, Austrian and Nordic banks. We wouldn’t be surprised to see some further financial market problems before the recovery is set in train.
Global Governments have turned bankers to overcome these, by taking over crimpled financial institutions and buying bonds (by printing money) to recapitalize these. With unemployment still rising, Government’s have been writing blank cheque’s to cover future losses - incurring almost unlimited liability.
At what cost you might ask? Well taxpayers will need to pay back these loans and the cost will be future levels of growth.
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, May 5, 2009
Viterra bids to buy ABB and stir-up local players
Speaking to someone who should know better, they introduced me to a brand new term - calling his company “an efficient monopoly”. As a trained economist, it nearly killed me with laughter - it is clear how someone with a vested interest often gets fact and fantasy confused.
One of the problems with that statement is that there is no way to test the efficiency of a monopoly. The move on ABB announced last week by Canadian giant Viterra – if approved – will change the shape of the Australian grains industry and may allow us to test the efficiency of the said “efficient monopoly”.
While there is a long way to go, the price discussed values ABB at $1.6b. Viterra has offered between A$9 and A$9.50 a share in a non-binding bid that includes cash, stock and dividends – 36% more than the pre-offer ABB closing price.
The move may also force the hand of the other major international grain players like Cargill, Glencore and Louis Dreyfus who have struggled to build export market share mainly due to their reluctance to invest in infrastructure on a big scale (without access to Australian wheat exports it didn’t make sense pre-deregulation). They also complain that they are severely hampered by problems with current export access arrangements. They may now chose to invest in competing infrastructure and bring some much needed competition to this sector – the last bastion of qausi monopolization – you beauty.
Speaking to my mate Mike from ProFarmer Canada says ‘Viterra is the 800 lbs gorilla when it comes to grain companies up here...swallowed up the three provincial pools and United Grain Growers over the past dozen years. Today...they have put together an impressive domestic business...likely moving half the grain produced up here’
Viterra is Canada's leading agribusiness, with extensive operations and distribution capabilities across Western Canada, and with operations in the United States, Japan, Singapore and Geneva. The Company is diversified into sales and services of crop inputs and equipment, grain handling and marketing, livestock feed, agri-food processing and financial products.
The deal is by no means done as 75% of individual ABB shareholders must vote in favour of change in the company constitution that caps the shareholding of any individual at 15%.
Viterra will bring a new set of eyes to our industry. It will control the global canola market and will be very significant global barley, wheat and pulse exporters (trading up to 20mmt of grain annually). Having access to southern hemisphere supplies means they will be able to sell all year round – placing our local major exporters at a big disadvantage.
Bring it on!
One of the problems with that statement is that there is no way to test the efficiency of a monopoly. The move on ABB announced last week by Canadian giant Viterra – if approved – will change the shape of the Australian grains industry and may allow us to test the efficiency of the said “efficient monopoly”.
While there is a long way to go, the price discussed values ABB at $1.6b. Viterra has offered between A$9 and A$9.50 a share in a non-binding bid that includes cash, stock and dividends – 36% more than the pre-offer ABB closing price.
The move may also force the hand of the other major international grain players like Cargill, Glencore and Louis Dreyfus who have struggled to build export market share mainly due to their reluctance to invest in infrastructure on a big scale (without access to Australian wheat exports it didn’t make sense pre-deregulation). They also complain that they are severely hampered by problems with current export access arrangements. They may now chose to invest in competing infrastructure and bring some much needed competition to this sector – the last bastion of qausi monopolization – you beauty.
Speaking to my mate Mike from ProFarmer Canada says ‘Viterra is the 800 lbs gorilla when it comes to grain companies up here...swallowed up the three provincial pools and United Grain Growers over the past dozen years. Today...they have put together an impressive domestic business...likely moving half the grain produced up here’
Viterra is Canada's leading agribusiness, with extensive operations and distribution capabilities across Western Canada, and with operations in the United States, Japan, Singapore and Geneva. The Company is diversified into sales and services of crop inputs and equipment, grain handling and marketing, livestock feed, agri-food processing and financial products.
The deal is by no means done as 75% of individual ABB shareholders must vote in favour of change in the company constitution that caps the shareholding of any individual at 15%.
Viterra will bring a new set of eyes to our industry. It will control the global canola market and will be very significant global barley, wheat and pulse exporters (trading up to 20mmt of grain annually). Having access to southern hemisphere supplies means they will be able to sell all year round – placing our local major exporters at a big disadvantage.
Bring it on!
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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