All hell broke loose in the Canadian canola pit on Friday when news that the Canadian Food Inspection Agency (CFIA) planned a conference call with its local grain trade on Friday to discuss a number of issues; chief among them being potential Chinese revisions to quality regulations on imports of Canadian canola.
The situation goes back to a report earlier this month that China had expressed concerns regarding blackleg risks in Australian origin canola. The CFIA call might involve a Chinese request to provide blackleg free certification on Canadian canola exports. Another issue may involve establishing weed seed tolerance levels.
This really shows how vulnerable we are to changes in requirements in importing countries, particularly those we haven’t had a long track record in dealing with. China imported a lot of Canadian canola last year and any disruption to this trade will have ramifications here.
Notwithstanding issues with canola, it was another better week of trading in grains – assisted by the weaker $US and further speculative interest. It is hard to find any fundamental reasons for the rally – although the US is on track for its slowest ever harvest of corn and beans (with another wet week forecast across harvesting areas). Partly offsetting this though is the Brazilian soybean plant which is off to a flying start.
The Ukraine winter plant is being hindered by dryness is some areas, but conditions are improving and rumors are that the Russian Government plans to start intervention buying soon. This gave international grain markets a better feel than what we have witnessed for the past few months. Growers around the world are very slow sellers and buyer stocks are running down. This should assist prices in grinding gradually higher but any major rallies will be well covered by grower selling. So don’t expect prices to explode higher; plan to sell enough to cover harvest cash flow needs so you can dodge the normal bout of harvest weakness.
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Wednesday, October 28, 2009
Monday, October 19, 2009
Still at the mercy of the global economy
Commodity stocks have had a nice little run-up in the past few weeks. By now in the US they have normally harvested most of their summer crops but this harvest looks like it will push into December. That could cause a lot of volatility if the gap widens between demand, low current stockholdings and new crop supplies.
Fundamental support started to creep back into the commodities world; the soybean harvest is almost two weeks late, bio-fuel margins are starting to work and feeding demand is creeping higher. Outside market influences started to lend a hand ($US, crude oil prices) and fund and speculative money started to flow.
But world stocks fell Friday as weak results from General Electric Co and Bank of America Corp dimmed confidence in a profit-driven economic recovery. This saw a bout of risk aversion creep into the market and most currencies retreated against the $US.
GE, the biggest US conglomerate, reported a 42% drop in profit and Bank of America posted another quarterly loss, which pulled markets back a gear after investor appetites were whetted by strong JPMorgan Chase & Co results earlier in the week. European and US shares sank, and safe-haven US Treasury notes gained after earlier in the week US equities had moved through 10,000 points.
ProFarmer is a bit flummoxed by talk that stubbornly high inflation might see the Reserve Bank of Australia lift rates by another 0.5% by early next year, if before. This won’t be good for the $A as international investors are seeing the yields on offer here and the relative robustness of our economy and strength of the $A as a signal to invest.
But while we haven’t the resources to do the research that the RBA has, our observation is that our economy is very mixed. We were buying a car the other day and the Government stimulus money seems to be working - new car places were full of people. But you get in a taxi and they tell you it is very quiet.
We are an export dependent nation and the $A is doing us little good. After a quick spurt, Chinese buying has contracted and imports across the developed world are crawling. The US economy is still losing jobs and in Australia there are a lot of people still heavily indebted and rate rises will definitely impact consumer confidence.
We think this global recession has a sting in its tail and it won’t miss Australia. See a full wrap on our thinking on the prospects of the $A in this week’s newsletter.
If you are interested in receiving this information and more on a regular basis, please call us toll free on 1300 302 143 to organise your subscription. Click HERE to subscribe online or Click HERE for a 4-week FREE Trial
Fundamental support started to creep back into the commodities world; the soybean harvest is almost two weeks late, bio-fuel margins are starting to work and feeding demand is creeping higher. Outside market influences started to lend a hand ($US, crude oil prices) and fund and speculative money started to flow.
But world stocks fell Friday as weak results from General Electric Co and Bank of America Corp dimmed confidence in a profit-driven economic recovery. This saw a bout of risk aversion creep into the market and most currencies retreated against the $US.
GE, the biggest US conglomerate, reported a 42% drop in profit and Bank of America posted another quarterly loss, which pulled markets back a gear after investor appetites were whetted by strong JPMorgan Chase & Co results earlier in the week. European and US shares sank, and safe-haven US Treasury notes gained after earlier in the week US equities had moved through 10,000 points.
ProFarmer is a bit flummoxed by talk that stubbornly high inflation might see the Reserve Bank of Australia lift rates by another 0.5% by early next year, if before. This won’t be good for the $A as international investors are seeing the yields on offer here and the relative robustness of our economy and strength of the $A as a signal to invest.
But while we haven’t the resources to do the research that the RBA has, our observation is that our economy is very mixed. We were buying a car the other day and the Government stimulus money seems to be working - new car places were full of people. But you get in a taxi and they tell you it is very quiet.
We are an export dependent nation and the $A is doing us little good. After a quick spurt, Chinese buying has contracted and imports across the developed world are crawling. The US economy is still losing jobs and in Australia there are a lot of people still heavily indebted and rate rises will definitely impact consumer confidence.
We think this global recession has a sting in its tail and it won’t miss Australia. See a full wrap on our thinking on the prospects of the $A in this week’s newsletter.
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
ACCC learning on the job
This is a little bit heavy for my normal rant, but I think it is important because it demonstrates how serious the Australian Competition and Consumer Commission (ACC) is serious about ensuring an equitable regime for wheat exporters. This year they were caught in a Mexican standoff and it is fair to say neither side was totally satisfied with the outcome or process. I have heard complaints from various staff and directors of bulk handling companies as well as the heads of global grain trading organizations - competitive tension never hurts anyone I say.
Under the Wheat Export Marketing Act 2008, accredited wheat exporters that own or operate bulk grain export facilities were required to have an approved port access undertaking in place before October 1.
So a week or so prior to the deadline, the ACCC finally approved the proposed port access arrangements of grain handlers CBH, GrainCorp and ABB Grain subsidiary AusBulk. Essentially the terms of the new access arrangements include the prohibition of any port operator engaged in anti-competitive discrimination for the benefit of its own business.
The ACCC had previously rejected access arrangements proposed by port operators CBH, ABB and GrainCorp, saying the arrangements needed greater clarity and transparency for wheat exporters.
The port access terms approved by ACCC include:
Under the Wheat Export Marketing Act 2008, accredited wheat exporters that own or operate bulk grain export facilities were required to have an approved port access undertaking in place before October 1.
So a week or so prior to the deadline, the ACCC finally approved the proposed port access arrangements of grain handlers CBH, GrainCorp and ABB Grain subsidiary AusBulk. Essentially the terms of the new access arrangements include the prohibition of any port operator engaged in anti-competitive discrimination for the benefit of its own business.
The ACCC had previously rejected access arrangements proposed by port operators CBH, ABB and GrainCorp, saying the arrangements needed greater clarity and transparency for wheat exporters.
The port access terms approved by ACCC include:
- Clear and transparent port loading protocols that port operators are obliged to follow in managing demand shipping slot allocations.
- Obligations on port operators to negotiate in good faith on price and non-price offers of access to port terminal services• If negotiation fails, the ability of wheat exporters to seek mediation or binding arbitration on port terminal services
- A set of clear and certain minimum non-price terms and conditions of access to port terminal services for wheat exporters who opt for a standard offer• Obligation on each port operator to publish its standard prices for port terminal services at least one month before commencement of each new wheat exporting season.
- Obligations on each port operator to publish certain port terminal information to provide greater transparency over its operations.
While not to everyone’s liking, particularly the bulk handlers, at least now we have clarified what the undertakings cover and there is a standard set of rules in place to provide greater transparency and a formal process to handle disputes. The application of these access undertakings may be tested in a formal arbitration process. This will help the ACCC learn about the actual application of these undertakings and, if so, allow them to alter or tighten them where necessary.
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Monday, October 5, 2009
Markets take a hard hit but there’s still hope
I have heard a lot of pessimism around grain markets of late, but the reality is that the fundamentals have not changed a lot since market peaks about a year ago. Sure there was a lot of hot money involved and stocks were tight and bio-fuels were the flavour of the month.
Now all I am hearing is doom and gloom. Crops are big and getting bigger and traders and analysts everywhere can’t see how prices can rise. But this lethargy is not restricted to grain markets; take crude oil for example which is at a respectable $75/bll.
If Iran were pulling these shenanigans with secret nuclear plants and missile testing a year ago, crude oil futures would likely be headed back to $100-plus levels. Throw in Chinese negotiations to be an exclusive buyer of Nigerian crude oil, and the market might have built the momentum to challenge the all-time highs! Instead, the markets are focusing on fundamentals - crude oil stocks jumped 2.8 million barrels last week as capacity utilization at refineries dropped 1% to just 84.6%.
So what have we gleaned? A lot of heat has come out of these markets and traders are paying more attention to fundamentals. And while the fundamental picture for grains doesn’t look good at the moment, things can change quickly. USDA’s Quarterly Grain Stocks Report put fourth-quarter 2008/09 corn use at a record 2.59 billion bu, up nearly 8% from year-earlier. At current margins ethanol plants capacity utilization of ethanol is screaming higher. And livestock feeding demand will gradually recover as things simmer down.
So while there seems little to crow about at the moment things can change quickly. Take for example the team that was beaten in the rugby league grand final on the weekend. They lost five out of their first eleven and then won ten from their next eleven. They scrapped into the finals, made the grand final, only to be beaten by some dubious referee calls. They didn’t quite make the pinnacle but they didn’t throw the towel in.
Grain prices have taken some heavy hits but I expect them to bounce back. They may not reach the pinnacle but they should grind the season out. But some help from the $A wouldn’t go astray either.
Now all I am hearing is doom and gloom. Crops are big and getting bigger and traders and analysts everywhere can’t see how prices can rise. But this lethargy is not restricted to grain markets; take crude oil for example which is at a respectable $75/bll.
If Iran were pulling these shenanigans with secret nuclear plants and missile testing a year ago, crude oil futures would likely be headed back to $100-plus levels. Throw in Chinese negotiations to be an exclusive buyer of Nigerian crude oil, and the market might have built the momentum to challenge the all-time highs! Instead, the markets are focusing on fundamentals - crude oil stocks jumped 2.8 million barrels last week as capacity utilization at refineries dropped 1% to just 84.6%.
So what have we gleaned? A lot of heat has come out of these markets and traders are paying more attention to fundamentals. And while the fundamental picture for grains doesn’t look good at the moment, things can change quickly. USDA’s Quarterly Grain Stocks Report put fourth-quarter 2008/09 corn use at a record 2.59 billion bu, up nearly 8% from year-earlier. At current margins ethanol plants capacity utilization of ethanol is screaming higher. And livestock feeding demand will gradually recover as things simmer down.
So while there seems little to crow about at the moment things can change quickly. Take for example the team that was beaten in the rugby league grand final on the weekend. They lost five out of their first eleven and then won ten from their next eleven. They scrapped into the finals, made the grand final, only to be beaten by some dubious referee calls. They didn’t quite make the pinnacle but they didn’t throw the towel in.
Grain prices have taken some heavy hits but I expect them to bounce back. They may not reach the pinnacle but they should grind the season out. But some help from the $A wouldn’t go astray either.
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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