While Kevin Rudd and his crew have been whopping it up on our taxes in Copenhagen, ProFarmer has been battling the decay and lack of public infrastructure out in the bush – one of the few industries Australia has a significant advantage over the rest of the world and where all Kevin Rudd and his green crew want to do is shut us down.
Currently I’m in the bush in NSW. I can’t get mobile phone reception, overcast skies have made the internet connection dodgy, mum’s already blown up the washing machine and the tele is on the blink (storms and power surges overnight no doubt to blame). With the outlaws arriving for Christmas shortly, we will have to resort to the usual remedies to get through…at least the fridge is still working.
Markets were deadly quiet this week and it was hard to get anything coherent or tangible from our usual trade sources – either the result of too much Christmas cheer or a lack of ideas. It reminds ProFarmer of the market sentiment that abounded in 2004 when all the talk was about how to get rid of massive stocks.
But there are three huge differences in this market compared to 2004. The first is the active involvement of commodity funds in our markets, second is the ongoing growth in the global bio-fuel industry and the third is the ominous buying presence of China that can change market sentiment with the stroke of a pen.
US ProFarmer told us this week that fund activity will be heightened in January with one major index fund indicating in its prospectus that it will buy roughly 70,000 contracts (350 million bu) of corn futures in the middle of January. This sort of thing can lead to herd mentality and should be closely watched over January.
And there is renewed activity in the bio-fuel industry with a major energy company Valero Energy Corp. last week purchasing 3 additional ethanol facilities. These facilities were idle. When Valero starts production, each plant will absorb about 35 million to 40 million bu of corn from the local market. When fully operational, Valero will have an ethanol production capacity of 1.1 billion gallons annually. Valero Chairman and Chief Executive Officer Bill Klesse said in a company press release, “The ethanol plants we bought earlier [through VeraSun bankruptcy] have been very successful for Valero.”
For any indication of how powerful China has become, the phony deal in Copenhagen was secured by a wink and a nod between Obama and his Chinese counterpart….no real need for the rest of the 100,000 delegates.
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Thursday, December 24, 2009
Monday, December 21, 2009
Argentinean beef growers offered a better cut for Christmas
‘Tis the season for Argentinean beef farmers as they look forward to higher prices in the New Year – it’s about time! Beef markets rose 13% ahead of the holidays, when consumption peaks in the world’s largest red-meat-eating country, an Argentinean farm group said.
The prices are boosted due to cattle shortages and drought. Over the last four years cattle breeders have been cutting production in response to the Government export restrictions in an attempt to regulate prices. The decline in herd numbers in South America was only exacerbated this year by the worst drought in a century. The forecast reduction in cattle herds and therefore exports in 2010 could mean some extra business for Australia.
Around 5%, or 45,000 tonnes, of Australian beef exports is in direct competition with that of Argentina in the frozen manufacturing products category. In 2010 Argentinean exports are expected to back off sharply and Brazil is also not likely to produce much to counterbalance the effect. This will have a price influence into places like Russia to which we are competitive.
In a conversation with Bloomberg Arturo Llavallol, a board member of the Argentine Beef Promotion Institute said, “Next year, there will be 4 million fewer head of cattle than this year, which means 30% less cattle going into the slaughter house.” Since August this year there have been talks that the ‘proud country of the pampas’ may become a net importer of beef in 2010 in order to meet domestic demand. This would be downright embarrassing for the country which was once the world’s largest beef exporter.
However, we have our doubts whether these imports would actually occur. Argentina is still a strong exporter of 206,000 tonnes, according to Meat & Livestock Australia, and there are more cattle roaming the country than there are people. Typically with the Argentinean Government, when things are ‘dire’ enough they make the necessary changes to their restriction/subsidies.
The whole quagmire in which the industry is presently in has been blamed on the increasingly unpopular presidency of Christina Kirchner and her husband and predecessor Nestor Kirchner, who have their hands filthy of trade distorting restrictions. With ProFarmer visiting Argentina back in August it was obvious that Argentineans know no depths of pessimism about their economic woes and distrust of their leaders and this seems like a new low.
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The prices are boosted due to cattle shortages and drought. Over the last four years cattle breeders have been cutting production in response to the Government export restrictions in an attempt to regulate prices. The decline in herd numbers in South America was only exacerbated this year by the worst drought in a century. The forecast reduction in cattle herds and therefore exports in 2010 could mean some extra business for Australia.
Around 5%, or 45,000 tonnes, of Australian beef exports is in direct competition with that of Argentina in the frozen manufacturing products category. In 2010 Argentinean exports are expected to back off sharply and Brazil is also not likely to produce much to counterbalance the effect. This will have a price influence into places like Russia to which we are competitive.
In a conversation with Bloomberg Arturo Llavallol, a board member of the Argentine Beef Promotion Institute said, “Next year, there will be 4 million fewer head of cattle than this year, which means 30% less cattle going into the slaughter house.” Since August this year there have been talks that the ‘proud country of the pampas’ may become a net importer of beef in 2010 in order to meet domestic demand. This would be downright embarrassing for the country which was once the world’s largest beef exporter.
However, we have our doubts whether these imports would actually occur. Argentina is still a strong exporter of 206,000 tonnes, according to Meat & Livestock Australia, and there are more cattle roaming the country than there are people. Typically with the Argentinean Government, when things are ‘dire’ enough they make the necessary changes to their restriction/subsidies.
The whole quagmire in which the industry is presently in has been blamed on the increasingly unpopular presidency of Christina Kirchner and her husband and predecessor Nestor Kirchner, who have their hands filthy of trade distorting restrictions. With ProFarmer visiting Argentina back in August it was obvious that Argentineans know no depths of pessimism about their economic woes and distrust of their leaders and this seems like a new low.
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Monday, December 14, 2009
Banks look like being in the commodities camp in 2010
There are two distinct “camps” that have formed in commodity markets and the dollar; those that believe recent price action is year-end positioning, and those that feel price trends are reversing.
Those that feel price reversals are in the works point out that the $US index has reached its highest level since early November, and more importantly, the dollar is now being viewed in a more favorable light compared to some other global currencies. On the commodity side, the argument is that gold futures are in the midst of their steepest decline since mid-February through early March and that crude oil and grains are starting to better reflect ‘fair value.’
Those that feel current price action is corrective in nature point to the fact that December is often a ‘window-dressing’ month, especially when big profits have accumulated throughout the year. And while the $US is up sharply of late, it has moved roughly only 3% off the lows. The drop in gold futures has been steeper, but is still down only around 9% from longer-term highs. In the big picture, these are very minor moves compared to overall price trends, which signal this is a correction.
We likely won’t know which “camp” is correct until mid-January. Until that time, day-to-day price action in grain markets may be highly choppy as a lot of the grain price movement is still being determined by outside markets.
Producers should be encouraged that it is the former school of thought that is at work. News has recently come across my desk that the major banks were bolstering their commodities desks for what they see as emerging potential in commodities trading. This is due to the upswing in prices this year and in anticipation of greater investor appetite for commodities as demand improves and ahead of an expected increase in economic inflationary pressures.
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Those that feel price reversals are in the works point out that the $US index has reached its highest level since early November, and more importantly, the dollar is now being viewed in a more favorable light compared to some other global currencies. On the commodity side, the argument is that gold futures are in the midst of their steepest decline since mid-February through early March and that crude oil and grains are starting to better reflect ‘fair value.’
Those that feel current price action is corrective in nature point to the fact that December is often a ‘window-dressing’ month, especially when big profits have accumulated throughout the year. And while the $US is up sharply of late, it has moved roughly only 3% off the lows. The drop in gold futures has been steeper, but is still down only around 9% from longer-term highs. In the big picture, these are very minor moves compared to overall price trends, which signal this is a correction.
We likely won’t know which “camp” is correct until mid-January. Until that time, day-to-day price action in grain markets may be highly choppy as a lot of the grain price movement is still being determined by outside markets.
Producers should be encouraged that it is the former school of thought that is at work. News has recently come across my desk that the major banks were bolstering their commodities desks for what they see as emerging potential in commodities trading. This is due to the upswing in prices this year and in anticipation of greater investor appetite for commodities as demand improves and ahead of an expected increase in economic inflationary pressures.
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
Thursday, December 3, 2009
Wheat price rise out of whack?
In recent days US wheat futures have hit six month highs. This has occurred regardless of increases in the world wheat crop estimates, growing stocks and continued serious competition out of Russia and Ukraine meeting only lukewarm demand. Make no bones about it, the world is adequately supplied with wheat in the short-term and fundamentally it is difficult to justify current US wheat futures values.
Similar to late 2007 when capital flows assisted US wheat futures to record highs (as the $US weakened toward record lows)...again capital inflows are supporting wheat and again in part due to the weakening $US. Back in 2007 and early 2008, wheat was a dynamic fundamentally demand driven bull market, whereas now there is little to get excited about. The reason is, world stocks are as high as any part of this decade and they are unlikely to fall significantly in the coming year unless the major production problems.
So again, cheap money as a result of policies of the US Federal Reserve (very low US interest rates) is again flowing into commodity and stock markets around the world and creating small asset bubbles. Given that many of the organisations that invest this money work on relative value and not fundamental value, they see wheat as cheap compared to where it was 18 months ago and therefore potentially undervalued.
While this seems very simplistic, as long as the funds throw enough money at the trade, then wheat will continue to be supported and could potentially move higher despite prices needing to fall to reduce world wheat production in line with demand. This makes wheat very susceptible to changes in interest rate policy when the ‘cheap’ money dries up.
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
Similar to late 2007 when capital flows assisted US wheat futures to record highs (as the $US weakened toward record lows)...again capital inflows are supporting wheat and again in part due to the weakening $US. Back in 2007 and early 2008, wheat was a dynamic fundamentally demand driven bull market, whereas now there is little to get excited about. The reason is, world stocks are as high as any part of this decade and they are unlikely to fall significantly in the coming year unless the major production problems.
So again, cheap money as a result of policies of the US Federal Reserve (very low US interest rates) is again flowing into commodity and stock markets around the world and creating small asset bubbles. Given that many of the organisations that invest this money work on relative value and not fundamental value, they see wheat as cheap compared to where it was 18 months ago and therefore potentially undervalued.
While this seems very simplistic, as long as the funds throw enough money at the trade, then wheat will continue to be supported and could potentially move higher despite prices needing to fall to reduce world wheat production in line with demand. This makes wheat very susceptible to changes in interest rate policy when the ‘cheap’ money dries up.
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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