Monday, January 25, 2010

Value buying helps prevent further losses

Buyers actively purchased wheat on the latest fall, helping to prevent further losses as macro influences turned sour. The short term picture doesn’t look great for those still holding wheat. They face an unpalatable set of choices.

The good news first though. Australia reportedly sold some 200,000t of wheat to Asia for shipment between February and April as prices broke lower last week. All major buyers were active – Malaysia, Indonesia, Thailand and Vietnam all booked cargoes in the last few days. China also bought Australian wheat but the quantities could not be confirmed.
But while buying should help further falls, Australian growers may need to become accustomed to selling at lower price levels, at least until we offload some of last year’s harvest. With large amounts still unsold, the decision facing many is either to sell in a weaker market, pool or store and hope for the best.

This year will provide a stern test for pool managers. Pools are actively seeking to make sales in order to return some equity to grower accounts. Not only are they battling falling returns, but also rising costs and a cloudy macro economic environment. Container freight rates for Asia-Europe routes are powering ahead as stronger demand catches shippers off guard. Although rates are only half those off the peak in 2007, recent rates represent a quadrupling since early 2009. Bulk freight rates have moved higher driven by demand for the hard commodities sector by China.

The job of pool managers will not be made any easier by Government action to cool growth. The latest attempt came in the shape of President Obama’s proposed restrictions on the US banking sector. Some speculated this was in response to lavish spending on annual executive bonuses by US banks. It comes after Beijing announced it would take steps to limit bank lending to slow its roaring growth. Firm Government action in parts of the global economy that were showing signs of sustained recovery do not augur well for medium term growth prospects.

A temporary reprieve in the ascent of the $A was one of the few positives last week. The $A fell to around 90USc from recent highs of 93USc.

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