Tuesday, June 1, 2010

Two horse race for grain prices

Just like the AFL premiership which even this early in the season appears to have boiled down to a two horse race between Geelong and Fremantle (spoken in the words of a true Freemantle optimist). The fate of grain prices this year, at this stage, seems to rest on two key factors; how much corn China needs and the movements in the $A.

On the Chinese corn front, recent purchases may have revealed more information on the situation in China. Firstly the Chinese cancelled some 2010/11 corn purchases and secondly they purchased more corn for immediate delivery. This suggests that they are more concerned about the nearby corn supply situation and growing confidence in the new crop situation.

With most other global crops enjoying excellent growing season conditions, despite lower plantings in 2010, the longer-term supply situation doesn’t appear to be an issue at this stage.

What will happen with the $A is a little more difficult to predict, mainly due to the erratic behaviour of global capital flows. The $A has been hammered due to concerns far beyond our shores that may have little consequence for our medium term growth and economic prospects. Sure it will probably scare some international investment away and force the RBA, but the decline to me seems to have been overstated.

But while many things can change between now and harvest you can only play what’s in front of you. For example it was not long ago that St Kilda were cup favourites and Fremantle rank outsiders. So take advantage of any opportunities that the unexpected may throw up. Any decent rallies in grain prices or unexpected collapses in the $A are selling opportunities, given an analysis of the best information available to us today. What happens after that is largely out of your control and may require readjustment to your strategy as we near September finals action (aka make or break time for crops).

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