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.
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
Monday, January 25, 2010
Monday, January 18, 2010
Here come the hard yards
Enormous amounts of spending by central Governments around the world and unconditional support for parts of the global financial system, seems to have helped the world narrowly avoid a very severe recession.
But it is not as simple as that? Prior to Christmas sentiment seemed to be turning positive very rapidly. Equity markets, commodities, house prices and spending all rose while global unemployment seemed to stabilise. Banks were repaying their debts, and returning to healthy profits, to ensure their executives again took home healthy bonuses.
But as the world economy looked set for its next major boom, Governments moved with stealth to tap the breaks by implementing austerity measures to pay for the excesses of the past 15-20 years.
Already local interest rates have risen 0.5% from their lows, with more to come. Last week China announced a tightening in monetary policies.
In economies that were harder hit, the measures are harsher and more direct. A good example is the lift in Britain’s top tax rate to 50%. In the US, Obama is talking about a tax on banks which the consumer will end up paying. And this is only the start of it. Increasingly over the next two years as Governments feel economies are strengthening, they will look to extract their pound of flesh. This will curb rates of growth as economies recover from the Global Financial Crisis (GFC).
Not only will we pay in higher taxes and slower growth, the GFC will be used by sympathetic Governments to reject outright capitalism and to place some form of socialism back on the agenda. The past year has heard talk of rebuilding the social fabric of modern society and re-investing in neglected or much needed public infrastructure. Just look at Obama’s health care reforms and Rudd’s national broadband network, rebuilding schools and the looming debate on transport infrastructure for example (so much for being a fiscal conservative).
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
But it is not as simple as that? Prior to Christmas sentiment seemed to be turning positive very rapidly. Equity markets, commodities, house prices and spending all rose while global unemployment seemed to stabilise. Banks were repaying their debts, and returning to healthy profits, to ensure their executives again took home healthy bonuses.
But as the world economy looked set for its next major boom, Governments moved with stealth to tap the breaks by implementing austerity measures to pay for the excesses of the past 15-20 years.
Already local interest rates have risen 0.5% from their lows, with more to come. Last week China announced a tightening in monetary policies.
In economies that were harder hit, the measures are harsher and more direct. A good example is the lift in Britain’s top tax rate to 50%. In the US, Obama is talking about a tax on banks which the consumer will end up paying. And this is only the start of it. Increasingly over the next two years as Governments feel economies are strengthening, they will look to extract their pound of flesh. This will curb rates of growth as economies recover from the Global Financial Crisis (GFC).
Not only will we pay in higher taxes and slower growth, the GFC will be used by sympathetic Governments to reject outright capitalism and to place some form of socialism back on the agenda. The past year has heard talk of rebuilding the social fabric of modern society and re-investing in neglected or much needed public infrastructure. Just look at Obama’s health care reforms and Rudd’s national broadband network, rebuilding schools and the looming debate on transport infrastructure for example (so much for being a fiscal conservative).
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
Friday, January 15, 2010
Shocking for all the wrong reasons
The one statistic in the bunch of USDA reports released this week that we thought would be supportive, pulled the rug out from under our feet, and catapulted prices lower.
With a good portion of the USDA corn crop still sitting in the paddock and exposed to the elements the last thing markets were expecting was for the USDA to lift corn yields.
But that they did, for a new record crop of 13.2 billion bu (331mmt), up 2% from the Nov forecast. Average yields were estimated at 165.2 bu/ac – another new record – up 2.3 bu from the November estimate and 4.9 bu above the previous record of 160.3 bu/ac set in 2004. This topped the expectations of even the most bearish analyst.
The market reaction was unequivocal – a limit down move of 30US¢/bu (-7%) in CBOT corn futures – matched by similar falls across other major international grain futures markets.
It just keeps getting bigger...
After this initial shock, the following bearish market prognostatications slipped through to the keeper.The USDA again raised its 2009/10 global wheat, corn and soybean production estimates. Total estimated 2009/10 global grain production was increased by 10mmt to 2,050mmt and all-grain stocks were boosted by a similar amount to 466mt, lifting the stocks-to-use ratio to 21% – compared to 17% at the end of the 2007/08 season.
Where is it all?
Increased wheat production was mainly attributable to another revision higher in Russia’s wheat output for last season.
Larger global corn and bean crops were mainly the result of record large US production.
In the case of beans, this combined with a lift in the forecast size of the Sth American bean crop which is due for harvest next month.
Glut of wheat building
US wheat stocks for 2009/10 were raised another 4mmt to 195mmt on lower expected domestic use and exports.
Lower US wheat exports reflect a poor sales pace owing to strong foreign competition and overvalued US wheat prices. The current 2009/10 US wheat export projection would result in the lowest US wheat exports since 1971/72.
Lower US wheat plantings no saviour
The only positive to come from these reports was a savage 14% fall in US winter wheat plantings, making the 2010 US winter wheat plant the lowest since 1913 (almost 100 years).
With wheat stocks still rising, this had little market impact, with traders figuring that wheat can give up a few acres.
The downside though is that with less wheat having been planted this will make ground available to plant other crops. In the coming months – in the lead in to nth hemisphere spring plantings – this will become another supply variable that will likely dampen price upside in 2010/11.
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
With a good portion of the USDA corn crop still sitting in the paddock and exposed to the elements the last thing markets were expecting was for the USDA to lift corn yields.
But that they did, for a new record crop of 13.2 billion bu (331mmt), up 2% from the Nov forecast. Average yields were estimated at 165.2 bu/ac – another new record – up 2.3 bu from the November estimate and 4.9 bu above the previous record of 160.3 bu/ac set in 2004. This topped the expectations of even the most bearish analyst.
The market reaction was unequivocal – a limit down move of 30US¢/bu (-7%) in CBOT corn futures – matched by similar falls across other major international grain futures markets.
It just keeps getting bigger...
After this initial shock, the following bearish market prognostatications slipped through to the keeper.The USDA again raised its 2009/10 global wheat, corn and soybean production estimates. Total estimated 2009/10 global grain production was increased by 10mmt to 2,050mmt and all-grain stocks were boosted by a similar amount to 466mt, lifting the stocks-to-use ratio to 21% – compared to 17% at the end of the 2007/08 season.
Where is it all?
Increased wheat production was mainly attributable to another revision higher in Russia’s wheat output for last season.
Larger global corn and bean crops were mainly the result of record large US production.
In the case of beans, this combined with a lift in the forecast size of the Sth American bean crop which is due for harvest next month.
Glut of wheat building
US wheat stocks for 2009/10 were raised another 4mmt to 195mmt on lower expected domestic use and exports.
Lower US wheat exports reflect a poor sales pace owing to strong foreign competition and overvalued US wheat prices. The current 2009/10 US wheat export projection would result in the lowest US wheat exports since 1971/72.
Lower US wheat plantings no saviour
The only positive to come from these reports was a savage 14% fall in US winter wheat plantings, making the 2010 US winter wheat plant the lowest since 1913 (almost 100 years).
With wheat stocks still rising, this had little market impact, with traders figuring that wheat can give up a few acres.
The downside though is that with less wheat having been planted this will make ground available to plant other crops. In the coming months – in the lead in to nth hemisphere spring plantings – this will become another supply variable that will likely dampen price upside in 2010/11.
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
Wednesday, January 6, 2010
Robust assumptions the basis of good research
Happy New Year to you all and the best of prospects for the year to come.
As an economist, I am only too aware of the key role that base assumptions play in the outcome of long-term forecasting. For the results to be sensible so too do the assumptions. Rather than deliberating about potential outcomes the basis of discussion should be around the rigorous testing and analysis of the base assumptions. Often assumptions can be smudged to get the outcome that the research is looking for.
A classic case is some research being undertaken by the USDA’s Office of the Chief Economist that analyzes the Forest and Agricultural Sector Optimization Model (FASOM). With these reports it is best to go straight to check base assumptions….what we found was fairly shocking.
One of the base assumptions appears so erroneous that we checked with several sources to make sure we were reading the data correctly. In the table titled “Acres Devoted to Crop Production Over Time,” 2010 soybean acres are listed as 56 million. Compared to 2009 harvested soybean acres that reflects a one-year 20 million-acre drop!
We make mistakes too... but this soybean acreage cut is the headliner of a one-year 64 million-acre drop in acres planted to principle crops. But the base assumptions still prompt us to question the overall validity of FASOM results — and not just because it points to 59 million acres of “crop and pasture land” being planted to trees, including Corn Belt acres!
Other examples include some silly price and yield assumptions: How can sorghum be priced at $8.12/bu while corn is priced at $2.50/bu in the same year? Oh... and a 69/bu average hard red winter wheat yield in 2010! (The hard red winter wheat crop averaged just 38.2 bu. per acre in 2009)
Other questions: Who inside the Obama administration decided FASOM results should be the “end-all” on climate change impacts? Were the base assumptions challenged before they were handed to the USDA for analysis? Are FASOM “supporters” so out of touch with day-to-day reality that they actually believe the results! If some starting points are so erroneous, how can we trust any of it?
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
As an economist, I am only too aware of the key role that base assumptions play in the outcome of long-term forecasting. For the results to be sensible so too do the assumptions. Rather than deliberating about potential outcomes the basis of discussion should be around the rigorous testing and analysis of the base assumptions. Often assumptions can be smudged to get the outcome that the research is looking for.
A classic case is some research being undertaken by the USDA’s Office of the Chief Economist that analyzes the Forest and Agricultural Sector Optimization Model (FASOM). With these reports it is best to go straight to check base assumptions….what we found was fairly shocking.
One of the base assumptions appears so erroneous that we checked with several sources to make sure we were reading the data correctly. In the table titled “Acres Devoted to Crop Production Over Time,” 2010 soybean acres are listed as 56 million. Compared to 2009 harvested soybean acres that reflects a one-year 20 million-acre drop!
We make mistakes too... but this soybean acreage cut is the headliner of a one-year 64 million-acre drop in acres planted to principle crops. But the base assumptions still prompt us to question the overall validity of FASOM results — and not just because it points to 59 million acres of “crop and pasture land” being planted to trees, including Corn Belt acres!
Other examples include some silly price and yield assumptions: How can sorghum be priced at $8.12/bu while corn is priced at $2.50/bu in the same year? Oh... and a 69/bu average hard red winter wheat yield in 2010! (The hard red winter wheat crop averaged just 38.2 bu. per acre in 2009)
Other questions: Who inside the Obama administration decided FASOM results should be the “end-all” on climate change impacts? Were the base assumptions challenged before they were handed to the USDA for analysis? Are FASOM “supporters” so out of touch with day-to-day reality that they actually believe the results! If some starting points are so erroneous, how can we trust any of it?
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
Subscribe to:
Posts (Atom)
Posts
