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Humphrey Feeds Weekly Commodity Report w/e 27-5-11

Old crop wheat prices are probably £25 down from their highs a month ago. But as old crop prices have declined, new crop prices have risen. A month ago the difference between old and new crop was £35/t, now as new crop wheat prices hit a high this week at £199, this is pretty much the same value for spot delivery to the mill this week. Supplies of old crop UK wheat are tight; and with two-and-a-half months until harvest many in the trade believe that prices will stay at near these levels for some time. We hope that wheat prices will come under pressure at harvest, but so much depends on the weather and funds. In Europe the IGC has cut the German wheat forecast by 1.3mt to 24.5mt, the French by 0.8mt to 39mt. In global terms, the IGC reduced world output by 5mt to 667mt.



As major (potential) exporters, the political antics of Russia and the Ukraine this year will have a major effect on wheat prices. Russia has not yet decided what to do – apparently waiting to see how much wheat they will have in the barn in July. The Ukraine announced this week that they will abolish their grain export quotas, but will impose a €20/t tax instead, and that they expect to export about 8-10mt of wheat in 2011-12. In the US, rain on the northern Plains is making it difficult to plant wheat, and rain is also aggravating maize plantings elsewhere. Investors are attracted by the volatility of agricultural softs and inherent weather uncertainty, so the potential to make a profit attracts them like moths to a flame. So investors and supporting worldwide grain prices - 40% of the open interest in the Chicago Board of Trade agricultural futures are owned by speculators!



Last week the US announced that it had reached its official $14,300bn debt limit and had technically run out of money. The arguments in Congress are expected to be loud and extended, with a deal to avert default at the ’last minute’ – probably August. It is possible that the solution will be QE3. Just to remind you, Quantitative Easing 2 (QE2) meant that the US printed and issued $600bn – enough money to buy almost 900 QE2 ocean liners. The money from QE2 had to go somewhere, and many think it went into stocks, shares and commodities as money in a bank account earns no interest at all. Does that mean that commodities are inflated – an asset bubble? Probably. Does that mean that prices will fall when QE2 stops? Probably. Does that mean that prices will stay the same or continue to go up, if QE3 starts? Probably. It’s all guesswork – this situation has never happened before.



Soya is currently directionless, trading within a relatively narrow band, and generally following the maize and wheat markets; and in UK terms, blown about by currency. It will probably remain in the doldrums whilst the Chinese are out of the market. The Chinese always were, and remain an enigma. Like the USDA, the Chinese often say one thing and mean another – perhaps lost in the translation? However, it is believed that the Chinese are short of maize and that they may need to import 2.5mt in 2011/12. The 1mt of maize the US sold recently to ’unknown’ destinations, is still unknown, as the Chinese deny they bought it. China has about 6mt of soya beans languishing at ports, which would normally be about a month’s supply; but as the government is also releasing soya beans and selling soya oil from its own stores at well below import parity, it would seem that the Chinese will not be buying soya in any quantity for a while. This could mean that global soya sales will be lower than expected, so buying opportunities may open in the autumn.


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