Nogger's Blog

03/05/11 -- Hurrah, the wretched kids are back to school, with fully 3 1/2 weeks of intensive playtime to endure before the little buggers are off again. I'm sure it wasn't like that in my day. We went to school whether it was open or not, and if it was shut when we got there then we used to sit in the playground scrawling integral calculus on the walls and reciting poetry.

And nicking the odd bit of lead flashing of course. Then off to the park for a three hour game of footie, catch a few sticklebacks and arrange an impromptu stickleback BBQ with some matches that we'd "found". Nobody ever ate the sticklebacks so there was no need for a fancy Jamie Oliver style rub or a drizzle of chilli-infused olive oil. Recipe: catch a few sticklebacks, find some pieces of wire, insert wire through stickleback's mouth and out near tail (killing before hand is optional), place stickleback kebabs over roaring open fire for about three hours turning occasionally, throw them away and start again. Go home stinking of smoke but deny categorically that you'd been anywhere near a fire. Repeat.

Anyway London wheat has been having just about as many holidays as the kids lately, so it may open firmer this morning with May Paris wheat having risen by EUR6.50/tonne in the last two sessions that London has been closed. May CBOT wheat is up 16 3/4 cents over the course of the last two session, although it's given up 11 1/2 of those gains in overnight trade.

Beans are also lower overnight and corn mixed, lower on old crop and higher on new crop after the USDA reported after the close last night that corn plantings are only 13% done, compared to trade expectations of 15-19% complete.

The USDA also reported winter wheat crop conditions down a little and spring wheat planting progress well behind normal.

With European weather concerns also an issue there are therefore plenty of stories for a bull to hang his hat on this morning, yet the market looks tired.

I still personally subscribe to the notion that all the grains are too high. Without the support of fund money we'd probably be around 20% lower than where we are today, in my humble opinion.

The "need to buy acres" and "ration demand" and all the other popular rhetoric that is kicking around at the moment is frankly a load of old bollocks. If corn can't buy acres at USD8/bu then when is it going to be able to? Slash, or add, 20% (or 50%!) off or to the price of everything and we'd still be having the same argument.

The prices are where they are, because the prices are where they are. They wouldn't be there without blind support from fund money and the misguided benefits for a biofuel industry incapable of standing on it's own two feet without subsidies, tax breaks and usage mandates.

An interesting article in the Wall Street Journal over the weekend quotes the CEO of Smithfield Foods Inc, the world's largest pork processor, as saying:

"The subsidy has been out there since the 1970s....if they can't make themselves into a viable economic model in 40 years, haven't we demonstrated that this is an industry that shouldn't exist?"

We probably now all know that around 40% of the US corn crop goes into the ethanol industry, but did you know that 40% produces little more than 1% of America's annual energy needs? And that comes at a cost in excess of USD5 billion to the US taxpayer.

Meanwhile 7.5 million lots of corn futures traded on CBOT in March, equivalent to more than 950 MMT, or more than the world's entire corn crop. In one month. And that doesn't include options trades!

Something has to happen to stop this money-making merry-go-round which benefits the few and penalises the many via spiralling food price inflation. When it does happen, and I do believe it is a case of when not if, then the funds will be first out of the door.

Much as they were when it all kicked off in North Africa and the Middle east, swiftly followed by the Japanese tsunami when we saw front month CBOT wheat fall more than USD2/bu and London wheat decline by more than GBP40/tonne between mid-Feb and mid-March.

Maybe a refusal to renew the ethanol blender's tax credit, due to expire at the end of the year, would do it? That would take USD5 billion straight back off the US budget deficit in one fell swoop.