Trying To Make Some Sense Of It All
18/11/10 -- You'll be pleased to know that I'm not going to stick with every headline being a song lyric forever, this one just tickled me (by Steeler's Wheel - geddit?)Anyway the market action of the last few days does take some fathoming out. The latest rumour doing the rounds is that China will increase interest rates tomorrow or some time over the weekend.
How much difference will that REALLY make to demand for grains? Probably not a lot, if any.
UK and EU availability of wheat looks set to be very tight come the spring. Defra's target for UK wheat exports of only 1.3 MMT during the entire marketing year looks woefully inadequate. EU (mainly French) exports are also running well ahead of schedule.
That leaves the US in the driving seat for the first half of 2011. Australia won't have a great deal of quality wheat to sell by the looks of it, although they will have plenty of feed wheat to ship to Indonesia/Asia which will probably impact on US corn exports to the region. Argentina will also have wheat to sell, but most of that will probably go to Brazil, although they did feature in a recent Egyptian tender.
If and when the Chinese government do introduce measures aimed at capping spiralling food prices that could entail using the state-run agencies to import grains and oilseeds to replenish state reserves. These have surely been depleted to historically low levels by months of government auctions.
Successive years of insisting that they've had much larger wheat and corn harvests than was probably the case already mean that official stock estimates are almost certainly heavily inflated too.
Another rumour doing the rounds yesterday was that recent developments have been a deliberate attempt by China to get the market down just before they emerge as large-scale buyers. If so, they've done a pretty good job with soyoil down almost 600 points in a week as of yesterday morning.
This afternoon's weekly export sales report may provide a few pointers as to what, if anything, has been going on behind the scenes of late - although it will only be for the period Nov 5-11th. It was last Friday Nov 12th when the market began to fall out of bed, so any subsequent under the counter buying won't show up until next week.
All that pre-supposes that if China was in the market to import large quantities of corn that it would go knocking on America's door and announce it loudly to the world. That would send the market soaring immediately, and stupid is one thing that they aren't.
I think that if I was China, I'd quietly go checking out what the South American shops have got to offer. If they want corn, they certainly have the dollars to pay for it - indeed they'd probably actively rather like to ditch some of their depreciating dollar reserves in exchange for something more tangible.
And lo and behold Argentina have corn to sell and desperately want dollars. It seems like a no-brainer to me.
