Latest UK trades/markets
Falling markets, remember them? You must do. The days when you can't find a buyer for love nor money. The grass is growing, the sun is shining, livestock numbers are falling and you can't give stuff away. Also known as this summer, coming soon to a compound mill near you!
The rapemeal market continues to ease. Erith quotes today: Straight May 167, May/Jul £165, Aug/Oct £149 and Nov08/Apr09 at £156.
Wheatfeed pellets are also drifting lower on lack of buying interest as the wheat market is suddenly not as tight as many had expected. South East mills offered at £129 for straight May on it's own and Jun/Sep quoted at £126, and Oct08/Apr09 quoted at £130. May/Sep delivered into Cheshire/Staffs area quoted at £139, could probably do Oct08/Apr09 at the same money.
Spot Liverpool soya hulls traded earlier in the week at £140, with a possibility of finding straight May at the price. Oct08/Apr09 last traded at £144.
Spot Avon maize distillers grains available on resale £POA.
Spot/May Liverpool PKs have been trading at £136, and spot Liverpool citrus pellets reported done £147 this week.
Early call on Chicago
Corn futures are expected to open 3 to 5 lower; soybeans mostly 12 to 15 lower; wheat mostly 5 to 7 lower. The U.S. dollar was stronger in overnight trade, so that kept pressure on corn, soybean and wheat prices. A lower opening is expected. Technical support could develop later in the trading session.
Wheat - Its Only Just Begun
I've posted this article before but make no excuses for posting it again. Its worth noting that this article was first published in Money Week on 27th Feb 2008. Spookily, check it out if you don't believe me, Chicago May wheat topped out at an all-time high of $13/bushel on 27th Feb 2008:
You may not have realised it, but one commodity is currently seeing the greatest bull market in its entire history. Not gold, not oil – but wheat.
From its low of $2.40 in late 1999 to yesterday’s high above $12 is an eight-year, near-400% move. Wheat has never moved up so much.
I don’t mean to sound like a harbinger of doom, or perhaps I should say Grim Reaper, but the whole grains sector – whether it’s wheat, corn, soybeans, barley, whichever – has become worryingly reminiscent of uranium this time last year.
The shorting opportunity of a lifetime may be just around the corner…
First let me recap on what happened to uranium. By the end of 2006, come New Year prediction time, uranium was the hot tip for 2007 (just as grains were this year). For five years or more the price of uranium had crept up beautifully, without anyone appearing to notice.
Then suddenly in October 2006 the well-documented flood at Cameco’s Cigar Lake mine made the headlines and everyone began talking uranium. “Supply can’t match demand,” declared the bulls. “China’s building so-many thousand nuclear power plants a year,” they went on. “Where’s the uranium going to come from?” “It takes ten years to get a uranium mine into production”; “Nuclear power is the only answer to the coming energy crisis”, and so on.
The thing is there was a great deal of truth to all these arguments and the uranium price went from a steady incline to a near-vertical ascent. Having stealthily risen from below $10 a pound to $70, it suddenly bounded another $70 to $140. Everyone was talking uranium. Every exploration company had suddenly added the word uranium to its name. Stocks were soaring. Even the Labour Government began talking nuclear. Then suddenly the stocks capitulated and over the next few months we saw brutal corrections in the uranium companies - in some cases, of 80% or more.
Uranium had traced out the typical pattern of a bubble from boom to bust. I have posted this excellent chart from Jean-Paul Rodrigue of Hofstra University before. But it merits re-posting. The typical small uranium stock traced a very similar pattern and in my view, grains may be doing the same.
Grains: the risk is to the downside. Take a look at the chart for wheat. Does it look strangely familiar? This, my friends, is an accident waiting to happen.
Yes, I know all the arguments. Asian diets are improving, their middle class is growing, they’re eating more meat, more grain has to be grown to feed the livestock, the drought in Australia has hit wheat supply, the Americans are using their corn to make ethanol, more fields are being turned over to corn, inventories are low, supply can’t meet demand, monetary inflation means higher prices in everything, what if we get bad weather and it kills the harvest?
I know all of this. They are all utterly convincing arguments that hold a great deal of truth – it’s because of this credibility that more and more people are climbing on board and pushing the price up further.
Nevertheless the price has got way ahead of itself in my view and is due a correction, potentially a nasty one. All the risk is to the downside.
This bull market began in 2000, but until very recently nobody was talking about it. Now the world, his wife and their shoeshine boy seem to be long grains. Not a good sign.
Great bull runs often end with a series of limit-up days (this is when the maximum daily move on the exchange is reached – unlike the FTSE 100, some smaller exchanges try to control volatility by limiting how far a price can rise or fall in a single day). We saw three limit-up days in a week a fortnight ago. The 30c limit has now been upped to 60 cents. We saw another limit-up on Monday and again yesterday. Is this your classic blow-off top? Many chartists would say so.
Looking at previous bull markets in wheat, the biggest was in the six years to February 1974 in which we saw a 312% move. Before that the biggest move was 173% in the four years to May 1898! In other words, as I pointed out at the beginning of this email, this eight-year, near-400% move, is the biggest in wheat’s history.
The subsequent corrections in virtually every major bull market in wheat saw it give back almost all of its gains. “Give back all of its gains?” I hear you say. “But that would take us back to $2.50 a bushel. Wheat’s up by over $2.50 this month alone.”
What goes up …
Buy meat, not wheat
One of the consequences of the high cost of grain is that it has become expensive for farmers to feed their cattle and pig. In fact, it’s so uneconomic many have been sending their livestock to an early slaughter. This has led to there being rather a surfeit of meat on the commodities exchanges with the resultant steep decline in the price of hog and cattle (this despite the rise of the new meat-eating middle-classes in Asia we hear so much about).
Further down the road, as more stocks are slaughtered, what surely lies in store is a shortage of pig and cattle to eat all this wheat. Meat, not wheat, is where you should be looking for an entry point in the coming months. As for wheat, your eyes should be looking towards the exit.
The thing is there was a great deal of truth to all these arguments and the uranium price went from a steady incline to a near-vertical ascent. Having stealthily risen from below $10 a pound to $70, it suddenly bounded another $70 to $140. Everyone was talking uranium. Every exploration company had suddenly added the word uranium to its name. Stocks were soaring. Even the Labour Government began talking nuclear. Then suddenly the stocks capitulated and over the next few months we saw brutal corrections in the uranium companies - in some cases, of 80% or more.
As a footnote to this article, here is a chart of the LIFFE May wheat future:
May LIFFE Wheat
Spot anything? What was that song by the Karen Carpenter again?
Rice goes off the boil
Rice prices in Chicago tumbled after touching a record above $25 per 100 pounds yesterday, as Thailand and Brazil said they will not curb exports and Pakistan plans to ship overseas, easing concern over tight global supplies.
Rice closed down its 50c limit in CBOT last night and is currently a further 71c lower in the overnight market, having earlier touched its expanded 75c limit down.
Wheat has gone down the pan - is corn next?
Wheat has been the 'golden child' of the grain markets the past 12 months, with the pinnacle in February when HRS wheat futures hit $25 for a high. This was quite an achievement, and has pretty much put the frosting on the wheat cake for this year, and perhaps even for decades. Cash HRS wheat prices are now worth less than half of what they garnered just 2 months ago - a remarkable change in a short period of time.
Wheat prices have dropped steadily since then, taking new crop Chicago wheat down below the $8.50 level after tipping the $13 level earlier. This is a huge price move for wheat growers, and one that at this point looks like an opportunity wasted. Not only have 2008 wheat prices dropped solidly, but 2009 and 2010 have dropped hard as well from previously dramatically high levels.
While wheat has become the ugly sister after its two month metamorphosis, one has to start looking at the corn market with its current $6+ price level as being vulnerable. Of course, we all know corn planting is lethargically behind normal, with progress at a terribly slow pace for now. In fact, weather forecasts haven't changed while corn prices have hovered for the past few weeks. The volatility is there, but so far corn doesn't appear to have any technical appearance of topping.
With wheat prices clearly retreating from previous highs, wheat is starting to become priced as a feed grain - a dangerous development for corn. Corn growers can start to get nervous when they see the $5 break in wheat prices to the point where it might start entering feed rations again. Corn fundamentals look impossibly bullish for now, but as all grain traders are aware - things are always the most bullish at the top.
Chicago late call
Wheat is called to open 6 to 8 cents per bushel lower. Bears have solid downside technical momentum on their side in the wheat markets after recent setbacks, traders said. CBOT July wheat, which represents the new crop, is down more than $4.50 from its high last month and overnight fell to its lowest price since Jan. 14.
"Prices are still in a six-week-old downtrend on the daily bar chart," a technical analyst said.
Total weekly wheat export sales of 272,000 tons were nothing to get excited about either, traders said.
Soybean futures are called to start the session 4 to 6 cents higher.
Demand prospects linked to a possible resumption of an Argentina farmers' strike next week continues to support futures, and with prices holding above key technical levels, bullish psychology remains in the market, analysts said.
However, a firmer U.S. dollar index is seen limiting upside momentum, a CBOT floor trader said. Also rumours circulating that the Argentine government may possibly suspend the tax on exports that farm groups oppose will keep traders cautious.
Corn futures are expected to open 2-3 cents a bushel higher Thursday after prices bounced slightly in overnight trade following a lower pit close on Wednesday and as showers and storms move through the heart of the corn belt, analysts said.
IGC sees global wheat production, stocks rising
The International Grain Council (IGC) projects global wheat production and stocks climbing in the 2008/09 season.
Forecast production is 645 MMT, 41 MMT more than in 2007. Crops in Europe, the CIS and China are developing well although parts of the US and Canada need more rain. Hot weather is stressing crops in Near East Asia and North Africa. Rain in Argentina and Australia is boosting their prospects.
As prices ease food consumption growth in developing countries should recover and feed use will rise: the total is forecast at 630 MMT, 19 MMT more than last year. Stocks are expected to go up 14 MMT to 128 MMT, with a significant increase in the US.
USDA Weekly Export Sales
For the week ended April 17, traders expected: wheat sales from 250,000 to 350,000 MT; corn sales from 750,000 to 1.25 million MT; soybean sales from 250,000 to 450,000 MT;
The actual figures were: wheat 158,000 MT old crop, 114,800 MT new crop; corn 775,300 MT old crop, 212,300 MT new crop; soybeans 376,700 MT old crop, and no sales for new crop.
