Linked In
News In
Linked In

You are viewing your 1 complimentary article.

Register now to receive full access.

Already registered?

Login | Join us now

How far will crops rally? Two deciding points

Twitter Linkedin eCard

If food commodity buyers think things can not get any worse after US officials gave tight markets a further squeeze, they need to think again.

Certainly, the ream of fresh crop estimates that the US Department of Agriculture came out with on Wednesday contained an unexpectedly large dose of bad news for those hoping for a drop in farm commodity prices.

But that does not mean all the pain is out the way.

There are at least two factors which could turn the screw further on the world's crop supplies.

More weather

The first is the La Nina.

Sure, Argentina has seen some relief to the dryness being blamed on the disruptive weather phenomenon. But not enough to think that the USDA's cuts to its estimate for the country's corn and soybean crops are the last.

The weather pattern, which has a long list of South American droughts to its name, looks like hanging around a few more months yet.

Many local analysts have already downgraded their Argentine crop forecasts to levels well below those the USDA is factoring in.

And smaller Argentine crops mean even more pressure for America's strained supplies.

Urge to hoard

The second threat is more controllable but, alas, probably more dangerous. And that it is politics.

It is a natural reflex for governments to respond to food shortages by ramping up imports or closing down exports. And such action can, indeed, be justified at times.

But every tonne of crops stockpiled or hidden behind export barriers shrinks the pool available to buyers, besides blunting the incentive for domestic farmers to grow more.

It is the popularity of hoarding and export bans which may determine whether prices in the current rally reach the same levels as those in the last.

The 'where' factor

After all, supplies of many crops are not, on paper, too bad. Stocks of wheat, for instance, are hardly low on a global basis, and forecast by the USDA to end 2010-11 at 27% of use. That number fell below 20% before prices spiked last time.

Rice inventories are, at a forward 32% of consumption, historically high, and rising.

But the problem from a buyer's point of view is that so much is out of reach. China which effectively participates in raw materials markets only as a buyer, is expected to hold more than one-third of the globe's wheat stocks at the end of 2010-11, and nearly half of the globe's rice stocks.

And it is ultimately the "where" which matters more in crop pricing than the "how much".

In 2007-08, the rice price tripled despite supplies being their loosest for four years, and on track to relax still further, because a series of exporters from Burma to India to Vietnam banned shipments, despite healthy domestic supplies.

These curbs forced importers to chase prices higher to secure the limited supplies still available.

Export curbs

There are already signs of governments getting edgy again.

India, worried about food inflation, is wavering over allowing 500,000 tonnes of sugar exports and reportedly may exports of wheat products too. This at a time when its wheat inventories are, at 21.5m tonnes, way above a target of 8.5m tonnes.

Ukraine has kept tight caps on grain exports despite, at more than 40m tonnes, appearing to have more than enough for its own needs, of some 25m tonnes – a decision questioned today by Eugene Leng, chief executive of farm operator Ukrzernoprom Agro.

Fortunately, from a consumer's perspective, there has been some relaxation in policies too, with Pakistan resuming wheat exports for the first time in three years.

For a guide on price movements, food markets should keep an eye on this balance, between the hoarders and the liberalisers, as well as on crop balance sheets.


Twitter Linkedin eCard
Related Stories

Evening markets: Ags drop as funds swap sides, befriending bears

The Bcom ag subindex closes back below its hard-won 200-day, amid talk of fund selling in both grains and soft commodities. Soybeans escape

Adecoagro downplays losses to Argentine drought - even as exchange slashes crop forecasts

Adecoagro sees only limited damage to its corn and soybeans from drought - which the Rosario exchange sees as having slashed Argentina’s overall crop prospects

Weekly grains and oilseed market view from Europe, March 16

Confused UK wheat market messages... importance of Black Sea weather... as EU set for another cold turn... slow EU rapeseed imports...

Morning markets: Soybean futures extend gains, but cotton 'ignores' bullish signals

Cotton futures ease despite what would appear bullish data, including on US exprots. Still, corn futures ease despite upbeat US export statistics too
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© 2017 and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of AgriBriefing Ltd
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069