Here are a few tidbits I found particularly interesting from GrainWorld yesterday:
1) The Canadian Wheat Board’s malting barley market analyst for Australia and the Black Sea region, Arvin Pirness, said Greece’s grave fiscal problems, which are undermining the Euro and have helped it drop in value, may weaken European demand for durum. A weaker Euro equals more expensive durum, in a world already filled with durum.
2) Informa Economics’ Chuck Penner said farmers shouldn’t expect the flax triffid problem with Europe to go away soon. He said these sorts of GMO issues tend to take years, not months, to resolve. The long term danger is that Europeans could learn to live without linseed oil. Fortunately the Chinese are buying our flax, crushing it and shipping the oil to Europe.
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Worrisome drop in grain prices
Prices had been softening for most of the previous month, but heading into the Labour Day long weekend, the price drops were startling.
3) Penner also said farmers are likely to put even more acreage into lentils this coming season, and that’s scary for prices for the new crop.
4) Canadian Wheat Board commodity risk manager David Boyes said convergence problems with the Chicago winter wheat contract remain, but aren’t much of a practical problem right now. The prices still correlate with changes in the prices of wheat in cash market, so convergence of the contract with cash is less important than correlation with moves in cash. So, correlation matters more than convergence. There are a lot of Cs in those last two sentences.
5) Boyes also noted that “the funds” investing in agricultural markets are generally more of a positive than a negative. The constant holding of positions in ag markets by index funds creates a healthy level of continuing demand. I was glad to hear this, because I’m sick of everyone blaming the funds for everything that happens in the market that they don’t like. Later technical analyst David Drozd noted that market prices are in his view “exactly right” because every futures position has a willing buyer and a willing seller and therefore reflects peoples’ best assessments of the value of a commodity. Boyes humorously noted that he and his colleagues joke that market prices are, in fact, always wrong, which is why the markets change them every day. This got everyone, including me, laughing. That tells you what an odd crowd comes to GrainWorld, because 99 percent of normal human beings wouldn’t get that joke.
6) HSBC Bank’s Stewart Hall said his bank thinks the U.S. dollar has bottomed out and could be in for a sustained rise. But he suggested civilians – like farmers – not think they can easily play the currency trading game. That’s for pros. What should normal people do about their exposure to currency volatility like we’ve seen? Hedge. And that sounded about exactly right to me.
Now, back to the show for a breakfast commodity market outlook.
