The Asian flu hanging over North American stock markets is infecting commodity markets too.
In the past six months, the currencies and buying power of South Korea, Indonesia, Thailand, the Philippines and Malaysia have taken a nose-dive, dropping by as much as 70 percent.
Prices at the Chicago Board of Trade have moved lower, anticipating less demand from the so-called Asian tigers.
“The Asian situation has knocked some of the fundamental props out from many commodity markets,” said analyst John DePutter, who gives markets advice in the Wild Oats newsletter.
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“The capability of these nations to buy our products on credit has been severely reduced. So this is no small issue for commodity markets,” he said.
Pork, coarse grain and wheat markets are expected to be most affected by the currency collapse.
South Korea is an important market for meat. The Canadian Pork Council is forecasting a difficult year partly because South Korea won’t be able to afford pork in the near term.
But the Canadian Beef Export Federation says strong sales to Japan may outweigh the tough market in South Korea.
“When it comes to base foodstuffs, Japanese consumers are wealthy and have not experienced a major erosion in their buying power. They want to eat, can eat and have the money to eat and Canadian beef in Japan is a cost effective alternative high quality beef,” said Ted Haney of the export federation.
The relative weakness of the Canadian dollar versus the American dollar also is an advantage in export markets.
But South Korea is in such a crisis, Haney expects no beef to be imported there from any country in the first quarter and shipments to resume later on an as-needed basis.
The federation had hoped to sell South Korea 7,200 tonnes of beef in 1998, an increase of about 20 percent over a record-setting 1997. It now expects to hit the target in 1999.
A canola trader with Xcan Grain Pool Ltd. said he thinks the financial crisis will not have a major influence on canola markets because the countries with problems don’t import seed.
“If, however, the whole region collapsed, and the whole oilseed and grain markets collapsed, then frankly the canola would collapse,” said Joachim Toens.
Civil unrest in palm oil-exporting Indonesia could support canola prices, he added.
Nolita Clyde, a canola analyst with Statcom Ltd., explained the countries will likely first reduce meat consumption and import less protein meal.
Significant importers
South Korea, Thailand, the Philippines, Malaysia and Indonesia account for about 15 percent of U.S. soybean exports, said Clyde, and 11 percent of total world soybean exports.
“That’s pretty serious,” she said.
“What that might do is that the U.S. soybean crush may decline a bit. It may not be as strong as it would have otherwise been.”
This could reduce U.S. soybean oil stocks and that would drive higher the price of canola, which is crushed primarily for its oil.
Clyde also noted lower demand for meat could reduce U.S. domestic demand for soybean meal used in livestock feed, also curbing the crush.
Unless the Asian currency problems lead to worldwide deflation, Toens believes canola markets are close to their lows.
On Jan. 8 last year, March canola closed at $400.50 per tonne in the face of increasing world stocks. This year, it closed about $25 lower despite the fact the Canadian dollar is lower than it was last year and world stocks of canola are decreasing, said Toens.
DePutter believes traders will shake off the Asian flu in spring as they turn attention to weather conditions in the northern hemisphere.
Because of reasonably tight world stocks in most grains, poor weather could force markets sharply higher with or without interest from Asian customers, he said.
“The farmer who’s out there trying to make decisions is not going to have it easy, but one way to make the decision process a little easier is to maintain a long-term perspective here, and also to make sales in increments.”
