Evening Comment – Wheat Corn Soybeans – 29/04/2015

Star of the day is the US Dollar. Falling star. The US Q1 GDP only up a shy 0.2% quarter on quarter has seriously disappointed FX markets. Business investment (-3.4%) is to blamed and government expenditures (-0.8%) are to ‘blame’ as well. EURUSD went up sharply, 1.10 was erased pretty quickly and rocketed above 1.11 and approaching the 1.12 figure. Risk off for the short.

 

Second on the headline is Russia. Russian rumor is back indeed with some actual news. Russian PM asked his agriculture minister to submit a proposal of removal for the wheat export tax as early as mid-May. All things equal, that’s a bearish news if officially confirmed, but at this stage, market in now clearly expect the tax to be voided early. SovEcon said that April export of grains, flours, and pulses will be only 1.3 million tons in April (-0.4MT from month to month). Fresh cash need to come in the country. 

 

On the US weather, still dry Corn planting is going really well. Maybe too much, acreage might increase and soybean acreage might decrease. Soybean Corn ratio is up again indeed. Still some light rains on wheat. So far so good then. Chicago wheat and corn up, certainly some short covering today on lower USD. Wheat is struggling to find a direction though, between the Russian news and the USD, it moved sideways but is currently green. Jordan bought 100,000T of hard wheat, optional origin, $215 C&F, shipment half Dec15 half Jan16. US Corn old crop have been sold to Taiwan for 130,000T.

Short on MATIF K5 are spreading heavily, the K5/U5 is widening again (+1 euros). It helped K5 to maintain itself in green territory but the higher EURUSD and the Russian news certainly did not help U5 who recorded its fourth bearish day in a row (-8.75 euros in 4 days).

 

Concerns are still there on influenza. A turkey processing factory in Willmar Minnesota had to reduce its operation to four days a week. They don’t have enough birds delivered. US Agriculture Officials are scared that the bird flu will hit other part of the country in fall, “highly probable” they say. The north of the US has been badly hit (14 states total) but it’s coming down to the south. Indeed, some reports say there are some new cases in Kentucky. Total death toll is 15 million. Wow, scary… Yes but once again, compared to the 9 billion birds produced a year it’s only 0.17% of the population. Probably not impacting as such the meal and corn demand just yet but if the pace of death increases… And we’ll see if consumers are finally scared of eating birds which could be more indirectly damaging indeed for the meal and corn consumption if farmers reduce their bird production.

 

It reminds me the article of Science in January 2004: “Global Assessment of Organic Contaminants in Farmed Salmon”. The conclusion of the study was convenient: US wild salmon was said to be much healthier than European Farmed salmon. Following the article, in France the consumption of salmon had collapsed 40% two weeks after the article was published even if the flaws in the study have been pointed in heavy communication from the European Food Information Council. Damage was there, consumer is easily scared on health and bottom line they decide what they want to eat. That being said, America would not go for a massive diet if they decide to reduce their poultry consumption, they’d switch to eating more meat and cattle need their meal as well. So most likely in a such event the demand of feed stuff would be transferred from birds to cattle. One could argue big animals eat more than birds and actually that would increase the demand from cattle feed supplier. But they rely much less on corn and soybean meals.

 

Palm Oil still sinking on higher production. Malaysia might produce 20.1MT in the new crop (+0.6MT) while the industrial consumption may print -0.18MT. Exports might come to the rescue (+0.4MT) but heavy fundamentals are bringing the market to multiple months low.

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