Commodities | Jul 19 2012
By Jonathan Barratt
We continue to monitor the dry weather in the US. The main reason for this is the US is now the main purveyor of surplus exports of grain to the world. Any concerns here will have an important impact on the prices for grains and generally for food inflation around the world. Its not a pretty sight as the drought is now the worst seen since 1956.
Corn prices since 1st June are up 44%, wheat up 45% and soybean prices are at record contract highs. The market remains focused on the potential for rain in the mid west US, however as time marches on the chances of a recovery in yield also diminishes exponentially. The USDA has revised world coarse grain-ending stocks for 2012/13 to 12% lower than the predications at the beginning of the year.
Corn looks to be treading water trading just 20 cents off its most recent highs. The fact that the market has absorbed any profit taking suggests we have an overly anxious market. According to recent USDA quality reports, new season quality has dropped the most in 10 years and only 31% is rated as good to excellent. Technically, after a rally close to 44% since the beginning of June the market is consolidating.
We expect to see a push to the topside to either confirm a high or see it march on to new highs. Momentum indicators look toppy, however have not confirmed an extension to any consolidation.
A similar story for wheat unfolds. It is hoped that current weather cycles are showing more favorable results however this needs to be consolidated with some decent falls. One of the emerging issues is that since the 2011 drought in China, the world’s largest producer has curbed supply and ending stocks. Keep an ear out for any wheat import orders coming to China, as this this will be a sign of diminishing supplies.
Technically, we are trading at highs not seen since Feb 2011. Expect some resistance here before prices trade higher; we still have a way to go before prices reach the all time high of Feb 2008 at US1334.
Remains on contract highs. The high in Jul 2008 was US1730; we are currently trading at US1630 having been as high as US1680. It’s very hard to trade these markets at the moment. You need very wide stops. We do not have any positions.
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