Something of significant note just occurred in the global oil hierarchy.
According to a Bloomberg report filed on Wednesday afternoon (UK time), Saudi Arabia may be considering paying some outstanding bills to contractors using government-issued bonds.
Contractors, they added, would be able to hold bond-like instruments until maturity.
This is quite something, not least because paying your contractors with short-term bonds is not entirely dissimilar to paying them with IOUs. Read more
This is Joseph. He is a well known commodity forecaster.
Russian Railways halted grain deliveries to the Black Sea port of Novorossiysk this week, obstructing Russia’s return to global wheat markets after it ended an export ban, the FT reports. The railway said a “massive” backlog of grain wagons was clogging lines linking farmland to the port. Stormy weather had slowed vessels leaving Novorossiysk, adding to the back-up along the railway network. Russian farmers have raced to move grain to the seaport since July, when the government lifted a ban on exports imposed after a record-breaking heatwave and drought last year. Russia is expected to harvest 87m to 88m tonnes of grain this year, compared to just over 60m in 2010. SovEcon, the Moscow-based agricultural consultancy, forecasts that Russia will export 20m tonnes of grain in the 2011-12 crop year including 18m tonnes of wheat. Grain exports reached a near record 3m tonnes in August and are expected to continue at this level in September, SovEcon estimates. “Grain exports might slow down temporarily, but this is nothing extraordinary,” said Andrei Sizov Jnr, SovEcon managing director.
For corn traders, it’s time for a history lesson, says the FT. The price of corn touched a record high of almost $8 a bushel earlier this month, amid some of the tightest supply, demand and inventories fundamentals in recent memory. But if history is anything to go by, the rally may soon be over, bringing relief to emerging markets suffering from high food inflation, and lower prices to farmers. On the three previous occasions when the corn-wheat spread moved to a significant premium, the corn price suffered a hefty correction soon afterwards. So be warned.
Expectations for a sharp rebound in global wheat supplies were lowered on Thursday after an intergovernmental trading group said bad weather threatened key breadbaskets, the FT reports. The International Grains Council trimmed its forecast for the annual global wheat crop by 5m tonnes to 667m tonnes, citing “unfavourable weather”, especially in Europe and the US. Compared with tight stocks of corn, wheat inventories are still relatively comfortable. The price of the staple grain has risen 78 per cent in the past year, while corn has doubled. Yet in the US, the top wheat exporter, a drought has hit the winter wheat crop while farmers planting this spring have been delayed by sodden fields. France, Germany and other European producers are also suffering from dry weather.
An interesting, vaguely Easter-themed chart by Barings Asset Management, via Paul Mason’s Idle Scrawl blog:
The cost of a loaf of bread in the UK is set to rise this month, fuelling domestic inflationary pressures, after wheat prices hit an all-time high, the FT reports. Industry executives and traders have quietly told wholesale consumers, such as bakers and pasta and biscuit producers, to expect price increases over the next two to three weeks, following a round of hikes in October and November. The warning came as the cost of UK wheat hit a nominal record high in the London market on Tuesday at £203.30 per tonne, up 90 per cent over the past year and above the previous peak of £197.50 a tonne set in September 2007. Wheat prices have risen after a drought triggered a crop failure in the Black Sea region of Russia and Ukraine. Production was also lower than expected elsewhere.
Corn prices have surged as expectations of a drastic shortfall in crop production raised fears of a repeat of the global food crisis of 2007-2008, according to the FT. Corn gained as much as 8.5 per cent on the Chicago Board of Trade, triggering a limit that halted trading, after a sharp government downgrade of harvest expectations last week. Wheat, soyabeans and cotton also surged. The US Department of Agriculture on Friday cut its outlook for corn yields in the US, the world’s main exporter of the grain, by the most in decade. It’s a curious story, FT Alphaville writes — at issue here are 300 million bushels of corn, which the US added to its statistics, and has now removed again, leading more than a few traders to question the future credibility of the report.
Russia announced a 12-month extension of its grain export ban on Thursday, raising fears about a return to the food shortages and riots of 2007-08 which spread through developing countries dependent on imports, reports the FT. The announcement by Vladimir Putin came as the UN’s Food and Agriculture Organisation called an emergency meeting to discuss the wheat shortage, and riots in Mozambique left seven dead. The unrest in Maputo, in which 280 people were also injured, followed the government’s decision to raise bread prices by 30 per cent. Police opened fire on demonstrators after thousands turned out to protest against the price hikes, burning tyres and looting food warehouses.
Weather forecasters have warned that the drought that has devastated at least one quarter of Russia’s grain crops this summer is threatening to prevent sowing of next year’s crops, the FT reports. Russian grain exports are expected to fall to between 2m tonnes and 4.5m tonnes this year from just over 22m tonnes in the 2009, the Russian agriculture ministry said on Thursday. Exports could be even lower if the grain crop falls below the government’s latest 60m tonne forecast. Wheat accounted for about 80 per cent of Russia’s total grain exports after a bumper harvest last year earning about $2.7bn of revenues.
Russia’s record heat wave may already have taken 15,000 lives and cost the economy $15bn – equivalent to 1% of its economy – in lower agricultural output and reduced industrial activity as fires and drought ravage the country, reports Bloomberg. Meanwhile, the FT reports that the Australia’s official agricultural forecasting body estimates the country’s wheat harvest will rise 2% from last season to yield 22.1m tonnes, despite patchy rain and fears of a locust plague.
Patchy rain and fears of a locust plague are threatening Australia’s wheat crop just as the world needs all the supplies available to meet the shortfall left by Russia’s grain export ban, reports the FT. Yet farmers in the world’s fifth-largest wheat exporter have had reason to be more optimistic in recent days. Just in time, Western Australia, a state accounting for close to 40 per cent of the country’s cereal production, is forecast to receive rains that are likely to preserve crop yields in some of the driest parts of the state. The Australian Bureau of Agricultural and Resource Economics, an official forecasting body, estimates the harvest will yield 22.1m tonnes, up 2 per cent from last season.
It seems like the grain puns — and Russian export ban — only started yesterday, but the world’s month-long wheat price crisis is already starting to affect inflation indices.
And that means an impact on bond markets everywhere from European linkers to foreign holdings of emerging-market debt. Read more
The price of barley, a key feed grain for Europe’s livestock industry, has more than doubled in six weeks amid the drought in Russia, which last week banned grain exports, and Ukraine, adding fears of rising meat and poultry prices to concerns about soaring wheat prices, reports the FT. European feed barley has risen to €210 a tonne, up 130% from €90 a tonne in mid-June. FT Alphaville examines how other grains have tracked wheat’s recent rise, while the WSJ reports that many wheat farmers must decide in the next few weeks whether to plant more wheat to take advantage of rising prices.
It could have been very bad for the world’s largest commodities trader. But if you thought for a moment that the escalating wheat crisis might hit the middle-men in the hot seats of the global grain trade, think again, says FT Alphaville. While consumers, producers and food industry processors of wheat are grappling with price increases of as much as 90 per cent in just three months, one big winner so far in the grain crisis is none other than Glencore, the privately-owned Anglo-Swiss trader, and some other multinational commodities traders. Read more
Russia on Thursday imposed a ban on grain exports amid a severe drought and wildfires across the country, triggering panic in commodities markets and sending wheat prices to their highest since the 2007-08 global food crisis, reports the FT. The ban, effective within 10 days, caught traders and food producers by surprise and drove up prices of wheat and other crops including barley and corn. The NYT adds that Moscow’s move also followed lobbying by multinational grain traders caught by pre-crisis contracts.
The prices of everyday staples such as bread, flour and beer are set to rise sharply after Russia imposed a ban on grain exports, triggering panic in commodities markets and sending wheat prices to their highest since the 2007-08 global food crisis food crisis, reports the FT. The move, which caught traders and food producers by surprise, pushed the price of wheat to its highest in two years and evoked memories of the last time the then Soviet Union suffered a catastrophic crop failure in 1972. Prices of other crops including barley, corn and rapeseed, also jumped sharply.
Traders at Glencore, the world’s largest commodities trader, have urged Moscow to ban grain exports to allow companies to renegotiate contracts, in the starkest sign yet of the severity of the crop failure in Russia and surrounding regions, reports the FT. The call highlights concern among trading houses about fulfilling grain contracts amid rising prices and scarce supplies. FT Alphaville sees a potential wave of agricultural-related M&A emerging from the grain crisis.
The most well-known wheat crisis to date is the 1972 “Great Grain Robbery,” in which the Soviet Union combated a catastrophic drought that depleted their wheat supply by buying all the available surplus of wheat in the United States. This Soviet spending spree triggered food price hikes worldwide.
Now, we may be facing a similar situation. Russia is experiencing the worst drought in over a century, and consequently farmers have not been able to harvest wheat. This shortage has caused the price of wheat to skyrocket, rising briefly above $7 a bushel Monday, the highest price since September 2008, when low supplies of grain caused a worldwide food crisis. Read more
One man’s famine is another man’s feast — though in this case, it looks like many of us will have to take another look at the Atkins (gluten-free) diet. With soaring demand from key regions of the world and supply problems such as Russia’s drought and India’s grain storage crisis, wheat is rapidly becoming the “gold” of the grain markets. Prices have seen the biggest one-month jump in more than three decades. FT Alphaville has a round-up. Read more
Wheat prices have seen the biggest one-month jump in more than three decades on the back of a severe drought in Russia, prompting warnings by the food industry of rising prices for flour-related products such as bread and biscuits, the FT reports. Food executives are also warning about surging prices for feeding and malting barley, which could drive up retail cost of products from poultry to beer. The drought could continue through August, reports Bloomberg.
In case you missed it, the Independent’s Johann Hari has done a Matt Taibbi – yes he of Vampire Squid fame.
But this time the author doesn’t just accuse the bank of gross financial manipulation, he accuses the institution of single-handedly starving millions around the world 2006 onwards. Read more
The thinkers over at Bespoke have produced some nifty charts showing ten major commodities, ranging from gold to oil to frozen concentrated orange juice.
According to Bespoke, while gold is all the range, the charts show oil has “basically gone nowhere” over the past two months, while natural gas has broken out of its long-term downtrend.
Here are two of the charts, the rest are over at the Bespoke blog: Read more
Earlier in the week, commodities analysts at BarCap were rather bewildered by data showing the Chinese are now importing substantially small quantities of wheat and soya and copper?
Well, the BarCap analysts have now got it together. The bull case remains on track! After a two day hiatus, the commods team are back with the BarCap programme: Read more
You know how China has bolstered hopes for global growth, with its command-stimulus programme sucking in raw materials, supporting commodity prices and generally making the world feel better?
Well, it’s over. Read more
Petromatrix’s Olivier Jakob evaluates CFTC weekly trader data on a regular basis, and one thing he was quite looking forward to analysing was the liquidation of Deutsche Bank’s exchange-traded-note — the PowerShares DB Crude Oil Double Long (DXO). Analysts expected the liquidation would flood the curve with up to 11,750 futures contracts.
Yet, as Jakob points out in a recent note, the latest data fails to account for any such liquidation at all (our emphasis): Read more
As has been well-publicised, the Commodities Futures Trading Commission (CFTC) is considering increasing position limits in energy commodities trading, on the perception that large speculative inflows may have contributed to last summer’s epic oil price-moves.
Whether speculators were indeed to blame, however, is still being hotly debated — as, for that matter, is the question of how effective position limits on non-commericial entities might actually be in curbing volatility. Read more
There’s been a spate of commotion this week in the world of commodity ETFs, or ETPs (exchange traded products) as they are fast becoming known.
It comes in the shape of a CFTC ruling that resulted in two Deutsche Bank PowerShares commodity funds, with a total of $5.8bn of funds under management, no longer being eligible for position-limit exemptions in wheat and corn. While this sort of action wouldn’t surprise followers of the ETP-effect story in energy markets, the agricultural markets have been caught a touch unaware by the move. Read more