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News Flash – March 20, 2014


Drought Fuels Palm-Oil Rally

Abnormally dry weather in Malaysia and Indonesia could curb production of the palm oil. Together, the two countries account for more than 85% of the world’s palm-oil output, and the threat of lower supplies last week pushed futures prices to the highest level in 18 months, 2,912 ringgit ($888.80) a metric ton on the Bursa Malaysia Derivatives Exchange. “We’re in the middle of a weather market,” says Kona Haque, head of agricultural research at Macquarie. The dry weather appears to be hampering the growth of palm fruit, from which the

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oil is pressed. In 2014’s first two months, Malaysian production totaled 2.8 million metric tons, 3.9% below the level in the corresponding 2013 stretch. Adding fuel to the price rally is talk of an El Niño, a warming of Pacific Ocean waters, which could extend the dry spell in Southeast Asia. This month, the U.S. government-run National Oceanic and Atmospheric Administration issued an “El Niño Watch,” although it said it was too early to tell whether the phenomenon would materialize. “Then you have a more serious issue,” said Michael McDougall, a senior vice president at brokerage Newedge, referring to the possibility of an even longer drought. Demand is also on the rise and the U.S. Agriculture Department expects global consumption of vegetable oils to reach a record 164.6 million metric tons this season. Palm oil, the most widely produced vegetable oil, will account for more than one-third of that. Another source of demand is the biofuel industry. Like sugar, palm fruit is used to make a fuel that can be blended with gasoline. Indonesia, a major biofuel consumer, has raised the minimum amount of biofuel content in diesel, and Malaysia is expected to do the same. However, the recent gains could lead consumers to buy competing products, such as soybean or rapeseed oil. Soybean oil would become especially attractive if prices slide when Brazil brings in its harvest. The nation is the second-largest soybean grower after the U.S. and is expected to reap a large crop. “There is a lot of soybean oil about to enter the market [with Brazilian] production,” says Sterling Smith, a futures specialist at Citigroup. Another potential obstacle for a continued rally is the threat of less robust Chinese demand. Many were did not predict such slow growth from one of the world’s largest raw-materials consumers. China is the world’s second-biggest importer of palm oil after India. In the short term, weather reigns supreme. Prices are expected to slips here and there in palm-oil prices, due to some rainfall, profit-taking, and competing oils. But if it looks as if El Niño will appear, the threat to palm-oil production is likely to lift prices a bit more, to above MYR3,000 a ton. Barrons



Ethanol Prices Surge as Rail Problems Cut Supply

U.S. ethanol prices are surging, as supplies shrink amid transportation constraints. A bitterly cold winter and rising crude-oil shipments have caused railroad traffic to back up in the Midwest, where most U.S. ethanol is made, using corn grown in the region. The logistical problems are preventing the biofuel from reaching the coasts, where refiners mix it with gasoline or it is exported. At the same time, demand from buyers such as Canada and the Philippines has remained robust because Brazil, the second-largest producer behind the U.S., is exporting less ethanol while it uses more of the biofuel, analysts said. In November, the U.S. exported nearly two million barrels of ethanol, the most since March 2012, according to the latest data from the U.S. Energy Information Administration. With rail capacity limited and demand still strong, U.S. stockpiles of ethanol are dwindling. Inventories fell 700,000 barrels in the week ended March 7 to 15.9 million barrels, the lowest level for any week in March, according to EIA data going back to 2011. To compensate, the industry plans to increase production. The industry is also watching the U.S. Environmental Protection Agency, which in November proposed reducing its mandate for ethanol blending in gasoline. A final rule has yet to be announced. A reduced mandate would hurt ethanol demand, but producers say they could handle the hit because they expect feedstock costs to stay low. Wall Street Journal


U.S. ethanol production climbs in December

U.S. ethanol production was the second highest on record in December 2013, the most recent month for which data was available from the U.S. Department of Energy (DOE).
Production totaled 1.235 billion gallons in December, second only to 1.248 billion gallons in December 2011, according to DOE data released by the U.S. Department of Agriculture on March 13. December 2013 output was up 5% from November 2013 and was up 13% from December 2012.For the calendar year, 2013 ethanol production was the second highest on record at 13.312 billion gallons, up less than 1% from 2012 but down 4% from 13.929 billion gallons in 2011.The USDA estimated 4.648 billion bushels of corn, or about 43% of 2012 corn production, was used to produce ethanol in the marketing year 2012-13 (ended Aug. 31, 2013), down from 5 billion bushels in 2011-12 (40% of the crop). The USDA projected 2013-14 corn use for ethanol also at 5 billion bushels (36% of the crop). World Grain News



Corn Falls as Ukraine Shipments Seen Rising to ’14 Weekly Record

Corn futures fell the most in a week in Chicago on signs that escalating political tensions haven’t slowed exports from Ukraine, the world’s third-biggest shipper. Soybeans also rose. Ukraine loaded close to 700,000 metric tons of corn last week, according to Paris-based farm adviser Agritel. On March 11, Agritel said the Eastern European nation exported 480,000 tons in the prior week. A Chinese feed processor bought more than 50,000 tons from Ukraine, and shipping isn’t expected to be disrupted, said a purchasing manager at the mill. Bloomberg News



Demand news sends soybeans skyward

Soybeans rose to the highest price in more than a week on signs of strong demand from both domestic processors and overseas buyers of U.S. oilseeds. Corn also gained. The U.S. Department of Agriculture said it inspected 939,738 metric tons of soybeans for overseas shipment in the week that ended on March 13, and domestic processors’ crush rate, or the rate at which they process the oilseeds, was 141.6 million bushels, topping analyst forecasts of 138 million bushels, the National Oilseed Processors Association said in a Monday report. Corn gained on signs of strong demand for the grain after the USDA said it inspected 976,742 metric tons in the week through March 13, up 4.3% from the prior week. Wall Street Journal


Soybeans Rise On Strong Exports, Old Crop Wheat Sales Slip

Soybean futures pushed higher on Thursday as USDA’s weekly export sales of 23.5 million bushels topped expectations, with China the largest single buyer taking 8.93 million bushels. The 23.5 million was largely new crop, with 7.43 million in old-crop business. Indonesia and Portugal led old-crop buyers, while Indonesia also took some new-crop. Futures push higher on USDA’s weekly export sales data. Corn net sales of 29.36 million bushels was all old-crop, up 9% from the previous week on that comparison, but with no new-crop sales, total business was down from the previous week’s 31 million total. Buyers were led by Colombia, which included a switch from unknown destinations, and Japan, South Korea, China and Egypt. Exports appeared to have little impact on Chicago corn futures, with the numbers coming in close to trade estimates. Corn futures remained lower. The market lacked major news to guide trading, with U.S. spring planting still a few weeks away and USDA’s planting intentions report due March 31.Soymeal export sales of 242,900 tonnes in old-crop were up 52% from the previous week, with Asia and Latin America the top destinations. Year to date commitments are 5% over last year. Adding in new-crop sales of 244,000 tonnes put the week’s total business at 486,900, which cheered Chicago traders who bid soymeal futures higher. Farm Futures



Swede midge threat looms over Manitoba canola crops

The Swede midge is the newest pest threatening the canola crop. It’s a voracious mosquito-like bug that can wreak havoc with your canola yields. It was first found in North America in 2000, and has appeared in low numbers in Manitoba in 2007 and 2013, said Julie Soroka, a Saskatoon-based entomologist with Agriculture and Agri-Food Canada. The Swede midge can go through as many as five generations in a single growing season and overwinter in the soil anywhere in Canada where canola is grown. The insect thrives in wet weather. The males only live for a day, but the females can survive for a few days — long enough to lay a few hundred eggs on the growing points of plants such as leaves, buds and flowers. The minuscule sap-sipping larvae do the most damage, but it depends mainly on when they start feeding. Swede midge is nearly impossible to control chemically. Adults are weak fliers, but they are often blown in from other areas. Also, because they only live for a few days, detection and spraying effectively is very difficult. Once in the pupae stage in the soil, there’s no effective solution, said Soroka.“Canola is susceptible for a long period of time. It’s not like wheat, where once wheat has passed the growth stage, the midges are gone,” said Soroka. Early seeding helps the canola to get a head start on the bug and heavier seeding rates may offer a dilution effect. In Sweden, farmers have learned to cope with the bug by working together. By synchronizing their cropping plans, and only planting canola once out of every four years, they find that it can be outmaneuvered, she added. The good news is that the bug can’t thrive under dry conditions, but the bad news is that it can hang around for another year. The situation has been worsened by the fact that the pest has no native predators. Manitoba Cooperator


Canola Lower With Speculative Profit Taking — ICE Canada Review

ICE Futures Canada canola contracts were down sharply Thursday, as the speculative fund accounts that caused a recent rally in the market took profits, analysts said.

Spillover pressure from the sharply weaker Chicago soyoil futures also helped to fuel some of the downward price action. A recent pickup in farmer selling added to the bearish tone, as did the large Canadian canola supply situation. However, weakness in the Canadian dollar, as it remained below 89 U.S. cents, helped to limit the losses, as did steady commercial demand. About 40,576 canola contracts were traded Thursday, which compares with Wednesday when 27,841 contracts changed hands. Spreading accounted for 27,038 of the trades. Settlement prices are in Canadian dollars per metric ton. Wall Street Journal