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News Flash – March 6, 2014


Brazil Drought Jolts Commodities’ Prices

Brazil’s worst drought in decades is decimating crops but giving some battered commodity markets a chance. Rain has been scarce in the country’s top farming regions since the start of the year, a period when precipitation is usually the heaviest. Traders, analysts and government forecasters who called for record harvests of soybeans as recently as December, have reversed their opinions and are cutting production estimates, triggering a spike in futures. Futures prices for soybeans, which have been affected by drought in some areas and too much rain in others, are up 8%. In February, agricultural consulting firm Safras & Mercado cut its estimate of Brazil’s soybean production to 86.1 million metric tons, down 6.2% from a month earlier. Commodity-trading firms and Wall Street analysts had projected that the current season’s soybean output in Brazil would be larger than the U.S. crop for the first time. Now, many market experts think that isn’t likely. The extreme weather could also sap the potential of the upcoming crops. “You have to worry — is it too dry to plant corn and cotton and the next crop of soybeans?” said Kona Haque, commodities strategist at Macquarie Bank in London. “Arguably it is, and that’s brewing further concerns for later in the year.” Wall Street Journal


Ukraine’s importance in major grain, oilseed global trade

The international grain markets are very sensitive to the growing significance of the Ukraine in meeting global demand needs for a variety of grains and oilseeds. Following weekend developments that included the insertion of Russian troops into the Ukrainian region of Crimea, grain and oilseed prices have surged higher. Soybean oil has experienced the highest gain. The Ukraine is the world’s number one exporter of sunflower oil. The grain trade is casting a wary eye to the stability of the Ukraine and its ability to meet expected export trade commitments for major grains and oilseeds. Pork Network


SoyCheckoff harnesses industry to combat herbicide-resistant weeds – U.S. agriculture takes action to promote production practices to manage these costly weeds

University of Wisconsin researcher, Vince Davis, estimates that herbicide-resistant weeds cost U.S. farmers 2 billion dollars each year. To help fight this loss, the soy checkoff recently took the lead in creating the Take Action program to help farmers implement production practices on their farms that can manage herbicide-resistant weeds. Universities, trade associations and herbicide providers have all joined the effort, and all are promoting a unified response to this problem. SEEDQUEST



Ample global oilseed supplies to dent palm oil rally: Sources

Bumper global oilseed supplies could reverse a recent rally in palm oil prices that has been triggered by crop damaging dry weather in top producers Indonesia and Malaysia, analysts and traders said on Monday. The countries, which account for 85% of the global palm oil output, have been hit by extremely hot and dry weather, which has threatened yields and increased benchmark prices to a 17-month high this week. Output of rival soyoil should see a spike, with Brazil – which is expected to emerge as the world’s top soybean exporter this year on track for a record crop of 90 million tonnes, according to the USDA, up from 82 million tonnes a year ago. Argentina’s soybean output is seen climbing to 54 million tonnes this year, compared with 49.3 million tonnes in 2013. Among other oilseeds, Canadian canola stockpiles reached a record 12.6 million tonnes as of Dec. 31, up 55.3% from a year ago, a Statistics Canada survey in February showed, as an unprecedented crop and logistics problems left more of the oilseed on farms and elevators. Economic Times


Palm Oil May Top 3,000 Ringgit for Mistry If El Nino Occurs

Palm oil may extend an advance from the highest level since 2012 if an El Nino parches crops in Southeast Asia this year, according to Dorab Mistry, director at Godrej International Ltd. Prices may approach 3,500 ringgit ($1,070) a metric ton should the event hurt production from late 2014, said Mistry. Futures would “cling” to 3,000 ringgit beyond June under that scenario, he said. If rains come as normal and the high production cycle starts from July, prices will trade from 2,600 ringgit to 2,900 ringgit from July to October, he said. The prediction coincides with a rally in everything from corn to coffee and sugar as dry weather threatens crops in Brazil, potentially increasing global food inflation. The surge in palm futures would weaken demand for the oil in biodiesel, said Mistry, who in November correctly forecast that futures would trade from 2,600 ringgit to 2,900 ringgit through March. “In the event that an El Nino develops, I believe CPO futures will cling to 3,000 ringgit beyond June. Production is likely to be affected from late 2014 onwards and we may be staring 3,500 ringgit. We shall kill all discretionary biodiesel demand.” Dry weather in Malaysia and parts of Indonesia is already threatening to curb supply of palm oil just as demand in biodiesel increases. Michael Coleman, who helps manage the $143 million Merchant Commodity Fund in Singapore, said on Feb. 25 that prices may advance to 3,000 ringgit within four months as traders anticipate the impact of dry weather on production. El Nino can shrivel crops in Indonesia and Malaysia, which account for about 86% of global production. While inadequate rain generally hurts palm supplies nine to 18 months later, prices move in advance, according to Coleman. A low-production cycle that started in February 2013 turned out to be more severe than anticipated and may only end in May, with a new high-output cycle beginning in June, said Mistry. If the dry spell ends next week and rainfall is normal for the rest of the year, Malaysia may produce 19.5 million to 19.7 million tons of crude palm oil in 2014, he said, reiterating a November forecast. Output was a record 19.2 million tons last year, data from the palm oil board show. Indonesian output will expand by 3 million tons to 30.5 million tons in 2014 from 27.5 million tons last year, with most of the growth coming in the last quarter, Mistry said. “I must caution you this may turn out to be an optimistic figure if the current dry weather does not end very soon,” said Mistry. “If this dry spell prolongs or a new El Nino develops later this year, all forecasts of CPO production and price will have to be revised.” Indonesia’s biodiesel mandate is a “game changer” and will keep palm prices relatively high for a long time, said Mistry. Biodiesel capacity will need to be expanded, requiring producers to lock in prices at least one year in advance, limiting the availability of freely tradeable oil and needing much larger stocks to be maintained, he said. While the mandate in Indonesia can absorb 3.1 million tons of palm, the country may consume only 1 million tons of extra oil in 2013-2014, he said. About 2.4 million tons will be used this year, less than the target of 3.4 million tons, according to Fadhil Hasan, executive director of the Indonesian Palm Oil Association. Southeast Asia’s biggest economy increased the blending rate to reduce import costs and narrow the current-account deficit. Global cooking oil demand will probably increase by about 6.5 million tons in the 12 months from October 2013, while supplies are set to expand 6.8 million tons, said Mistry. “Until July, world vegetable oil stocks and particularly palm oil stocks will remain very tight,” he said. Soybean oil futures will gradually climb to 47 cents a pound in Chicago, Mistry predicted. Sunflower oil may trade at a premium of between $30 to $100 a ton over soybean oil until August, he reported. Bloomberg




Corn Retreats as Investors Weigh Ukraine Concern, Supply Outlook

Corn extended a drop from a six-month high on speculation global supplies were ample and exports from Ukraine, set to be the third-biggest shipper, will be unaffected by Russia’s military intervention in Crimea. The contract for May delivery lost as much as 0.5% to $4.795 a bushel on the Chicago Board of Trade and was at $4.805 in Singapore. Prices climbed to $4.88 yesterday, the highest since Sept. 3, before closing 0.5% lower. Futures will climb 3.7% this week. European Union leaders will meet today to discuss sanctions for Russia’s incursion in the Black Sea region after the country fended off a U.S. effort to ease tensions. Odessa and four other Black Sea ports, which handle 87% of Ukrainian grain exports, are a long way from Crimea and shipments are unlikely to be disrupted, according to Morgan Stanley. World corn output will reach a record in 2013-2014, the U.S. Department of Agriculture estimates. “Markets are pretty well supplied, so it’s not like you’re hurting,” Ivan Szpakowski, commodities strategist at Citigroup Inc., said. “If you do see a sustained difficulty exporting, then that will impact corn,” he said, referring to shipments from Ukraine. Black Sea port and shipping operations were mostly normal, according to Western Bulk ASA, which runs 120 commodity vessels. Ukraine may export 18.5 million tons of corn in 2013-2014, placing it behind the U.S. and Brazil, according to the USDA. Global production will reach 966.6 million tons this year, while stockpiles will total 157.3 million tons, up 17 percent from a year earlier and the highest since 2001, USDA data show. Bloomberg



Soybean market reenters volatility phase with limited supplies

Strong export sales and limited supplies took soybean bids higher ahead of the 2014 growing season. On Feb. 27, USDA released weekly export sales data for soybeans indicating new sales of 327,700 metric tons (12 million bushels) for the 2013 marketing year and another 315,200 metric tons (11.6 million bushels) for 2014 soybeans. Cumulative U.S. soybean sales reached 106% of the USDA’s forecast compared with a five-year average of 85%– for this point in the marketing year. That suggests that the U.S. 150-million bushel soybean carryout may move lower. Farmers will need to watch the World Agricultural Supply and Demand Estimate report released on March 10 to see if USDA lowers the 2013 carryout. At the Ag Outlook Forum on Feb. 20, USDA economists forecast 2014 U.S. soybean acres at 79.5 million acres – up 3 million acres from 2013. The USDA will release their first survey-derived Prospective Plantings report on Monday, March 31.The USDA’s initial forecast surprised traders who had expected as much as 5 or 6 million additional acres of U.S. soybeans in 2014, said Rich Nelson, director of research at Allendale, Inc. On the CME Group exchange, soybean contracts on Feb. 28 traded with May at $13.86, July at $13.595, August at $13.06, September at $12.105, November at $11.50 and January 2015 at $11.53 per bushel. Compared with prices on Feb. 14, May was 60.5 cents higher, July was 51.5 cents higher, August was 47 cents higher, September was 28.5 cents higher, and November was 19 cents higher. At one elevator in west central Minnesota followed in this column, cash soybeans on Feb. 28 were $13.16 per bushel with a basis of 70 cents under. Compared with a bid of $12.70 on Feb. 14, the price was 46 cents higher, and the basis had widened by 15 cents. South America has experienced some soybean production and logistical challenges that have made U.S. soybeans more desirable to China. Nelson noted that the number two state of Parana in Brazil has lowered their soybean production estimate by about 2 million tons (73 million bushels). In addition, a portion of the main road out of Mato Grosso, Brazil’s top soybean state, recently washed out. “We are taking off estimates for Brazilian soybean production, and that was the initial phase of this rally we just had,” he said. On the bearish side of the market, Nelson pointed out that U.S. actual shipped soybeans for exports are at almost normal levels. Soybean supplies worldwide are also expected to increase. “We have a change in mentality for the Brazilian crop due to the Chinese buying, and due to the fact they are still buying from the U.S., even though we have a cheaper Brazilian price,” he said. In late February, U.S. soybeans at the Gulf of Mexico were about $560 per metric ton, which is 36.74 bushels ($15.24 per bushel) vs. about $520 per ton ($14.15 per bushel) for Brazil’s beans at the Port of Paranagua.“Our Chinese buyers are actually happily going after U.S. product, which is at a very clear premium,” Nelson said. “We do have a shipping advantage over Brazil – roughly $10-$15 (per metric ton – 27 to 40 cents per bushel) cheaper freight. “Let’s make the point very clear, the Chinese buyers are happily taking U.S. product, because they know they will be able to ship it out in time.” Nelson noted that the February soybean rally was based on solid fundamentals, but farmers must make wise decisions regarding when to make their sales of 2013 and 2014 soybeans. The Prairie Star


Soybeans Rally On More Bullish Export News

Soybeans rallied on Thursday, thanks to more data showing buyers continue to flock to the U.S. for supplies as production and logistics in South America get more complicated. USDA reported 37.8 million bushels of net new bookings in the latest week, including 28.4 million allocated to old crop. Year-to-date shipments plus outstanding sales are 7% above USDA’s forecast for the entire marketing year, which still has six months to go. That suggests government economists may be forced to raise their estimate of trade in the March 10 supply and demand report, tightening carryout to very low levels. The market rallied after the report hit the wires, posting double digit gains on the 7:45 a.m. break. Forecasts for more rain in Brazil’s key center-west region raise more fears of harvest delays, compounding trouble originating shipments due to transportation problems. China didn’t show up on the weekly tally sheet of leading buyers, except with cancellations. The biggest buyer of beans was attributed to “unknown destinations,” which traders often think is a euphemism for China. China was also listed in a negative way on the corn export highlights, as another load of corn was rejected for containing an unauthorized GMO trait. South Korea quickly took possession of that shipment, as sales were outstanding in the last week. The combined old and new crop total of 66.2 million bushels included just under 60 million allocated to 2013 production. Regular customers from Asia and the Americas were the leading buyers, led by Japan and Mexico. This week’s tally was completed before news that Russian military moved into Crimea last week. Today’s totals indicate that 93% of USDA’s forecast 1.6 billion bushels in sales are already on the books. Shipments, which were sluggish during the first part of the marketing year because soybeans dominated shippers’ capacity, also picked up to 44.8 million bushels.Farm Futures



Canadian canola futures rally on short covering

ICE Canadian canola futures rallied on Tuesday, supported by a round of short-covering after the market surged through key technical resistance points, traders said. The benchmark May canola contract gained 2.6% and closed above its 50-day moving average for the first time since late November. The market also found key technical support after May canola hit the 23.6% retrenchment point between its August high and February low, traders said. Gains in the US soybean market added to the bullish tone hanging over the canola market. March canola, which is in the delivery period and was thinly traded, gained $12.90 to $440.70 per ton. The May contract rose $11.70 to $448.90 per ton on volume of 13,165. May-July spread narrowed to July premium of $9.70, trading about 3,992 times. July-November, which traded about 3,609 times, narrowed by 50 cents to $16.50, premium November. NYSE Liffe Paris May rapeseed rose 0.44 percent. Canadian dollar firmed slightly on Tuesday as comments from Russia’s president that he saw no need to use military force in Crimea for now helped take some of the risk aversion out of the market. Reuters



Ukraine Troubles Lift Sunflower Oil Prices in India

The tensions in Ukraine are already being felt in India, disrupting the supplies of a  crucial oil to Asia’s third largest economy–sunflower oil. While Indian consumers so far haven’t been exposed to any direct impact from the crisis in Ukraine, commodities traders said that could change soon as the conflict is expected to increase the cost of sunflower oil. Ukraine is the world’s biggest the edible oil and India imports almost all of its sunflower oil from there. Sunflower oil is India’s second biggest imported edible oil after palm oil.“India is quite vulnerable to global prices as we are the largest importer and the effects of this crisis are now reflected in sunflower oil imports,” said Vijay Data, president of the Solvent Extractors’ Association of India, a leading industry body. Imports to India have almost doubled over the last five years on the back of rising incomes and health awareness.“The supplies of sunflower oil have become uncertain as many shipments are getting delayed,” said Faiyaz Hudani, associate vice president of research at Kotak Commodity Services Ltd. Prices in the wholesale market have already risen 10% to about 66,000 rupees per ton in the last month. It will take a couple of weeks before those higher prices are passed on to consumers.The supply interruption comes as prices of palm oil and soybean oil have been rising on concerns weather has hurt production in Brazil, Indonesia and Malaysia. Indians normally substitutes cheaper edible oils when there is a price rise, Mr. Hudani said, but now they will have no escape.“The Ukrainian crisis has added fuel to the already vulnerable situation,” he said. “Until the time the crisis ends, concerns will remain.” Wall Street Journal- India