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Middle Tennessee |
My posts have been sparse, as I’ve been intensely occupied making sure my bead on the market is true. Finally though, the numerous inquiries from places like Dalian, Rosario, Odessa and Kuala Lumpur became too urgent in their need to know my thoughts, and I’m forced to commit them to writing.
You may be wondering now if Ergot and Ambrosia is a lame pretentious attempt at humor in Latin, or perhaps a poem I have been working on recently. But ergot and ambrosia are fungi found in grain, and they have been in the news recently. (The sizable percentage of LKCW readers who show degenerate tendencies will be titillated to know that, according to Agrimoney, ergot is psychotropic). A couple weeks ago, Egyptian importers sealed a deal on wheat cargos, and refused to unload shipments out of a new standard for ergot. Prices on the Matif exchange sunk toward support levels on the news, and the Egyptians invited more offers at the lower price, but got none, and a European grain conglomerate prepared to sue the Egyptian importers. A third tender turned up offers at a premium. Then this week, the Egyptians rejected a Canadian cargo of wheat out of the ergot rule, and also rejected US soybeans for ambrosia contamination. There have been conflicting statements from different Egyptian agencies, and some speculation that the importers lack financing to take the grain.
These headlines have been more than enough to keep wheat prices depressed, especially considering last week’s WASDE which put US carryout at 50% of use for this year. Spreads and FX values have kept Chicago wheat way out of line with Matif, or with the hard red contracts for that matter, and US shipments continue to be dwarfed by those out of the EU, Russian, and Ukraine. I read an interesting quote on Reuters from an observer today, ‘ “The market is a bit stuck. There’s no room for prices to rally as this would leave us too expensive against Black Sea origins,” one French trader said. “At the same time if prices fall too much we don’t really have the logistical capacity to cope with the demand that might bring.” ‘ That almost sounds bullish to me. In fact I am bullish KC wheat, at least against Chicago. Speculators are record short in that contract, and my guys in the Central Plains (I’m sure they love it when I call them that) tell me it’s a hot and dry winter. That might leave the winter crop vulnerable to either warm dry weather, or cold snaps, into the spring.
Soybean and corn markets have been quiet for weeks, in the midst of wild macro-market conditions, including powerful rallies in gold, volatile trade in the Japanese yen, and parabolic moves in US notes. Financial tension and instability is accompanying international tensions, with the horrors of Syrian war worse than ever, and ongoing territorial disputes in the South China Sea. I was taught that free markets among nations promoted stability and ultimately peace. With Russia at war with its major wheat customer Turkey, and a common interest for higher crude prices amongst the warring parties of Saudi Arabia, and Iran and Russia, it sure would be nice if the world’s governments could pause the war long enough to make some money at least.
Corn prices have bumped nicely off support at $3.60 to open this week, with strong front-end calendar spreads. I’ve thought for weeks that there were too many shorts in the corn market, some of them likely spread off wheat and soybeans. Dalian corn futures in China have been rallying for a few weeks, just as the government there begins its attempts to clear poor-quality corn to market from its huge old crop reserve. The reserves may not be of sufficient quality to stem import demand, and the situation is a wildcard for the price in my opinion.
The South American soybean crop is finishing up, and now we’re left to see if Chinese demand can continue to surprise, and if so, how much of the business will come to the US. Dry weather has likely been great for planting safrinha crop corn, but it also increases the stakes for rainfall further down the line. Some of the maps two weeks out are in conflict, but mostly they continue to be dry.
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Ergot and Ambrosia
