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#1 Posted : 05 June 2013 09:50:34(UTC)

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There are currently four agricultural drivers: Argentinean politics and economics, Brazilian logistics, US stocks and Chinese demand.

Argentina defaulted on $132bn of international loans in 2001, so is without credit lines, and is therefore heavily dependent on export taxes on its agricultural produce.

However, farmers are hoarding their produce as a hedge against raging inflation, and as a reaction against the fixed currency exchange rate, so the government has little income and internal pressures are building.

Brazil has about 20% more agricultural produce to export than last year, but has not invested in extra infrastructure; so the ship queues off Brazil number in 000’s mainly waiting for soya and sugar.

US stocks of maize and soya were thought to be on bare boards, but at 4 o’clock on the Thursday before Easter the USDA ‘found’ 10mt of maize, 1.7mt of soya and 1.5mt wheat more than the trade expected.

The bulls were routed, followed by panic selling in the next two trading sessions. The funds sold 4.4mt of contracts on Thursday, and a further 5.1mt on Monday (Easter Friday was a holiday). On Wednesdays close, May’s maize was $7.35/b, on Monday’s close it was $6.42/b, the lowest value since July 2012. Similarly US wheat fell to the lowest value since June 2012.

The markets are confused; it was rather like ten-pin bowling - the USDA rolled (yet another) fast ball and all the stop-loss pins went flying again; now the investors are re-thinking their positions and re-setting their pins for the next game. In the past when similar panic buying or selling has followed USDA shock announcements, a week later prices resumed to where they were previously. As today is the 2nd April, we reserve judgment on how this will play out.

Chinese demand for meat increases annually, and accordingly their demand for feed ingredients increases, particularly proteins. The Chinese have been known to use their purchasing power to influence markets in their favour, and only recently `cancelled’ US contracts – presumably in anticipation of lower purchasing opportunities from South America!

The USDA reported that the winter wheat crop was 34% good/excellent (58% last year), and the poor/very poor was 30% (12% last year), so it is a pretty terrible start. It would appear that the hard red winter wheat crop (used to make bread/cookies and traded on the Kansas exchange) is in a much worse condition that the soft red winter wheat (used for feed and traded on the Chicago exchange).

UK May wheat futures are trading at about £199, compared to £208 in last month’s report and the contract high of £230/t in November. Despite the volatility on the US exchanges, the London market was totally unimpressed and by mid-morning on the first day of trading post USDA, May wheat had fallen by only £0.25. The domestic issues are whether the UK has sufficient stocks of wheat to last until harvest, and what will the tonnage at harvest be?

HGCA believes that 95% of the wheat area has now been planted, with spring wheat and barley yet to be drilled. Some 71% of wheat is showing signs of tillering, compared to 91% last year, allegedly due to the cold conditions.

ADAS has a different view, in that only 15% of spring cereals have been planted versus the ‘normal’ 50%, due to the one of the wettest years recorded, and due to the coldest March since 1962. They believe that about 25-30% of the land normally used for wheat has not been planted. There are predictions from various sources that the yield will be about the same as this disastrous year – 12mt. The resultant quality depends on the weather to come.

The issue of Non GM and GM soya in layer diets continues. Whilst retailers have removed any phrase, at point of sale, which might suggest that the birds from which the eggs have come, are free from GM, some retailers continue to insist that Non GM soya is used in their feeds. The feeds themselves cannot claim to be Non GM, as there will be traces of GM from oils, enzymes, vitamins and amino acids, and that is before the `Non GM’ soya is tested.

Some compounders have found more than `traces’ of GM DNA in their expensive Non GM soya, but unfortunately the eggs will be in the consumer’s fridge or beyond, by the time analytical results are available. Non GM soya is harder to secure, with one supplier suggesting that they do not know where it will be coming from beyond October.

Some retailers want their supply chains to use Non GM soya for some time to come, but there does come a point where you have to ask the question – for whose benefit and what actually is being achieved by the continued inclusion of ‘Non GM’ soya in certain feeds.
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