Last week’s hog slaughter reached just 1.859 million head, falling 9% short of the year-ago figure. However, huge increases in hog weights reduced the annualized cut in pork production to ‘just’ 4.2%. The PEDV-driven supply cut almost surely played a role in sending hog prices to fresh records, with the latest quote, at 134.17 cents/pound, topping the April peak by almost 4.0 cents. Strong demand has again played a major role as well.
Hog kills should total about 1.845 million head this week, then dip to 1.83 million during the two weeks following. The industry obviously anticipates a big midsummer hog shortage. But August futures dipped to 128.85 cents/pound Thursday, which implies a big drop from current cash levels. That suggests the recent demand surge will soon dwindle.
Traders clearly expect a substantial fourth-quarter decline in prices, since hog supplies typically increase and demand for most pork cuts wanes as the holiday season looms. Moreover, having the June 2015 contract, which often approximates the anticipated annual high, trading about 6.0 cents below December indicates extreme pessimism about 2015 prospects. Bears may be correct on this point, but that may be a self-defeating prophecy. That is, producers comparing fourth-quarter price prospects to those for next year, seem unlikely to divert money-making gilts from fall sales in order to turn them into sows producing a bunch of money-losing hogs next year.
You will see from the data in this post that the RFS mandated corn ethanol program spurred corn acreage by 25 percent in the U.S. because of a new and rapid increased demand, which drove prices higher.
Below, is a recent graph and report from the USDA:
Positive grower returns have supported the expansion of U.S. corn area since the late 2000s. Returns to corn production—the value above total economic costs that include opportunity costs of land, labor, and other owned resources—have been positive since 2007.
Returns reached a high of $224 per planted acre in 2011 before declining to $48 in 2013. With economic profit available from corn production, planted corn acres increased nearly 25 percent nationally from about 78 million in 2006 to a record of more than 97 million in 2012. In 2013, however, lower corn price expectations pushed down planted area, and lower corn prices, along with higher land costs, reduced returns to corn production.
From 1997 to 2006, economic returns to corn production had been negative, averaging -$74 per planted acre. During this time, planted corn acreage was relatively stable between about 75 and 80 million acres.
Turnaround Tuesday on grain markets transformed into Groundhog Day, as early gains evaporated, leaving futures to chalk up a fresh series of contract lows.
Actually, bulls emerged with some honour, as old crop August soybeanfuturesfelt some further support from 120,000-tonne US sale to China announced on Monday, closing up 0.7% in Chicago at $11.84 a bushel.
In Paris, rapeseed for November bounced 2.0% to E322.25 a tonne, filling in a chart gap left by a tumble in the last session, when French co-operatives were said to be in selling mode.
Ditto, milling wheat for November which gained 1.0% to E178.00 a tonne for November, amid growing concerns over the extent of rain damage to the European Union harvest, including the French crop, the bloc's biggest.
Besides the comments from Europe reported by Agrimoney.com, the EU quality concerns are making waves in the US, with Richard Feltes at Chicago broker RJ O'Brien for instance, reporting that "the wet EU wheat harvest weather could drive more high quality wheat business to the US".
In Kansas state, Darrell Holaday at Country Futures said that "there are some EU weather concerns developing which is putting in some support in for better quality US wheat".
In Minneapolis, Benson Quinn Commodities said: "Wet conditions continue to plague wheat harvest in portions of the EU, which is putting more focus on quality."
Not that this appeared to make much of a difference to investor thinking, as they returned to liquidation mode, encouraged by yet further talk of huge US corn and soybean yields.
"Can the national corn yield be 185 bushels per acre?" Paul Georgy at broker Allendale said, citing a figure well above the record 165.3m bushels per acre that the US Department of Agriculture is factoring in.
The USDA figure is widely seen as an underestimate, with considerable talk of 170 bushels per acre, and even a little above.
Mr Holaday said it was "not very difficult to get to" to a yield estimate of 171.5 bushels per acre, but "is also fair to say that it may be hard to get to a number over 175 bushels per acre".
'Will become much more critical'
Whatever, it wasn't the kind of talk to get buyers excited, and signal a floor to prices, even when some cracks are emerging in ideas of perfect US corn and soybean growing weather.
"If we don't see better rain than is projected in the next five days in the Plains and western Midwest, the rains later next week will become much more critical for the soybean crop," Mr Holaday said.
Mr Feltes said that the weather outlook "leans positive" for prices, in showing a "drier tone to the western US over the next 10 days".
Still, any weather setbacks would occur at a time when the condition of US crops is at historic highs - for corn and soybeans at least, if not forcotton.
Huge soymeal orders
In Chicago, corn for December closed down 1.0% at $3.68 ¼ a bushel, a fresh contract closing low, and boding ill for the kind of scenario of weaker agriculture growth rates which DuPont cautioned of.
The old crop September contract ended down 1.0% at $3.60 ¼ a bushel, a fresh four-year low for a spot contract.
In soybeans, the new crop November lot ended down 1.3% at $10.57 ¾ a bushel, a contract closing low.
This despite the USDA's confirmation of talk of buyers around forsoymeal, with export sales of 225,000 tonnes of the feed ingredient for 2014-15 to "unknown destinations", and a further 180,000 tonnes to Vietnam.
Mr Feltes, said that the orders represented a "clear indication" that importers are locking in US supplies amid "heightened uncertainty over the reliability of the world's largest soy product exporter", Argentina, which has only just settled its latest strike threat in the transportsector.
The strong soymeal orders also tallied with an observation from Oil World that the high protein feed ingredient is, thanks to pricing differences, set to gain in popularity at the expense of grains.
"Given the magnitude of potential supplies and the resulting pressure on prices, world consumption of eight major oil meals is likely to be boosted to a record," Oil World said.
"This will occur again under the lead of soymeal, which is expected to garner market share from other oil meals and also from feed grains if prices are attractive."
Soymeal certainly didn't shirk from its task of trying to improve its competitiveness, falling 1.5% to $346.80 a short ton in Chicago for December delivery, despite the US export orders.
Nor did wheat allow soymeal to gain too much ground, falling 1.0% to $5.24 ½ a bushel itself in Chicago for September delivery.
Sure, the European wheat harvest is proving disappointing on quality, but US wheat still faces the pull of lower prices of fellow grain corn, and some weight from the US harvest too.
Besides, the Wheat Quality Council has begun its US spring wheat tour which will doubtless underline the fine condition of that crop too.
Among soft commodities, forecasts of rain in drought-hit Brazil were blamed for a decline of 2.7% to 168.30 cents a pound in New Yorkarabica coffee futures for September delivery,
Raw sugar for October eased too, ending down 0.7% at 17.16 cents a pound, on profit-taking from the last session, even though, at Commerzbank said, Brazil's rainfall "is expected to disrupt harvesting this week".
But New York cotton for December added 0.3% to 67.91 cents a pound, helped by deterioration in the US crop, and showing signs of stabilisation after its fall to contract lows earlier in the month.
The bulk carrier supply-demand balance looks set to gradually find equilibrium in the coming years as vessel deliveries slow. But gains for owners could be quickly wiped out if improving freight rates prompt another newbuilding order rush at shipyards.
It is hard not to feel sympathy for bulk carrier owners sometimes. Every time a new freight rate low is reached and the start of an upward curve predicted, the recovery is holed below the water line before the sector has fully righted itself. Of course, sympathy dissipates because the damage is so often self-inflicted by owners, investors and myriad other speculators splurging yet more money on new ships, or reactivating and speeding up vessels, at the first sign that supply might finally be finding some sort of balance with demand.
This pattern saw last summer’s moderate freight rate gains and the optimism surrounding them both quickly subside – like so many rallies before them – under the weight of excess steel operating on key trades and the market pressure on forward sentiment that comes with mass announcements of new orders.
The Weekly IGC Grain Freight Index (see chart on page 47) has been tumbling since November, a trend also reflected, albeit with a rally in March, in the Baltic indexes by type of bulk carrier (see charts on page 48). The slump was also evident in the first-quarter results of many bulk carrier operators.
Typical was Safebulkers, which runs a medium-sized fleet of bulkers mostly in the size range of 75,000dwt-100,000 dwt and counts grain as one of its main cargoes. The operator’s net income decreased by 30% to $11.2 million in the first quarter of 2014 from $16.1 million in the first quarter of 2013. Safebulkers was hit by a decline in time charter rates in the period which on average totaled $13,921, compared to $18,113 during the same period of 2013. The company also had to manage a 27% hike in vessel operating expenses.
After a year of price unpredictability, as summer 2014 started grain shippers were facing much the same shipping costs as they had done a year earlier on some routes, but much lower costs elsewhere. According to the International Grains Council, U.S. Gulf-E.U. rates were $15 per tonne at the start of June compared to $21 per tonne a year earlier. U.S. Gulf-Japan rates were steady at £43 per tonne, and Brazil-E.U. rates were running at $30 per tonne, down from £33 per tonne a year ago.
Bulked up demand
The historically low rates currently available to charterers and spot shippers are not being caused by weak demand for bulk carriers or an ailing global economy, however. Indeed, the economic black clouds that have been a source of concern to analysts since the financial crisis struck in 2008 have started to at last clear. GDP growth is gradually improving in the U.S. and Europe, and confidence is now rising. Most of Asia and large swathes of Africa are seeing healthy levels of economic growth, while voters in India are hoping a new political broom will bring business friendly reform.
China, which accounts for 45% of global demand for major bulk cargoes such as coal and iron ore, is restructuring its economy as government policy moves away from export-led growth and focuses more sharply on domestic consumption. Yet, there are few signs this is going to diminish its appetite for industrial commodities and its burgeoning middle classes continue to demand more wheat and corn-based products.
This bright economic outlook is reflected in the latest demand forecasts for bulk carriers from Drewry Shipping Consultants, which paints a largely positive picture. Major bulk growth covering coking coal, iron ore and thermal coal increased by a CAGR of 6.2%, 7.3% and 10.7% over 2009-14, respectively. Equivalent figures for 2014-19 are forecast by Drewry to be lower – at 1.2%, 7.3% and 4.9% – but climbing from a wider base and continuing to be driven by Asian consumption which, especially in the case of iron ore, means heavy tonne-mile demand if ordered from Brazil.
Total minor bulks are expected by Drewry to grow by 3.6% CAGR in 2014-19 compared to 2% in the previous five years, although the grain trade will increase by only 2.4% over the latter period compared to 8.2% CAGR in 2008-13.
“Minor bulk is driven by multiple industries which are further governed by GDP, whereas major bulk is primarily driven by the steel and power industries of key consuming economies,” said Arjun Batra, Group Managing Director of Drewry Shipping Consultants. “The minor bulk commodities trade is expected to go up from 1.5 billion tonnes in 2014 to 1.8 billion tonnes in 2019.”
Indeed, overall billion-tonne mile (btm) demand for bulk carriers grew from 15.7 btm in 2008 to 20.4 btm in 2013, representing growth of 5.4%, said Batra. During 2014-19, it is estimated to go up from 21.4 btm to 28.7 btm, a CAGR of 6%.
“Increasing growth is attributable to commodities being sourced from further away,” he said. “China has been the most important driver for over a decade. It is expected to continue to play a key role in the dry bulk market.”
Excess supply causing volatility
But while the demand outlook, at least for bulk carrier owners and operators, looks rather sprightly, the same cannot be said on the supply front, and this could lead to yet more pricing uncertainty for grain shippers both in the short and long-term. But exactly how and when this will all play out varies significantly depending on who is answering the question.
DNB Markets suggests that rates have now bottomed out, at least for larger sized vessels. “All in all we believe the dry bulk spot rates, in particular for the larger sizes, should increase from here,” said the bank in a note. “We have a spot rate forecast for full year 2014 of $26,000 a day for capesizes, $15,000 a day for panamaxes and supramaxes, and $12,000 a day for handysizes.”
HSBC, another bank, believes any recovery will be weak and thinks a mid-summer pick-up as witnessed in 2013 unlikely, although the BDI could spike seasonally in the second half of the year.
“Unlike the fourth quarter of 2013, this year dry bulk rates have little momentum despite strong iron ore imports by China,” said HSBC in its latest transport report. “Dry bulk rates remain better behaved so far in 2014 than in first-half 2013, but the talk about the sector’s recovery has definitely cooled down.
“Most industry participants have turned cautious and note that the sharp rally in asset prices over the last 18 months has not followed through in freight rates so far.”
HSBC argues that in the past the expectation of a strong recovery was probably too optimistic for two reasons. “Firstly, the move up in freight rates in second-half 2013 appeared more due to a sharp re-stocking – after an equally sharp de-stocking earlier – than due to an improvement in structural supply and demand of the sector,” said the report. “Secondly, any move up in rates faced headwinds from the unwinding of slow-steaming and a surge in new orders.
“It is difficult to identify exactly why the rates have disappointed so far in 2014 but demand doesn’t appear to be the softer spot. In fact, the recent inability of seemingly strong demand to give a nudge up to the freight rates is a sign that oversupply is bearing down on the sector again. In our view, the increase in freight rates in 2014-15 will be limited.”
Divergence of thought
Unlike many of his peers, George Economou, one of the stalwarts of the sector and Chairman and Chief Executive Officer of Dry Ships, is defiantly bullish in his forward outlook. He believes that charter rates for larger dry bulk carriers under-performed during the first quarter of 2014, and “forward charter rates and asset prices are holding up resiliently, underscoring the bullish market sentiment.”
He predicts “a sustainable recovery in charter rates during the second half of 2014 and beyond.”
According to Batra, there was a rush of new orders in 2013 based upon low prices, early deliveries, “eco ships” and a flood of private equity into shipping. But newbuilding prices are now rising and are not supported by current freight rates, a dynamic he believes will dampen speculative orders. A significant number of vessels are still on the order book and due to be delivered through 2016, but Batra expects order levels to be “moderate” unless there is a sustained freight rate recovery and this will see fleet growth gradually return to more normal levels over 2014-19.
Over the next few years he expects demand to grow marginally faster than supply.
“We, therefore, expect that freight markets will gradually improve over the next few years,” he said.
However, Batra raises an additional point about vessel speeds. Drewry says the average speed of the dry bulk fleet has fallen from about 14 knots to about 11 knots as freight markets have declined in recent years, a strategic change which has absorbed about 15% of capacity.
“Speed acts as a bellows which absorbs/releases supply into the market as freight levels increase/decrease,” said Batra. “This latent capacity will act as a ‘cap’ to how high freight markets can rise.
“We do not expect sustained large increases in freight rates as this would bring in additional supply in the form of ships increasing speed. We expect volatility to continue or increase as we get closer to equilibrium. The volatility will be amplified by seasonality, weather and external events.”
Michael King, a freelance journalist and editor, has been writing about shipping, transport and commodities for more than a decade. Currently based in Indonesia, he can be reached at: Michael@borderline.eu.com.
Corn Illustrated: All those second ears may not develop, but just being there indicates corn plants are rocking and rolling!Published on: Jul 22, 2014
Many 4-H members in counties all across the Midwest go out this time of year and find from one to three corn stalks to exhibit at their county fair. Exactly what they exhibit and how many stalks they exhibit varies county to county. But they're after representative stalks that are free from disease and have good roots.
Many members and their parents who assist like to find that stalk with a viable second ear. Any judge worth his salt knows the whole field likely doesn't have two ears, but it looks impressive when it comes to the fair. Often those plants are found at the ends of rows or where, for whatever reason, a plant doesn't have close neighbors.
Gary Kerr, Franklin County, Ind., helps his daughter look for corn plants to exhibit. He's done it for years, since his daughter now in 4-H is the youngest of four children.
"Most years you have to hunt to find a plant with a second ear shoot that looks like it might make an ear," Kerr says. "This year you had to look hard for a plant that didn't have two ears. Most plants out there in fields where the corn was planted on time have two ear shoots."
Two ear shoots doesn't guarantee high yields. In most cases it's still likely that if the second ear develops, it will be much smaller with fewer kernels.
What it does mean is that at several points along the way, beginning before the growing point emerged from below the ground, weather and environmental signals have given the plant a green light. In effect those signals have told the plant to go ahead and make as much corn as you can – the weather is good and there is little stress.
Pollination is occurring or has occurred under cooler-than-normal temperatures across most of the Midwest. That also favors corn development on its path to higher yield. The light is still green.
The real test is in the next few weeks. Where rains continue, the light may stay green. If rains stop and it turns dry, as it did in some places last year, the final light may be yellow or red. That could cause plants not to finish tip kernels on the main ear and maybe forget the second ear.
But, hey, last year was still one of the highest production years on record, with many farmers harvesting the best crop they ever did.
What will happen if the light stays green and fields continue to get rain and moderate temperatures? We would be in uncharted waters with today's genetics and streamlined cultural practices and a good growing season all the way to harvest. It could be fun to find out just how high yields can go.
Corn was the primary focus of the agricultural commodity complex beginning in the 2006-07 marketing year and continuing through the 2012-13 marketing year. Corn prices during that period were supported by a rapidly growing domestic ethanol industry that required more acres of corn and by relatively poor U.S. corn yields in 2010, 2011, and especially in 2012 that kept corn supplies very tight.
The dominant role of corn prices in the crop sector during that seven year period is revealed by the ratio of marketing year average prices. The ratio of the average farm price received for soybeans and corn was 2.83 for the 2005-06 marketing year and averaged only 2.28 for the period from 2006-07 through 2012-13. Similarly, the ratio of the average farm price received for wheat and corn was 1.71 for the 2005-06 marketing year and averaged only 1.34 for the period from 2006-07 through 2012-13. The ratio of the price of soybean meal in central Illinois and the average farm price of corn (on a per pound basis ) was 2.44 for the 2005-06 marketing year and averaged only 2.06 for the period from 2006-07 through 2012-13. Corn, wheat, soybean, and soybean meal prices during the seven year period were all high relative to livestock and livestock product prices as evidenced by declining livestock/feed price ratios. The ratio of specific livestock or livestock product prices to feed prices reached the lowest levels at different times that ranged from July 2012 through August 2013.
The premium of corn prices relative to other crop prices began to fade during the 2013-14 marketing year. Current estimates or forecasts for the 2013-14 marketing year reflect a soybean/corn price ratio of 2.92, a wheat/corn price ratio of 1.54, and a soybean meal/corn price ratio of 3.02. The soybean/corn price ratio will be higher than in the 2005-06 marketing year. Increasing livestock prices and declining feed prices have restored livestock/feed price ratios to the highest levels in at least four years.
The price of corn for the 2014-15 marketing year has declined by about $1.25 since early May and the price of corn relative to most other agricultural commodity prices has declined sharply. Based on the closing prices for December 2014 futures (November 2014 futures for soybeans) on May 9, 2014 and July 18, 2014 the soybean/corn price ratio increased from 2.46 to 2.87 and the soybean meal/corn price ratio increased from 2.18 to 2.60. The wheat/corn price ratio is about unchanged at 1.5. The most dramatic changes have been in the livestock/corn price ratios. The lean hog/corn price ratio increased from 18.86 to 27.37, the live cattle/corn price ratio increased from 29.03 to 40.83, and the milk/corn price ratio increased from 3.73 to 5.02.
The soybean/corn price ratio is of particular interest. In the July WASDE report, the USDA forecast 2014-15 marketing year ending stocks of corn at 1.801 billion bushels, which represents a marketing year ending stocks-to use ratio of 13.5 percent. Similarly, marketing year ending stocks of soybeans were forecast at 415 million bushels, which represents a marketing year ending stocks-to-use ratio of 11.7 percent. On the surface, similar stock levels for corn and soybeans would suggest that the soybean/corn price ratio would be near a more normal level of about 2.4. As indicated, the current new crop futures price ratio is near 2.9. Based on harvest delivery cash bids in central Illinois, the current soybean/corn price ratio is 3.05. Prices are still adjusting to supply and consumption prospects for the upcoming marketing year so that price ratios may continue to change. However, the declining and increasingly low price of corn relative to soybeans suggests that the market currently expects the marketing year-ending stocks-to-use ratio for corn to be much larger than projected by the USDA. Such expectations are based on expectations of a much higher corn yield and a much larger corn crop than forecast in the July WASDE report. As suggested in last week's newsletter, even a yield about five bushels higher than forecast by the USDA would not point to average prices as low as currently reflected in the market. Yield expectations are obviously increasing as the growing season progresses and widespread and persistent stressful weather is avoided.
If the 2014 corn crop reaches the lofty levels currently expected, the key to prices after harvest will be the response by users of corn. The low price of corn relative to livestock prices, relative to other feed ingredients, and relative to ethanol prices points to the potential for a surprisingly large consumption response. In that case, the seasonal pattern of corn prices during the 2014-15 marketing year would be expected to follow a more typical large crop pattern--lowest near harvest and then increasing as the marketing year progresses. The USDA's first survey-based forecast of the size of the U.S. corn crop to be released in three weeks will go a long way in determining the likely level and pattern of corn prices during the year ahead.
Credit Suisse Group AG said it will abandon commodities trading as a $2.6 billion fine to settle a U.S. tax investigation pushed the Swiss bank to its biggest quarterly loss since 2008.
The bank’s net loss in the second quarter was 700 million Swiss francs ($779 million), compared with a profit of 1.05 billion francs a year earlier and a 691 million-franc estimate from analysts. Zurich-based Credit Suisse posted higher-than-forecast earnings at the investment bank and lower profit in wealth management even as it attracted more net new money from rich clients than analysts had estimated.
Chief Executive Officer Brady Dougan is reporting a second quarterly loss in less than a year as Credit Suisse grapples with regulatory probes. Analysts and investors have said Credit Suisse should step up efforts to shrink its investment bank and focus on wealth management to boost returns and shore up capital eroded by the U.S. fine. The bank reaffirmed plans to cut at least 4.5 billion francs in annual costs by the end of next year compared with 2011.
“The decision to exit commodities was probably taken mainly in the light of the capital weakness,” Dirk Becker, a Frankfurt-based analyst with Kepler Cheuvreux, said by phone. “The results in the quarter weren’t that bad, with investment banking surprising on the upside. The only really negative development was the drop in wealth management gross margin.”
The settlement in May for helping Americans evade taxes raised questions among investors about Credit Suisse’s financial strength as the ratio of capital to risk-weighted assets for the first quarter fell to the lowest among 16 global investment banks tracked by Bloomberg Intelligence. The bank wants to boost the ratio to more than 10 percent by the end of the year from 9.5 percent at the end of June.
Credit Suisse shares fell as much as 2.7 percent today and were 1.5 percent lower at 25.71 francs at 1:06 p.m. in Zurich. Before today, the stock had dropped 4.3 percent this year, compared with a 2.9 percent decline for the Bloomberg Europe Banks and Financial Services Index.
Global investment banks are pulling back from commodities trading as regulations tighten and revenue slides. Deutsche Bank AG said in December that it would exit dedicated energy, agriculture, dry bulk and base metals trading. Barclays Plc said in April it would withdraw from most of its commodities activities. JPMorgan Chase & Co. agreed to sell its physical commodities unit to Mercuria Energy Group Ltd. for $3.5 billion in March.
Pretax profit at Credit Suisse’s investment bank was steady at 752 million francs, beating the 544 million-francs average estimate of six analysts surveyed by Bloomberg News. Revenue at the securities unit benefited from a 14 percent increase in fixed-income revenue to 1.43 billion francs and a 29 percent jump in equity underwriting to 268 million francs.
Wealth management posted a 8.4 percent decline in pretax profit to 569 million francs, as the gross margin in the business, which measures how much revenue it produces in relation to assets under management, dropped to 99 basis points from 104 basis points in the first quarter. A basis point is one hundredth of a percentage point. The unit attracted 7.4 billion francs in net new money, more than the 6.2 billion francs expected by analysts.
Earnings from corporate and institutional clients and in asset management fell 19 percent to 211 million francs and 23 percent to 102 million francs, respectively.
Credit Suisse cited low volatility and client volumes in its decision to exit commodities trading and said the move will cut costs about $75 million and lower risk-weighted assets and leverage exposure by $2 billion and $5 billion, respectively. The bank didn’t provide numbers for the revenue generated by the business or say how many jobs would be affected by the pullout.
Dougan said the commodities trading business was loss-making so far this year. Credit Suisse may keep small parts of the business, such as precious metals, and move them to the foreign exchange unit, he said. The bank is keeping its commodity trade finance business, which is part of the corporate and institutional clients division.
Commodities revenue at the 10 largest banks fell 18 percent last year amid reduced volatility, London-based analytics company Coalition Ltd. said in February. The Bloomberg Commodity Index of 22 raw materials had its third consecutive annual drop in 2013 as gold fell the most since 1981 and corn, arabica coffee and wheat slid at least 20 percent.
Credit Suisse is also cutting expenses at its foreign exchange and rates businesses by shifting more of those trades to its electronic platform, Chief Financial Officer David Mathers said on a conference call with journalists today.
The reorganization of the macro unit, which includes commodities, foreign exchange and rates businesses, will yield about $200 million in cost savings and reductions of $8 billion in risk-weighted assets and $25 billion in leverage exposure, Credit Suisse said.
“It’s certainly fair to say that all three areas face very adverse market conditions and to varying degrees they face regulatory and market structural changes,” Mathers said. “It’s really a package of measures intended to significantly improve the returns in the macro business.”
Credit Suisse aims to cut Basel III risk-weighted assets to about 250 billion francs in the long term from 279 billion francs at the end of the second quarter.
U.S. banks posted better results than expected earlier this month because of higher-than-expected debt trading revenue. All asset classes within fixed income stabilized or improved in June compared to April and May, JPMorgan analysts Kian Abouhossein and Amit Ranjan said in a report last week. The results of the U.S. banks are a “positive read” for European investment banks, they said.
The condition of the US cotton crop deteriorated for a second successive week, undermined by the extent of rainfall and cool temperatures which, while favourable for corn and soybeans, are proving excessive for plantings of the fibre.
The ratings of most major US crops at least stayed stable last week, with the proportion of corn rated "good" or "excellent" by the US Department of Agriculture remaining at 76% as of Sunday - a reading second only to that of 2004 within the last 20 years.
The 2004 harvest achieved a then-record corn yield of 160.3 bushels per acre, up from 142.2 bushels per acre in 2003, which was itself an all-time-high result.
The proportion of soybeans rated good or excellent rose by 1 point to 73%, by far the best reading since 1994 for this time of year, ahead of 68% figures recorded in 2003 and 2004.
'Cool temperatures, overcast skies'
However, the proportion of US cotton rated "good" or "excellent" fell by 1 point last week to 52% - at a time of year when ratings are typically improving.
The decline reflected the impact in major southern states of persistent rains and cool temperatures which, while helpful for the likes of corn and soybeans, and a boost to pasture condition, are less beneficial for cotton, which enjoys somewhat drier and warmer conditions.
In Texas, the main cotton growing state, which USDA scouts said was marked by "cool temperatures and overcast skies" last week, the proportion of the cotton crop rated good or excellent declined by 2 points to 37%.
"Portions of the Northern High Plains, Edwards Plateau and South Texas recorded three inches or more of rainfall for the week," the scouts said.
'Heat still needed'
In Tennessee, the proportion of cotton rated good or excellent fell by 4 points, albeit to a still strong 70%.
"With no end in sight for some producers, rains have drowned out some crop acreages and prevented planting of others," USDA scouts said.
"The wet weather is helping soybean and corn development. But heat units are still needed for the cotton crop because of its sensitivity to adverse environmental conditions."
In Haywood County, in the west of the state, where one scout reported that "rains and cooler weather put a halt to" all fieldwork, "accumulating the number of required heat units for cotton is becoming a big concern for producers".
'Remains too dry'
There is still some concern too over residual pockets of dryness, left over from the winter drought which hurt in particular southern Plains winter wheat crops.
World Weather said that "portions of far southern Texas remains too dry and that will not change in the next couple of weeks".
Cotton futures for December stood 0.5% higher at 68.04 cents a pound in New York as of 06:00 local time (11:00 UK time).
Soybeans headed for a fourth day of declines after a U.S. government report showed the domestic crop was in the best shape for this time of year in two decades, boosting the outlook for a record harvest.
U.S. soybeans were rated in good or excellent condition for 73 percent of the crop as of July 20, the U.S. Department of Agriculture reported yesterday. For corn, 76 percent earned top ratings, the most for this time of year since 2004.
“Not only are both crops in good condition but also stable, indicating little crop stress,” Australia & New Zealand Banking Group Ltd. analysts including Paul Deane wrote in a note today. “Weather forecasts paint near-perfect conditions for both crops as they move through the key yield-determining phase.”
Soybeans for November fell 0.1 percent to $10.70 a bushel on the Chicago Board of Trade by 5:15 a.m. local time. Futures fell to $10.65 on July 11, the lowest level since October 2010.
Soybeans have tumbled 17 percent in the past year, while corn entered a bear market on July 3, as mild Midwest temperatures helped boost the outlook for yields. Futures trading volumes were 21 percent lower than the average for the past 100 days for this time of day, according to data compiled by Bloomberg.
U.S. soybean production will surge to an all-time high in the year that starts Sept. 1, and corn output will be the second-largest on record, the USDA said July 11. With a normal to cool summer and abundant rains, record soybean output expectations could be realized, WeatherBELL Analytics LLC said in a report yesterday.
“Near-perfect growing weather in the Corn Belt is creating the best crop conditions in 20 years for the country,” the U.K.’s Home-Grown Cereals Authority wrote in a report today.
Corn for December delivery added 0.4 percent to $3.735 a bushel after dropping to $3.705 yesterday, the lowest for a most-active contract since July 2010. Wheat for September delivery added 0.6 percent to $5.33 a bushel after futures slumped to $5.2375 yesterday, the lowest since July 2010.
Milling wheat for November delivery traded on Euronext in Paris added 0.4 percent to 177 euros ($238.65) a ton.
Rain slowed in much of the Midwest, particularly in Iowa. The top corn and soybean producer reported 6.3 days suitable for fieldwork, surpassing the previous high for the season of 5.3 near the end of May. That state's corn improved to 77% good to excellent and soybeans improved to 74%.
Chicago corn and soybean futures resumed their down trends on Monday, with corn near a four-year low and soybeans hovering near 2-1/2-year lows as the majority of the crops are doing well and forecasts through early August are favorable for corn pollination and crop development..
USDA weekly crop progress data showed corn silking advanced to 56%, slightly better than the 55% average. Iowa was at 59%, Illinois at 82%, and Nebraska at 62%. All of those were ahead of the averages.
For soybeans, blooming was at 60% and ahead of the 56% average. In Iowa, 67% were blooming versus the 64% average and Illinois was at 69% versus the 55% average. Pods were set on 19% of the crop versus the 17% average. Iowa was at 19%, Illinois at 24% and Indiana at 32%, all ahead of the averages.
Winter wheat harvest at 75% Winter wheat harvest advanced to 75% from the previous week's 69% and matched the 75% average. Harvest was 95% done in Kansas, the largest wheat state and mostly hard red winter, versus the100% average. Texas was at 100%, versus the 99% average, and Oklahoma was at 98%, versus the 99% average. Nebraska wheat was 54% cut against the 61% average.
The soft red winter harvest advanced with Illinois at 95% versus the 97% average, Indiana at 92% versus 97% average, and Arkansas at 100% versus 100%.
Spring wheat was 84% headed, versus the 85% average. North Dakota, the top producer, was 79% to trail the 83% average. The overall crop was unchanged at 70% good to excellent. North Dakota's crop was unchanged at 82% good to excellent.
Cotton bolls set at 38%, crop 52% good to excellent Bolls were set on 38% of the cotton and 85% had squared versus the 37% and 82% averages. The crop was 52% good to excellent, down 1 point from a week ago.
Oats were 34% harvested, compared with the 24% average, and were unchanged at 64% good to excellent. Sorghum coloring was at 26% and heading at 42% versus the 25% and 34% averages. It was 62% good to excellent.
Rice was 32% headed, versus the 33% average and slipped 1 point to 69% good to excellent.
Corn futures fell to the lowest in four years on mild temperatures forecast for crop regions in the U.S., the world’s largest producer. Soybeans dropped, and wheat extended a slump to the cheapest since July 2010.
A lack of heat in the majority of the Midwest in the next two weeks will aid late corn pollination and soybean growth, Commodity Weather Group said today in a report. The corn yield may rise to a record 171 bushels per acre, topping a government estimate, the Bethesda, Maryland-based company said July 17, citing analysis of crop conditions and vegetative health.
“For the most part, yield expectations continue to climb,” Bill Gentry, a marketing consultant at Risk Management Commodities Inc. in Lafayette, Indiana, said in a telephone interview. “The weather is very benign.”
Corn futures for December delivery fell 1.7 percent to close at $3.72 a bushel on the Chicago Board of Trade. Earlier, the price touched $3.705, the lowest for a most-active contract since July 14, 2010. The price has dropped 26 percent in the past 12 months.
In the week ended yesterday, crop conditions were probably unchanged from a week earlier, with 76 percent of plants rated good to excellent, according to the average of 10 analysts surveyed by Bloomberg. The U.S. Department of Agriculture in Washington will issue an update at 4 p.m.
Wheat futures for September delivery fell 0.4 percent to $5.30 a bushel. Earlier, the price touched $5.2375, the lowest since July 7, 2010. As of July 15, money managers increased bets on a decline for the fifth straight week, U.S. Commodity Futures Trading Commission data showed on July 18.
Soybean futures for November delivery dropped 1.3 percent to $10.715 a bushel. Hedge fundsturned bearish on the oilseed for the first time since December 2011, CFTC data showed.
Wheat has dropped 20 percent in the past 12 months, and soybeans fell 16 percent.
Paris/Reuters — Premiums for higher-quality wheat in France jumped on Monday as heavy weekend rain added to fears that this year’s harvest in the European Union’s top producer and exporter will be spoiled by poor quality.
Farmers in eastern France have reported alarming quality indications for wheat, blamed on repeated rainfall in early July in the run-up to harvesting. After a dry spell last week, storms across France at the weekend brought as much as 50 mm of rain in some areas.
On the French cash market on Monday the spread between animal-feed wheat and milling wheat was at an unusually wide level of around 30 euros a tonne, close to levels seen during the poor quality harvest of 2007, brokers said.
Cash premiums for milling wheat against benchmark Paris wheat futures were between zero and 8 euros a tonne, a rise of up to 4 euros from Friday, brokers said.
“The market is becoming more and more complicated with such a mixed bag of quality,” one French broker said. “It’s a race to find milling wheat between millers and exporters.”
The increasing risk that a large portion of the 2014 crop will be graded as feed wheat was leading to cancellation of contracts and fresh deals being struck to cover quality needs, brokers said.
A swathe of northeast France from the outskirts of Paris to the German border via Burgundy was worst affected, with brokers citing 30 per cent sprouted grain and low Hagberg readings.
German wheat as hedge
Germination can lead to wheat being downgraded to animal-feed quality when it exceeds two per cent of volume, as can low Hagberg falling numbers, another measure of milling quality.
The French wheat harvest was still in its early stages after rain delays, with about a quarter of the crop cut, traders said.
Worries over poor harvest quality led some French buyers to turn to the German market.
“We have seen some French purchase interest in Hamburg today apparently with German wheat being taken as a hedge against quality losses caused by rain in France,” a German trader said.
Problems over crop quality could also lead to renewed debate over delivery of grain traded on the Euronext futures market.
The Senalia export silo at the northern port of Rouen, which was previously the sole delivery point for Euronext wheat, caused controversy two years ago by imposing additional quality requirements after a rain-affected harvest.
Euronext’s November contract will have a second delivery point at Rouen, the Socomac silo, but traders said the fact it does not currently set its own criteria like Senalia could create confusion over the quality of wheat delivered against Euronext futures.
Rice production in Thailand will probably shrink to a five-year low as drought hurts yields and farmers curb planting after the end of a subsidy program, according to the Thai Rice Packers Association.
Output in the largest shipper after India may drop 10 percent to about 34 million metric tons in 2014-2015, said Somkiat Makcayathorn, the group’s president. That would be the lowest level since 2009-2010, when the Southeast Asian nation produced 32.4 million tons, according to data from the Office of Agricultural Economics, the Bangkok-based state forecaster.
While a smaller harvest would curb farm incomes, a decline in supply may ease the challenge faced by the country’s military junta as it seeks to sell off record stockpiles that built up under the now-defunct subsidy program. Dry weather may also hurt rice output in India this season, according to the Rome-based Food & Agriculture Organization, which forecasts the first contraction in global stockpiles in a decade.
“Production has been affected by both drought and the lack of a price subsidy,” Somkiat said in a phone interview in Bangkok on July 21. “The prospect of a production decline provides an opportunity for the junta to release stockpiles.”
Drought spread across 49 of Thailand’s 77 provinces since September, with rainfall in May 31 percent below the 30-year average, according to government data. Yields may decline 20 percent to 50 percent because of below-normal rain and inadequate water supplies, according to a Bloomberg survey of 10 farmers in the biggest growing provinces.
An El Nino weather pattern, which can parch South and Southeast Asia and hurt farm production, remains likely later this year, Australia’s Bureau of Meteorology said July 15, while adding that odds of a strong event are increasingly unlikely.
Thai Prime Minister Yingluck Shinawatra, who was deposed by the junta in May, introduced the subsidy in 2011, spurring record output and reserves and ending the country’s 30-year reign as the biggest exporter. The program -- which paid farmers a guaranteed above-market rate for their crop -- lapsed in February and the junta is now checking warehouses nationwide to assess the quantity and quality of the grain reserves.
Thai reserves increased from 5.62 million tons in 2011 to 12.8 million tons last year, as exports fell from 10.6 million tons to 6.72 million tons in the same period, according to the U.S. Department of Agriculture. Output may drop to 30.5 million tons in 2015 from 31 million tons, the U.S. agency predicts.
Global ending stockpiles may contract 0.9 percent to 179.7 million tons in 2014-2015 on a milled basis, the United Nations’ FAO estimated in a quarterly report last week. The agency forecast a 1.2 percent drop in Indian supply to 157.5 million tons on a paddy basis.
Should India’s crop decline significantly from last year on a poor monsoon, it would play quite favorably for Thailand, according to Darren Cooper, senior economist at the London-based International Grains Council. Thailand may reclaim its position of the leading rice exporter, Cooper said.
Between July 3 and July 8, more than 100 teams checked 343 warehouses out of 1,787 in Thailand, junta leader Prayuth Chan-Ocha said on July 18. Irregularities, including rice missing from warehouses and quality deterioration, were found in 65 warehouses, Prayuth said in his weekly televised address.
The price of Thailand’s 5 percent broken white rice, a regional benchmark, rebounded after the junta suspended sales for the inspections. The grade was at $427 a ton on July 16, compared with $384 on May 28, the lowest since at least 2008.
“Thai rice is still competitive at current prices, which could boost exports to 10 million tons, becoming the top exporter,” said Somkiat, who’s also secretary general of the Thai Rice Exporters Association. “Even without impact from dry weather, we should see a production decline because farmers barely make a profit from planting rice.”
Again and again we see that in agricultural commodities like corn, the best cure for high prices is high prices. The U.S.’s rapid ramp up in ethanol production created a sudden demand for corn, but now five to six years out, we, along with the rest of the world, have responded by producing more corn to cash in on the high corn prices of recent years.
Now, with low corn prices, ethanol producers will be more profitable and even Brazil, the king of sugar cane ethanol production, is considering turning more of their corn crop into corn ethanol.
The remainder of this post is from the USDA:
Global corn stocks are forecast to rise to the highest level in 15 years by the end of 2014/15 (September/August), leading to downward pressure on U.S. and global corn prices. Stocks fell to relatively low levels during 2003/04-2006/07, prior to the 2008 spike in world commodity prices, but are now forecast to reach 188.1 million tons in 2014/15, just 3 percent below the recent high of 194.4 million tons in 1999/2000. Since 2008/09, world corn production has exceeded total consumption in 5 out of 7 years.
In addition to the United States and China—the two largest global producers and consumers of corn—production and stocks have been generally rising in Brazil, Russia, and Ukraine—countries that are also playing an expanding role as corn exporters. With a second consecutive above trend U.S. corn harvest forecast for 2014/15, the United States is expected to account for most of the 8-percent increase in global corn stocks forecast in 2014/15.
With growing inventories, the U.S. season average farm price of corn is expected to decline to $4.00 per bushel, down 10 percent from $4.45 per bushel in 2013/14, and 42 percent from $6.89 per bushel in the U.S. drought year of 2012/13.
La coopérative québécoise Agropur a réalisé sa plus importante acquisition au cours de ses 76 années d'existence, ce qui lui permettra entre autres de doubler ses activités de transformation aux États-Unis en plus d'accroître de moitié son approvisionnement en lait.
La plus importante coopérative laitière au Canada a annoncé mardi qu'elle mettrait la main sur les actifs de transformation de l'entreprise américaine Davisco Foods International, spécialisée dans la fabrication de fromage et d'ingrédients laitiers.
Le montant de la transaction - dont la date de clôture devrait être le 1er août 2014 - n'a pas été dévoilé, mais le chiffre d'affaires des activités acquises est évalué à plus de 1 milliard de dollars.
Il s'agit d'une troisième acquisition en autant de semaines pour Agropur, qui a récemment mis la main sur des actifs de la coopérative Northumberland Dairy, établie au Nouveau-Brunswick, ainsi que des activités de transformation laitière de Sobeys pour 356 millions de dollars.
«Agropur devrait se situer parmi les cinq plus importants transformateurs de fromage et d'ingrédients aux États-Unis», a souligné son président, Serge Riendeau.
En vertu de ces trois transactions, le chiffre d'affaires de la coopérative québécoise devrait dépasser 5,8 milliards $. Ses 41 usines réparties en Amérique du Nord devraient permettre à sa production annuelle de lait de se chiffrer à 5,3 milliards de litres.
De plus, les activités américaines de la coopérative laitière établie à Longueuil devraient désormais représenter 40% de son chiffre d'affaires, a indiqué en entrevue le chef de la direction d'Agropur, Robert Coallier.
«Cela nous permet d'avoir une masse critique plus importante, et du même coup, de devenir un joueur plus important dans ce marché, a-t-il dit. Cette acquisition (...) contribuera à solidifier le développement et la pérennité de notre coopérative.»
La transaction comprend trois usines de transformation de fromage de Davisco situées dans les États du Minnesota, de l'Idaho et du Dakota du Sud, en plus d'une boutique, de bureaux de ventes ainsi que de centres de distribution aux États-Unis, en Chine, à Singapour, à Genève ainsi qu'aux Pays-Bas.
«Nous allons être en meilleure position puisque Davisco effectue déjà des exportations», a expliqué M. Coallier, lorsque questionné sur les visées d'Agropur à l'étranger.
«(La transaction) va nous procurer une plus grande plateforme pour améliorer notre performance dans ce secteur», a-t-il ajouté.
Malgré un mois de juillet fort occupé en vertu de l'annonce de trois acquisitions, Agropur pourrait bien procéder à une autre transaction d'ici la fin de l'année, a laissé entendre son chef de la direction.
«La pérennité (de la coopérative) passe par la croissance, alors nous voulons continuer à croître, a expliqué M. Coallier. Je peux cependant vous dire qu'il ne devrait pas y avoir une acquisition la semaine prochaine.»
Établie à Le Sueur, dans le Minnesota, Davisco transforme annuellement 1,7 milliard de litres de lait et compte quelque 900 employés, qui devraient être intégrés dans le giron de la coopérative québécoise une fois que l'acquisition sera complétée.
L'entreprise privée produit chaque année plus de 375 millions de livres de fromage et 180 millions de livres d'ingrédients à base de lactosérum.
«Je suis ravi par cette transaction et par ce qu'elle offre à nos fournisseurs et (...) nos employés, a commenté le chef de la direction de Davisco, Jon Davis. Il s'agit là de perspectives stimulantes.»
Agropur a l'intention de financer cette acquisition à partir de ses excédents de trésorerie ainsi que par le biais de nouveaux crédits à terme.
Fondée en 1938, Agropur compte actuellement plus de 6500 employés et transforme 3,4 milliards de litres de lait par année dans ses 32 usines en Amérique du Nord. La coopérative propose diverses marques, dont Natrel, Québon ainsi que le fromage d'Oka.
The poor quality of the French wheat crop is driving "substantial" volumes onto the export market as feed, with results from other European countries exacerbating ideas of strong rivalry in this sector.
"There are definitely some problems with the French wheat crop," traders at a major European commodities house said.
"After news of some lodging and sprouting in the field, we are now seeing substantial tonnages of French feed wheat being offered on the export market," an observation confirmed to Agrimoney.com by an analyst at a leading global broker.
"That is definitely happening. The French are keen to sell," the analysts said, with a sharp decline in Paris futures on Monday attributed in part to "selling by co-operatives", which are a big feature of the French cereals sector.
'Might as well sell the worst stuff'
Indeed, the French feed wheat is being sold at E4 a tonne below that of the neighbouring UK, whose wet climate makes it a more natural supplier of the grain for livestock rations and is, indeed, where feed wheat futures are traded, in London.
France is more typically a provider of soft milling wheat, but harvest time rains, in encouraging sprouting and cutting protein levels, are leaving much fit only for feed.
The enthusiasm of its producers to sell grain for feed supplies is being seen as a symptom of the compromised quality of a European crop which looks like coming in large on quantity, but with a much-reduced proportion fit for milling.
"As harvest moves north through Europe, a picture is developing of good yields but concerns over quality," the European commodities house said.
A UK grain trader told Agrimoney.com: "There looks like being no shortage of feed wheat in Europe, and that is before you get to the corn crop, and to the huge US corn crop on the way as well.
"You have to think you might as well sell the worst stuff now, as it could be a long time before you see any kind of shortage to lift prices again."
Not so bad
In fact, wheat quality in Central Europe appears to be coming in relatively strong, the brokerage analyst said, boding well for hard wheat supplies for which Germany is noted, with some decent results from the Czech Republic, of 15% protein or more.
However, the problems further east, in Bulgaria, Romania and Hungary, have been well documented, by commentators from INTL FCStone to the US Department of Agriculture, prompting talk of a scramble for quality supplies by merchants seeking to fulfil export orders.
Romania earlier this month won two high-profile victories at wheat tenders by Gasc, the grain authority for Egypt, the world's top wheat importer.
Meanwhile, in western Europe, in north east France, the there are reports of 30% germination rates in wheat in a band stretching from Paris to the German border.
Wheat vs corn
"The question now is what all this means for prices," the analyst said, forecasting support for quality premiums from the squeeze on supplies, but for feed wheat too from the extent it has already fallen.
"It is already below production cost," the analyst said.
In fact, corn futures in Europe are performing particularly poorly, not just because of increased competition from feed wheat, but from raised harvest prospects, with the rain undermining wheat quality a boost for autumn-harvested crops, still in their growing period.
Corn futures for November, standing down 0.8% at E158.50 a tonne in Paris on Tuesday, were down 10.1% in the past month, compared with a 6.0% drop to E177.00 a tonne in November milling wheat futures.
That took above 50%, to E18.50 a tonne, the rise in the premium of milling wheat to corn over the period.
If good growing conditions persist, it will be normal to find 250-bu.-per-acre pockets of corn in Midwest fields this fall. Meanwhile, national average yields could be in the 170-bu.-per-acre range.
"I think 250 (bu. per acre) is going to be a norm. That’s going to be the norm in pockets," Bob Utterback, Utterback Marketing Services, tells the U.S. Farm Report Market Roundtable. "What’s going to happen is in Monday’s crop condition report, I think the poor is going to go to the average. We’re not going to see this deterioration."
Weather conditions this year appear to be similar to those in record crop years, agrees Gregg Hunt, Archer Financial Services.
"Up to this juncture, if the weather holds out, and it doesn’t get excessively hot in August—which doesn’t seem to be in the cards at the moment—that it is, without question, very, very similar to other record crop years that we’ve seen, and ’04 comes to mind as being about as perfect a pattern as I’ve seen in any two particular crop years up to now," Hunt explains. "So yeah, you had a lot of holes in the fields in that year, excessive rain, and then you stayed cool. … This time around, it looks like their forecasts for something in the 170s is a very strong possibility."
Assuming those yields hold true, the markets will turn to the question of what conditions will create a bottom in the market.
"The structure of the market, the real risk, is $3.50 to $3.65 flat price," Utterback says. "I’m not really more bearish than that. The problem is that the deferreds come down to the front end, the farmer stores it clear to next summer. He takes it out cheaper than he put in with his storage cost, he’s got nothing sold for ’15, and without a weather event, without a major producer between now and next summer, things could get really, really messy until we finally flush the market and create the usage. So we’re really asking ourselves, how is this bottom going to be formed? That’s what will be the debate now over the next several months."
The Port of Thunder Bay is cautiously optimistic that it will ship seven million tonnes of grain this year, the largest amount in 15 years.
More than 1.3 million tonnes were shipped in May despite difficult ice conditions that delayed the port opening by one month. It was the largest one-month tally since 1998.
The port has since then continued to ship about a million tonnes of grain a month.
“It’s very strong,” said Tim Heney, chief executive officer of the Port of Thunder Bay.
Last year, the port shipped 5.8 million tonnes of grain.
Spring and fall are normally the port’s busy seasons, but the delayed start to the shipping season, difficult grain movement this winter and last year’s record harvest combined to produce strong grain movement through the Ontario port this summer.
The port has the largest grain storage capacity in North America, a holdover from its days as Canada’s main grain shipping port in Canada.
Grain companies had shipped grain to the port’s eight grain elevators this winter, expecting an earlier opening. The grain was loaded onto waiting vessels when the port opened at the end of April, which resulted in the record shipment in May.
Shipments are still well short of the record set in 1983, when 18 million tonnes of grain were shipped to the former Soviet Union and North Africa. However, the former Soviet Union became a grain exporter shortly after, and shipments through the port began to decline.
Heney said the port is watching the conflict in Russia and Ukraine and its possible impact on grain production and exports.
He said the spring’s record shipments have grain companies taking a second look at Thunder Bay.
“There’s been a lot of attention to Thunder Bay because of this surge. It’s still dependent on markets,” he said.
The storage facilities have helped reduce demurrage at the port, but the railroads can barely keep the grain flowing fast enough, he added.
Thunder Bay won’t be used to ship to Asian markets, but it will remain a key port. Shipments through ports along the Mississippi River slowed this year because of flooding, and railways had difficulty transporting grain to Churchill because of soft rail bed conditions.
Tuesdays by repute stage turnarounds in Chicago grain and soybeanfutures.
Which would, this time, imply a strong start to the day, after the falls in the last session to contract closing lows.
And indeed that was the size of things, with futures broadly showing gains, if small ones – a kind of turnaround-lite.
The one contract which did manage quite some elevation was August soybeans, adding 1.1% to $11.89 a bushel as of 09:40 UK time (03:40 Chicago time), helped by the sale on Monday to China of 120,000 tonnes of US crop for 2013-14 – when US supplies are already running low.
'Plenty of yield cushion'
For new crop soybeans, there was the US Department of Agriculture's weekly crop progress data to digest, and a further increase, of one point to 73%, in the proportion of the domestic crop rated "god "or "excellent".
That makes the crop the highest rated of the last 20 years by a margin, of 5 points, lifting the chances of a record yield this year, on top of record sowings of 84.8m acres.
"Frankly we can't predict weather, but we do know that soybean acres are a record in the US and we have plenty of yield cushion to build a carryout," one US broker said.
In the southern states of Louisiana and Tennessee, 79% of the crop is rated good or excellent, with Arkansas lagging, on 60%, still a respectable rating.
'Slower pace of decline'
For corn, the rating stuck at 76% good or excellent, a narrow second best to 2004 in the title for the best-rated US crop of the last 20 years.
In 2004, by the way, the US corn yield jumped 12.7% year on year to a then record of 160.3 bushels per acre.
Still, one reassurance for crop bulls is that prices have already tanked, meaning they have factored in plenty of good news on supply, and may attract extra demand.
One broker said: "Since corn has already had phenomenal weather in July, we expect corn to have limited upside potential.
However, "given the profitability of end users," lifted by low prices, "we may also have a slower pace of decline".
At University of Illinois, Darrell Holaday said: "The low price of corn relative to livestock prices, relative to other feed ingredients, and relative to ethanol prices points to the potential for a surprisingly large consumption response."
The problem is that even if demand does improve, buyers may be in no hurry to purchase, knowing that prices typically bottom out at harvest time, as the weight of fresh supplies depresses values.
"While the export wire is improving, end user are confident enough of a good crop that they are willing to defer sales for the time being," Citigroup's Sterling Smith said.
'Void of soaking rains'
One other factor growing as a support for prices is that, horror of horrors, US weather might be turning less than ideal.
"Concern is developing that nearly one-half of the Midwest has been void of soaking rains in the last two weeks," Richard Feltes at broker RJ O'Brien said, if highlighting that soil moisture reserves remain strong, and cool temperatures are stemming transpiration losses.
At Benson Quinn Commodities, Brian Henry said that "crop stress in south western reaches of the Corn Belt will be more apparent", if also downplaying the overall impact of current hotter temperatures, saying that "actual crop stress will be limited to a few areas".
Still, Mr Feltes said that "we sense that ag markets may stabilise short term while awaiting the extent and coverage of late-week rains".
Another broker said: "We may be entering a trading range for corn until more is known about the final crop size."
In fact, Chicago corn for December gained 0.3% to $3.73 a bushel, while new crop November soybeans added 0.25 cents to $10.71 ¾ a bushel.
Wheat futures showed small gains too, with the US harvest now 75% complete, in line with the average, meaning that pressure on prices from simple harvest pressure might be starting to ease off.
That said, results have improved dramatically as combines have headed north, meaning extra crop for farmers to sell.
Benson Quinn Commodities' Brian Henry flagged "continued hedge pressure as soft red winter wheat quality is improving and hard red winter wheat producers are finding good yields and workable quality in Nebraska and South Dakota.
"The word on the street is a decent portion of the harvest in many of these areas is being marketed."
'Premiums seen rising'
Also on the price negative side, thoughts about the Canadian spring wheat crop are recovering,with a turn warmer and drier in the weather there.
"There are areas in Alberta and south west Saskatchewan that wouldn't turn down a rain," Mr Henry said.
Still, there remain worries about the impact of harvest time rains on the European Union wheat crop, the world's biggest, where talk continues of sprouted grains.
"French wheat premiums were seen rising as there are quality concerns coming into the market," said Sterling Smith at Citigroup.
Wheat for September added 0.1% to $5.30 ½ a bushel in Chicago.
For a second week, the one US crop escaping crop improvement was cotton, for which the "good" or "excellent" rating fell by 1 point to 52%, a middle-of-the-range figure.
Cotton for December gained 1.0% to 68.35 cents a pound in New York.
Also in New York, raw sugar for October eased 0.1% to 17.27 cents a pound on profit-taking after strong gains in the last session.
That said, on the bullish side, Platts Kingsman cut by 500,000 tonnes to 10.8m tonnes its forecast for Thai sugar production in 2014-15, although it kept at 2.1m tonnes its estimate of the world production deficit.
Looking at the USDA's revised World Agricultural Supply and Demand Estimates report from July 11, negative farm returns are quite possible, if not unavoidable for many growers.
In the WASDE report, the 2014 Market Year Average price for corn is projected to fall between $3.65 per bushel and $4.35 per bushel.
Given this price range, there is about a $100 per acre range in which per acre returns can fall. Farmer returns likely are negative for cash rented farmland, given that costs are near average. Farmer returns for share rented farmland likely will be low.
Returns from an acre of corn production are calculated for three price scenarios: •The low price in the WASDE range for the 2014 marketing year: $3.65 per bushel
•The mid price in the range: $4.00 per bushel. •The high price in the range: $4.35 per bushel.
For each Market Year Average (MYA) price, a harvest price is needed so that crop insurance payments can be calculated. Based on the average difference from 1972 through 2013, the harvest price is set $.10 per bushel lower than the MYA price.
There is variability in the relationship between the harvest price and the MYA price over time, with extremes occurring in 1974 (harvest price was $.78 above the MYA price) and 2007 (the MYA price was $.62 above the harvest price). As a result of this variability, there can be variations in the relationship between crop revenue and crop insurance payments from those shown in this article.
Two yield scenarios are presented. The first is 197 bushels per acre, representing the average yield for central Illinois farmland with high productivity. Returns also are estimated for a high yield of 220 bushels per acre. These yields are selected based on expectations of above average yields for 2014. Similar to all years, yield experiences in 2014 will range across farms, with some farms having yields above 220 bushels per acre and some farms having below average yields. Generally, lower yield scenarios will result in lower returns and higher yield scenarios will result in higher returns, given the same price and costs.
Non-land cost and cash rents are the same across all price and yield scenarios. Non-land costs are at $588, as estimated in 2014 Illinois Crop Budgets. Cash rent is set at $293 per acre, the average cash rent for high-productivity farmland in central Illinois.
For average yields, farmer returns are negative at all prices: -$18 per acre for the $3.65 price, -$31 per acre at a $4.00 MYA price, and -$14 per acre at a $4.35 MYA price. Given the WASDE range, negative returns seem likely given average yields and average costs.
For high yields, returns are -$33 per acre at a $3.65 MYA price, -$1 per acre at a $4.00 MYA price, and $76 per acre at a $4.35 price. Positive returns are possible at high yields and at prices near the high of the WASDE range. Given growing conditions to date, yields of 220 bushel are possible on many farms in central Illinois. As more farms have higher yields, however, the chance of prices in the upper end of the WASDE range decreases, as higher yields result in more supply which typically has a dampening effect on prices.
There is a considerable range of revenues and returns that can occur for the 2014 cropping year. A range of roughly $100 is possible at this time point. However, the range is relatively low, particularly when compared to returns in recent years. For cash rental situations, farmer returns likely will be negative, except if yields are well above average and prices are near the high of the WASDE range.
Issued by Gary Schnitkey Department of Agricultural and Consumer Economics University of Illinois
This article originally appeared on the farmdocDaily website. For the full version, click here. Schnitkey is an ag economist with the University of Illinois.
La bourse de Chicago a de nouveau clôturé en baisse. Les températures demeurent modérées dans les régions du maïs américain – le marché météo continue donc avec des conditions quasi idéales pour la pollinisation du maïs dans le Midwest. Le rapport hebdomadaire sur l’état des récoltes qui sera publié en fin de journée devrait le confirmer.
Au Québec, par contre, les conditions sont beaucoup plus variables. On a connu un mois de juin particulièrement pluvieux (à l’exception de l’Abitibi-Témiscamingue). Par contre, juillet a été sec à date. Certes, le mois n’est pas fini mais si l’on se fie aux prévisions météorologiques, on aura peu ou pas de précipitations au cours des prochains jours. Si c’est le cas, on pourrait se retrouver avec des rendements de maïs modestes au Québec. Combinés à une forte chute des superficies, cela nous donnerait un sérieux déficit sur le marché local.
Les marchés européens sont inquiets quant à la qualité de leurs blés. Alors que le battage n’est complété qu’à 25%, plusieurs régions françaises ont eu des précipitations totalisant 50 mm au cours des derniers jours. La prime du blé panifiable par rapport aux blé animal a atteint plus de 30 euros la tonne (environ 45 $ la tonne). La qualité du blé est menacée par la germination qui entraîne une baisse de l’indice de chute, et donc de la qualité panifiable.
Vous pouvez consulter l'Hebdo des marchés dans la section "Les Analyses" de la page du Service d'information sur les marchés.
EPA continues to be a bit of a dirty word in the countryside. Despite Environmental Protection Agency administrator Gina McCarthy’s best attempts to clean up the agency’s act and build a bridge with the agricultural community, she keeps finding herself burning bridges.
The agency already had many in agriculture in an uproar over its proposed lower Renewable Fuels Standards for biofuels last fall. National Farmers Union president Roger Johnson explained that EPA’s reputation was “very severely damaged in farm country” with the proposal to scale-back the Renewable Fuels Standard and this likely led to the “surliness with which the WOTUS proposal rule was received.”
EPA has tried to spin its wheels in overdrive in an attempt to help ease the concerns of agricultural groups with its proposed changes to the Clean Water Act. McCarthy left the beltway and visited a farm and with agricultural stakeholders earlier this month.
But she didn’t find any friends when ahead of her trip she said agriculture’s concerns were “ludicrous” and “silly.” Kansas Farm Bureau President Steve Baccus said it’s disappointing to hear ag’s reservations about the agency’s “Waters of the United States” and “Interpretive Rule” proposals dismissed as “ludicrous” by McCarthy, especially when the public comment period is still open.
“In a democratic society, citizens have the right – and the responsibility – to speak up when government decisions impact their way of life. In turn, a government that derives its power from the governed must be willing to listen to its citizens and truthfully answer questions,” Baccus said.
McCarthy spent plenty of time trying to correct what EPA characterized as myths and misconceptions from the agricultural community. Specifically EPA said it has no intention of regulating ponds and puddles, would not regulate every ditch and won’t be regulating groundwater.
Ditch the rule or myths?
For several months the American Farm Bureau Federation has touted its Ditch the Rule Website designed to highlight what it sees as concerns with EPA’s proposal. The Farm Bureau also recently released to Congress a comprehensive document that responds, point by point, to what the group sees as numerous inaccurate and misleading comments made by EPA.
AFBF’s document explains – with specific citations to the proposed rule and other authorities – how the rule would give EPA broad Clean Water Act jurisdiction over dry land features and farming practices long declared off-limits by Congress and the nation’s highest court.
“AFBF and several state Farm Bureaus have met with the EPA repeatedly, and each time agency officials have declined to grapple with the serious, real world implications of the rule,” AFBF president Bob Stallman said. “EPA is now engaged in an intensive public relations campaign, and we believe its statements are directly contrary to the reality of the proposed rule.
The EPA has created its own site to counter the “myths” being circulated. The agency’s Ditch the Myth Website tries to lay out how the proposed rule “cuts through red tape to make normal farming practices easier while also ensuring that waters are clean for human health, communities and the economy.”
But Ashley McDonald, National Cattlemen’s Beef Assn. environmental counsel, said despite all the promises made by McCarthy and EPA in general, what matters are the words on paper and currently EPA has given itself “enough leeway to find a puddle jurisdictional.” McDonald said, “The words you left off the paper make this proposal a trial lawyer’s dream come true when it comes to farming and ranching operations.” (Read McDonald’s full rebuttal of McCarthy’s claims.)
When EPA released its proposed waters of the U.S. rule in the spring, the National Farmers Union was one of the few agricultural groups to quickly praise the proposal. Now, in a letter to McCarthy, NFU says the general sense from its board is that the proposed rule has “created less clarity, not more as intended.”
On July 15 the NFU board conducted a call with McCarthy. NFU president Roger Johnson said a number of questions were posed, but the board “did not feel that its questions were adequately answered.”
In the letter Johnson said that it may not always be possible to answer definitively whether a specific body of water is considered a water of the U.S. because some determinations need to be made on a case-by-case basis. “However, to the extent possible, it is important to do everything you can to reduce confusion and anxiety surrounding jurisdiction,” he said to McCarthy in the letter.
He added that failure to do so will lead to more resentment in rural America. Johnson explained that EPA’s reputation was “very severely damaged in farm country” with the recent proposal to scale-back the Renewable Fuels Standard and this likely led to the “surliness with which the WOTUS proposal rule was received.”
EPA continues to claim it’s willing to work with agriculture to develop a rule everyone can be happy with at the end of the day. But agricultural groups are right to ask for more clarification in writing to make sure courts aren’t doing the interpreting themselves.
The House Transportation and Infrastructure Committee this week passed by voice vote legislation sponsored by Rep. Steve Southerland, R-Ill., that would prevent the U.S. Environmental Protection Agency and the Army Corps of Engineers from finalizing a regulation that would expand their jurisdiction over various waters of the United States.
Southerland’s bill, the “Waters of the United States Regulatory Overreach Protection Act of 2014,” H.R. 5078, which has 37 cosponsors, is similar to legislation, S. 2496, sponsored by Sen. John Barrasso, R-Wyo., that is pending in the Senate Environment and Public Works Committee.
The House Appropriations Committee advanced their 2015 Interior and Environment Appropriations bill that restricts funding for EPA related to the Waters of the U.S. regulation. A similar provision was included in the House Energy & Water Appropriations bill for fiscal year 2015. The White House issued a veto threat against that bill citing the provision as an element in its decision.
Sen Charles Grassley, R-Iowa, said, with Congress likely to roll several of the spending bills into an catch-all bill this fall, he hoped that Senate Republicans would insist on similar language to block the clean water rule. "I hope we would be able to force that at the last minute," he told reporters in a news conference July 15.