E.U. debt fight a threat to world crop exports: Maguire
-- Gavin Maguire is a Reuters market analyst. The views expressed are his own. To get his real-time views on the market, please join the Global Ags Forum. --
CHICAGO, Dec 14 (Reuters) - The spiraling debt worries plaguing European politicians in recent months is starting to have an impact on U.S. agricultural trade and could well restrict U.S. and global crop shipments throughout much of 2012.
Europe is the World's second largest importer of soybeans and wheat, and a major importer of corn, beef and many other agricultural products, and so represents a significant trading partner for U.S. crop and food producers. However, the recent strangling of credit in the region has served to stifle trade finance there to the degree that U.S. agricultural shipments to the E.U. have already dropped off sharply in recent weeks and pose a notable risk to the outlook for U.S. agricultural trade in 2012.
Commodities Fall Most in 11 Weeks in ‘Panic Selling’ on Europe’s Debt Woes (Source: Bloomberg)
Commodities posted the biggest drop in almost 11 weeks, led by gold and crude oil, as concerns mounted that European leaders are failing to stem the region’s debt crisis, eroding demand for energy, metal and crops. The Standard & Poor’s GSCI index of 24 raw materials declined 4.1 percent to settle at 621.93 at 3:43 p.m. New York time, swinging to a loss in 2011. Gold closed at the lowest price in five months, with silver at the cheapest since February. Oil slid more than 5 percent. German Chancellor Angela Merkel said there is no easy solution to the European crisis after rejecting an increase in the upper limit of funding for the region’s permanent bailout mechanism. The euro fell below $1.30 for the first time since January. The Federal Reserve yesterday refrained from taking new measures to spur growth.
As China Goes, So Go Commodities (Source: CME)
You want to know where the global commodities markets are heading in the coming years? Then it's probably best that you remember a single word: China. As the biggest and one of the fastest-growing of the world's developing economies, China has become a voracious consumer of industrial and agricultural commodities. Its shifting needs are now the most important driver in the prices of many of those goods. Producers often base massive capital investments largely on their expectations for Chinese demand for their products. Investors often make similar calculations before buying or selling commodities contracts or related securities. That's why no single factor is likely to have a more far-reaching impact on commodities markets over the next few years than how Chinese demand changes as the country's economy evolves.
"That's the big question," says Richard Adkerson, chief executive of Freeport-McMoRan Copper & Gold Inc. So what's the answer? Here are three possible economic scenarios, and what each would mean for global commodities markets.
Full Speed Ahead
If China's consumption of commodities continues to grow at the rate it has over the past 10 years, this is what the world would have to do to meet that demand in 2020, assuming that the rest of the world's collective appetite doesn't change at all: Pump almost as much additional crude oil as Saudi Arabia now provides per year. Grow more than three times as many soybeans as currently come out of Iowa, which alone provides 5% of global output. Extract nearly three times as much new copper as the current annual production from Chile, which mines about four times as much as any other nation. And that's just for starters. Vast increases in supply would be needed for all sorts of other commodities as well.
Prices that rocketed to record heights in recent years on Chinese buying could fly even higher. That would be good news for companies that produce those commodities and investors who have placed bets on them -- unless high prices abruptly choke off demand or spur the Chinese and other buyers of commodities to seek alternative goods. Materials in tight supply or at risk of significant constraint, like crude oil, copper and palladium, could be vulnerable to sharp price increases. Their prices shot up 50%, 106% and 207%, respectively, in the five years through 2010. By contrast, aluminum is plentiful, cotton production is rising sharply and nickel output is climbing -- at least for the moment -- which can make them less vulnerable. It's also easier to produce some commodities in greater quantity when needed, which can limit price shocks. It takes less time, for example, to grow more corn than it does to find new oil beneath the ocean floor.
Many analysts consider the fast-growth scenario improbable. The consensus is that China is headed for slower economic growth than it experienced from 2001 to 2010, when its annual rate of expansion ranged from 8.3% to 14.2% and reached double digits six times, according to the World Bank. If the consensus is right, the question becomes how much China's growth will slow. A growth rate of 4% to 6% would be a big leap forward for the U.S. economy and plenty of others. But not for China. That's the range of growth expected for the Chinese economy by around 2013 or 2014 by Roubini Global Economics LLC, a New York-based research and consulting firm. Shelley Goldberg, the firm's director of global resources and commodity strategy, calls that a "hard landing" after the far more rapid expansion of the past decade. "Obviously, it doesn't bode well for commodities," Ms. Goldberg says.
Demand for steel, copper and other industrial metals could drop significantly if China does stall, because those materials are heavily used in construction -- which would be at risk from weakness in the Chinese real-estate market -- and because China often accounts for some 40% of global demand for those materials. Coal demand could also tumble, she says, because the fuel is heavily used in China to generate power. Some commodities could take a hit not because China uses more of them than anyone else but because it has been providing much of the growth in their markets. For instance, while China accounts for just 11% of global oil demand, according to Barclays Capital, it provides 60% of the growth in that demand. Similarly, a hard landing might hurt the soybean market more than the corn market, because China is a huge importer of soybeans but produces almost all the corn it needs at home, says Kevin Norrish, managing director for commodities research at Barclays Capital.
For many China watchers, including Barclays, the most probable scenario is an economy that keeps expanding strongly but at a less blistering pace, with annual GDP growth rates in the high single digits. That would mean continued upward pressure on most commodities prices, with some possibly rising substantially, but in most cases not the soaring prices that a red-hot economy would produce. "We still see loads of reasons why growth is going to continue, but the rate of growth is going to slow over time," says Jim Lennon, who specializes in Chinese commodity markets as an analyst at Macquarie Group Ltd., one of the leading financiers for commodities producers. The first half of the current decade will see more rapid growth than the second half, in Mr. Lennon's view, as the main engine of the Chinese economy over time switches from massive infrastructure projects to consumer demand for durable goods. The result will be a tamer increase in consumption of base metals and other commodities, he says.
Between 2000 and 2010, Chinese consumption of copper, aluminum, zinc, nickel and lead grew at compound annual rates ranging from 13.9% to 24.4%, according to a presentation Mr. Lennon delivered in October. For 2010 to 2020, the projected growth range is 5.3% to 9.3%, the presentation said. Even in a slower-but-steady world, demand -- and prices -- could shoot up for some commodities. For instance, China uses less natural gas per capita than many other countries, notes Neil Beveridge, a Hong Kong-based senior oil analyst for investment bank Sanford C. Bernstein. That will change, he says, as more people use the fuel to heat or cool their homes and greater volumes are consumed by industry. In 2010, China imported about 1.6 billion cubic feet of natural gas per day, according to the U.S. Energy Information Administration. Mr. Beveridge expects China's imports to grow to 10 billion cubic feet per day by 2015 and 20 billion by 2020, more than any other nation's at that point.
Meanwhile, demand is likely to continue growing for some food commodities but shrink for others, says Scott Rozelle, a professor at Stanford University who studies Chinese agriculture. As China's growing middle class consumes more meat, animal feed such as soybeans and corn will continue to be in increasing demand, he says. But "the demand for wheat and rice will fall" as diets continue to evolve, Mr. Rozelle says, and China may occasionally even export some of those less-coveted staples, as it has over the past 10 years. One thing to keep in mind is that China is such a big market now that any increase in consumption -- even in a slower but steady economic expansion -- can create a big chunk of fresh demand, and push prices up accordingly. As Ms. Goldberg notes, "They still are 1.3 billion people."
Corn (Source: CME)
US corn futures end sharply lower on pressure from a stronger US dollar, but hold above a closely watched support level. Given sharp losses in markets ranging from crude oil to gold, agricultural commodity prices "are holding up stronger than I thought," said Frank Cholly Jr, senior commodities broker with RJO Futures. He sees upside potential for corn once the euro bottoms. Worries about Europe's debt crisis and a broader economic downturn weighing on prices. March contract holds above support at $5.80, a nine-month low set last week. Drop below that could prompt more liquidation, traders say. CBOT March corn ends down 2.3%, or 13 3/4c, at $5.80 3/4.
Wheat (Source: CME)
US wheat futures tumble as worries about Europe and poor demand weigh. March CBOT wheat ends at a contract low amid a broad commodity slump caused by Europe and a surging dollar. "The best thing you can say about today's grain markets were they performed massively better than the gold or crude markets," says Dave Marshall, an independent broker and adviser in southern Illinois. Traders add that weak export demand gives the market little reason to bounce back. March CBOT wheat ends down 3.3%, or 19 3/4c, to $5.80 3/4. March KCBT wheat ends down 20 1/2c to $6.35 1/2 and March MGEX wheat closes down 14 1/4c to $8.15 3/4.
Rice (Source: CME)
US rice futures extend their free-fall, ending lower amid widespread commodity losses prompted by a stronger dollar and worries about Europe's debt. Grains fell across the board. Rice has slumped throughout the fall on poor demand and ample world supplies, and set a fresh 5 1/2-month low. CBOT Jan. rice ends down 1.4%, or 20c, to $13.65 per hundredweight.
French Soft Wheat Harvest Seen At 33.8M Tons (Source: CME)
French soft wheat production is likely to fall to 33.8 million metric tons in the 2011-2012 season, from an estimated 35.7 million tons in the same period a year earlier, France Agrimer, said. The government agency only slightly raised its estimate for 2011-2012 from a previous forecast of 33.7 tons last month. France Agrimer forecasts soft wheat exports to non-European countries will fall to 8.6 million tons, down from 12.9 tons in 2010-2011, and exports to European countries will fall to 6.5 million tons from 6.7 million tons last season. Regarding non-EU exports, "five million tons have already been dispatched as of the first week of December. This means that non-EU exports are certainly going to slow as we cannot export what we don't have", said the agency president, Remi Haquin.
Global Rice Prices Head Higher (Source: CME)
Aggressive buying by Asian governments is pushing up rice prices, even as the world heads for a second straight year of record harvests. Thailand, India and Indonesia are stockpiling rice to ensure they have a secure, reasonably priced supply for their people and also to guarantee artificially high prices to their farmers. Earlier this year, rising food prices contributed to inflation in parts of Asia, causing some jitters. The increased buying follows flooding from July to October that destroyed about 20% of the main rice crop in Thailand, the world's biggest rice exporter. While nations like India and China have increased their output, boosting the global rice harvest, much of it isn't available for export. All of this is good news for bullish investors, who saw rice futures on the Chicago Board of Trade climb to 18.255 cents a pound in September, their highest level in almost three years.
Futures have since eased, by almost four cents, but analysts say they could revisit the September high if the Thai export squeeze continues. The International Grains Council, or IGC, predicts Thailand will export about eight million metric tons of rice in 2012, a 24% drop from a year earlier. Rice-industry officials say exports may slump to five million tons because in addition to the flooding, the Thai government has promised to buy unmilled rice, or paddy -- which is rice with its husk intact -- from farmers at a price that's now about 50% above the prevailing market rate. The price of milled benchmark-grade white rice is at a three-year high on the cash market in Thailand and Vietnam, which together control about half of the world's trade. Analysts say prices could move even higher.
Other countries may not have the desire, or ability, to export more rice. India's government buys more than a third of its own crop, and IGC says Indian exports won't exceed 4.5 million tons in the marketing year that started Oct. 1. And the U.S. says dry weather may reduce its rice output 21% to a six-year low in the year ending July 31.
U.S. corn, soy dip on Europe crisis, higher supplies
SINGAPORE, Dec 14 (Reuters) - U.S. corn and soy fell , giving up last session's modest gains as Europe's unresolved debt crisis weighed on riskier assets, while hopes of plentiful global grain and oilseed supplies also dented sentiment.
"It is perhaps the strength in the U.S. dollar which is on the back of euro zone concerns," said Brett Cooper, senior manager of markets at FCStone Australia.
Bangladesh not to import rice on record crops -official
DHAKA, Dec 14 (Reuters) - Bangladesh will not import rice over the next six months to June 2012 because it has bulging domestic stocks and domestic procurement is rising, thanks to successive record crops, a senior procurement official said on Wednesday.
"We have imported 350,000 tonnes of rice so far in the current fiscal year and we don't need to buy further from the global markets in the rest of the year," said the official. The fiscal year started in July.
Australia 2011/12 wheat output estimates
SYDNEY, Dec 14 (Reuters) - Australia, one of the world's top four wheat exporters, is set to reap a record 28.3 million tonne crop in 2011/12, the U.S. Department of Agriculture said in its latest forecast, although recent rain is threatening to reduce the quality of the crop in some areas.
USDA revised up its forecast by 2.3 million tonnes in line with the latest Australian government forecast estimate.
Ukraine AgMin raises grain exports forecast -report
KIEV, Dec 13 (Reuters) - Ukraine's Agriculture Ministry has raised its forecast of grain exports in the current season to 25 to 27 million tonnes from 23 to 25 million tonnes, Interfax news agency quoted minister Mykola Prysyazhnyuk as saying on Tuesday.
The ministry's previous forecast was driven by concerns about winter grains. A severe drought had hit most of Ukraine's grain-producing areas and could have killed a third of winter grain crops sown for the 2012 harvest.
UK wheat exports edge up, still below last year
LONDON, Dec 13 (Reuters) - UK wheat exports edged up in October, although continuing to run significantly below last season's levels, customs data showed on Tuesday.
Shipments during October totalled 291,511 tonnes, up from the prior month's 277,315 tonnes.
Canada grain sector wary of Wheat Board battle
WINNIPEG, Manitoba, Dec 13 (Reuters) - A wary Canadian grain industry will ease cautiously into signing forward price contracts for the prized 2012 wheat and barley crops, as legal entanglements over Ottawa's plan to end the Wheat Board's marketing monopoly hamper any swift moves into an open market.
A Conservative government bill is set to end the Canadian Wheat Board's monopoly on western wheat and barley sales next August. The change would shake up the industry, creating an open market and leaving the CWB a smaller, optional grain buyer.
Global Coffee Market Prepares for Record Espresso-Bean Jolt: Commodities (Source: Bloomberg)
Record robusta harvests in Vietnam and Brazil and potentially the biggest jump in Indonesian output in 16 years are boosting supplies of the coffee used to make espressos just as slowing economic growth threatens demand. Production may climb for a fourth year, gaining 2.3 percent to 55.98 million bags (3.36 million metric tons) in 2011-2012, Rabobank International predicts. More supply will create the biggest glut in at least four years, according to Macquarie Group Ltd. Prices that already fell 9 percent this year will drop a further 8.5 percent to $1,750 a ton by June 30, the lowest level since October 2010, the median estimate in a Bloomberg survey of 13 traders showed.
Robusta surged 62 percent in London trading in 2010 as record demand created the first shortages in at least three years, according to Macquarie. Supply is now expanding amid mounting concern that Europe’s debt crisis will derail the global economy. Coffee sales fell for the first time in seven years in 2009 as nations contended with recessions, according to Euromonitor International Ltd., a London-based research group.
Indonesia frets about sugar stocks as farmers protest imports
JAKARTA, Dec 14 (Reuters) - Indonesia is concerned about domestic white sugar supplies between March and May next year when current stocks of 740,000 tonnes run out and the new crushing season has yet to start, a senior trade ministry official said on Wednesday.
Bayu Krisnamurthi, deputy trade minister said this at a meeting with the Indonesia Sugarcane Farmers Association (APTRI), who was demanding the cancellation of a plan to import 500,000 tonnes of sugar next year and other policies they say have made them lose several hundred million dollars.
Australia sees sugar exports up despite trimming output fcast
SYDNEY, Dec 14 (Reuters) - Australian sugar exports are forecast to increase by 7 percent in 2011-12 to 2.8 million tonnes in line with a rise in production from canefields recovering from cyclone damage earlier this year, the government's commodities forecaster said.
The forecast is mostly unchanged from one made by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) in September, despite a downward revision of expections for the harvest.
Vietnam 11/12 coffee output seen up-attache
Dec 13 - Following are selected highlights from a report issued by a U.S. Department of Agriculture attache in Vietnam:
"Post forecasts for MY 2011/2012 a production increase to 20.6 million 60 kg-bags (equivalent to 1.24 million tonnes). The rainy season continued until the end of November, which delayed the coffee harvest. Post expects that new-crop coffee will be ready in the local market from the second week of December.
According to official data from Vietnam's General Statistics Office, in MY 2010/2011, Vietnam exported 1.232 million tonnes of all types of coffee products, valued at a record $2.6 billion. This is an increase of 6 percent in volume and 56 percent in value over MY 2009/2010 due, in part, to high global prices.
Prospects for next Brazil cane crop better -Unica
SAO PAULO, Dec 13 (Reuters) - After several months of downward revisions in Brazil's 2011/12 main center-south cane crop, the season is ending with a whimper, but next year already looks better, sugar and ethanol industry association Unica said on Tuesday.
Nearly all of the 350-odd sugar and ethanol mills in the center-south, which accounts for 90 percent of Brazil's cane output, have closed for maintenance over the interharvest period, Unica said.
Mauritius 2011 sugar estimate lifted to 430,000 T
PORT LOUIS, Dec 13 (Reuters) - Mauritius' Chamber of Agriculture revised its 2011 sugar production forecast upward by 4.9 percent to 430,000 tonnes on Tuesday on the back of improved sugar cane productivity.
Sugar, long a pillar of the Indian Ocean island's nearly $10 billion economy, accounts for roughly 1.2 percent of gross domestic product.
Oil Trades Near Five-Week Low on OPEC Production Ceiling, European Debt (Source: Bloomberg)
Oil traded near the lowest price in more than five weeks in New York after OPEC raised its output ceiling and Europe’s debt crisis worsened, threatening a recession that may curb demand for commodities. Futures were little changed after dropping yesterday the most since September after members of the Organization of Petroleum Exporting Countries meeting in Vienna agreed to raise their output target to 30 million barrels a day. Prices were also depressed by events in Europe, with Italy’s five-year bond yield climbing to a 14-year high at an auction. Ernst & Young LLP said the euro region is likely to slip back into recession. “Europe and OPEC are the drivers,” said Ric Spooner, a chief analyst at CMC Markets in Sydney. “European leaders haven’t addressed the issue of potential contagion of the sovereign debt problems. That creates the possibility that confidence will be a problem for international economies, and a lack of confidence has the impact of dampening demand for most things, including commodities.”
Brent slips towards $109 ahead of OPEC; EU woes weigh
SINGAPORE, Dec 14 (Reuters) - Brent crude slipped towards $109 ahead of a meeting of oil cartel OPEC as investors turned their attention to the global growth outlook after the U.S. Federal Reserve warned that turmoil in Europe threatened the U.S. economy.
"There is some profit-taking we are seeing today after oil surged so high yesterday," said Tetsu Emori, a fund manager with Astramax Co. in Tokyo.
OPEC readies 30 mln bpd oil deal
VIENNA, Dec 14 (Reuters) - OPEC oil producers gathered on Wednesday for a meeting that is expected to reset a production limit for the first time in three years and settle an argument over output levels in Saudi Arabia's favour.
The Organization of the Petroleum Exporting Countries ministers will consider a new supply target of 30 million barrels daily, roughly in line with current production.
Sri Lanka's diesel imports seen up in Jan -sources
SINGAPORE, Dec 14 (Reuters) - Sri Lanka's diesel imports for January are expected to double from previous months as domestic demand for power generation rises, industry sources said on Wednesday.
State-owned company Ceylon Petroleum Co (Ceypetco) is seeking about 600,000 barrels in total of 0.25 percent sulphur gasoil for delivery in January, through three different spot tenders, they said.
OPEC, IEA agree on balanced oil market ahead
LONDON, Dec 13 (Reuters) - Healthy production levels by OPEC will help balance oil markets next year as demand growth slows, the West's energy watchdog and OPEC said on Tuesday, a day ahead of a policy-setting meeting by the producer group.
The International Energy Agency said the Organization of the Petroleum Exporting Countries had raised output to its highest level in more than three years, and the oil producer group said it was now pumping more than might be required next year.
Euro Coal-Prices stable despite oil gain
LONDON, Dec 13 (Reuters) - Physical prompt coal prices were little changed on Tuesday on shrinking liquidity in the holiday season in Europe, despite a rally in oil futures after the International Energy Agency forecast demand growth next year.
The IEA's five-year outlook for coal was more bullish than for oil, with a forecast of a steady rise in European and Asian imported prices to 2016 due to growing absolute demand from China and relatively strong demand from India.
Coal outlook uncertain, China remains driver - IEA
LONDON, Dec 13 (Reuters) - The forecast for coal to 2016 is marked by extreme uncertainty over the global economic outlook and the impact of shifts in China's domestic market, the International Energy Agency said on Tuesday.
Coal demand worldwide will keep growing in the medium term, despite calls in many countries for reducing reliance on high-carbon fuels, the IEA said in its Coal Medium-Term Market Report 2011 released on Tuesday.
Gold May Extend Rout to Enter Bear Market as Rallying Dollar Hurts Demand (Source: Bloomberg)
Gold may extend a rout into a fourth straight day as a rally in the dollar erodes demand for the metal as an alternative investment, raising the prospect that the commodity may tumble into a bear market. Spot gold traded little changed at $1,576.65 an ounce at 9:22 a.m. in Singapore after swinging gains and losses. Immediate-delivery metal lost 8 percent in the preceding three days, and is set for a second weekly loss. The February-delivery contract slumped as much as 1 percent to $1,571.50 on the Comex. The dollar rose to an 11-month high against the euro yesterday on signs of increased funding stress as Europe battles its debt crisis, driving spot gold to $1,563.38, the lowest level since Sept. 26. Gold dropped below its 200-day moving average yesterday for the first time in almost three years, indicating to some analysts that more declines may be in store.
Iron Ore-Spot at 2-week lows on subdued China steel demand
SINGAPORE, Dec 14 (Reuters) - Iron ore dropped to two-week lows with offer prices in top buyer China retreating on Wednesday, reflecting restrained buying interest from steel producers coping with sluggish demand.
Prices of steel in China, the world's biggest consumer and producer of the construction raw material, have been mostly flat to lower in recent weeks, trimming crude steel output to 49.88 million tonnes in November, the lowest in 14 months.
Australia lifts iron ore export forecast on China
SYDNEY, Dec 13 (Reuters) - Australia has lifted its forecast for iron ore exports by 2.4 percent to a record 460 million tonnes in 2011/12 as producers dig more mines to feed a growing hunger in China for imported ore to make steel.
Iron ore prices have weakened this quarter as questions persist over China's future growth prospects, but that has done little to deter mega-producers such as Rio Tinto and BHP Billiton from earmarking billions of dollars to expand in Australia's western iron range.
Baltic index turns negative, capes seen supported
LONDON, Dec 13 (Reuters) - The Baltic Exchange's main sea freight index, which tracks rates to ship dry commodities, turned negative on Tuesday on concerns about a glut of vessels, although strong Chinese demand for iron ore limited losses on the capesize market.
The shipping sector in coming months is expected to face a supply glut and economic gloom that will pressure earnings, including concerns over the outlook for Chinese demand for raw materials.
Ship orders languish in the dry dock of funding
LONDON/SEOUL, Dec 13 (Reuters) - The cancellation of an order from South Korea's second-biggest ship builder, the country's first this year, signals a worsening storm for the seaborne sector as bank funding dries up and overcapacity pulls earnings further under water.
Daewoo Shipbuilding & Marine Engineering said late on Friday that a Greek shipper had cancelled a 589.3 billion Korean won ($514 million) order for two very large crude carrier (VLCCs) oil tankers and two bulk carriers, made at the height of a shipping boom in 2008.
