China PMI improves, commodity demand to lag
--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
LAUNCESTON, Australia, July 24 (Reuters) - It is perhaps a reflection of the parlous state of the global economy that what is essentially a negative reading on China's industrial strength is taken by the market as a positive signal.
The HSBC Flash Purchasing Managers' Index remained below the 50-level in July, indicating activity in the world's largest manufacturer contracted for a ninth straight month.
Corn, Soybeans Decline as Rains May Ease Stressed U.S. Crops (Source:Bloomberg)
Corn and soybeans fell for a third day on speculation rains from thunderstorms passing through the U.S. Midwest may bring some relief to parched crops, improving supply prospects in the world’s largest grower. Corn for December delivery lost as much as 0.9 percent to $7.71 a bushel on the Chicago Board of Trade, and was at $7.73 at 8:34 a.m. in Singapore. Futures jumped to a record $8 July 23. For the next two weeks, passing thunderstorms may bring some showers to the drought-parched Midwest. The region will probably still lag behind the normal amount of rainfall, said Joel Widenor, co-founder of Commodity Weather. Temperatures are expected to remain 5 to 8 degrees above normal throughout the region during the period, he said in a note to clients yesterday.
“Showers in the northern U.S. corn belt have eased some weather concerns,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia, said in a report today. “However, severe drought conditions persist across most production regions. The USDA is expected to substantially cut its U.S. production next month given the ongoing decline in crop conditions.” Twenty-six percent of U.S. corn and 31 percent of soybeans were in good or excellent condition as of July 22, the lowest for the date since 1988, the U.S. Department of Agriculture said July 23. Soybeans for November delivery declined as much as 2.1 percent to $15.36 a bushel, the lowest price for the most-active contract since July 13. Futures, which surged to a record on July 23, are on course for the biggest three-day loss since June 1. Wheat for September-delivery slipped as much as 1.9 percent to $8.625 a bushel in Chicago, before trading at $8.6425.
U.S. Corn Crop Forecast 13% Below USDA Estimate by Cekander (Source:Bloomberg)
Newedge USA LLC, the third-largest U.S. futures brokerage, cut its estimate for the nation’s corn production after conditions deteriorated for a seventh straight week in the world’s largest grower. Futures pared losses. The harvest will probably drop to 11.327 billion bushels (287.7 million metric tons) in the year beginning Sept. 1, smaller than an 11.8 billion bushel estimate last week and the lowest in six years, said director of grain research Dan Cekander, who correctly predicted in March that soybeans will trade at the most expensive level relative to corn since 2010. Without increased rainfall, output may be smaller, he said. Newedge’s estimate is 13 percent below the 12.97 billion bushels predicted by the U.S. Department of Agriculture on July 11 and 23 percent below the government’s earlier forecast for a a record 14.79 billion bushels from the most acres since 1937.
Cekander joins Damien Courvalin from Goldman Sachs Group Inc. in cutting his estimate. The drought that prompted the government to declare almost 1,300 counties in 29 states as natural-disaster areas, may cause an 8 million ton global shortage, according to Commonwealth Bank of Australia.
Crop Prices Extend Declines as Soybeans Tumble for Third Day (Source:Bloomberg)
Crop prices extended their declines with soybeans dropping for a third day on the Chicago Board of Trade as rains were forecast for parts of the U.S. Midwest. Soybeans fell 1.9 percent to $15.395 a bushel, bringing the three-day loss to 8.7 percent, after declining to $15.38, the lowest since July 13. Wheat dropped 1.6 percent to $8.645 a bushel and corn declined 0.9 percent to $7.7125 a bushel. Soybean meal slumped 2.7 percent to $457 per 2,000 pounds. Rain may fall in parts of Iowa and Illinois this week and next, and the Midwest might get showers in the next 11 to 15 days, reducing severe moisture deficits from the most-severe drought since 1988, Commodity Weather Group LLC in Bethesda, Maryland, said in a report.
Europe Heat Wave Wilting Corn Adds to U.S. Drought (Source:Bloomberg)
Heat waves in southern Europe are withering the corn crop and reducing yields in a region that accounts for 16 percent of global exports at a time when U.S. drought already drove prices to a record. Temperatures in a band running from eastern Italy across the Black Sea region into Ukraine reached 35 degrees Celsius (95 degrees Fahrenheit) or more this month, about 5 degrees above normal, U.S. government data show. Corn, now in the pollination phase that creates kernels, risks damage above 32 degrees, said Cedric Weber, the head of market analysis at Bourges, France- based Offre et Demande Agricole, which advises farmers on sales. The heat wave in Europe is adding to concern about global food supplies as U.S. farmers face the worst drought since 1956, India delays sowing because of a late monsoon and Australian crops endure below-average rainfall. Soybeans and corn rose to all-time highs yesterday and wheat surged 42 percent since June 1.
The United Nations says food prices will probably rebound after falling the most in three years in the second quarter. “Everyone is looking to the U.S., but clearly in Europe we’ll need to import a lot of wheat and corn,” said Weber, whose company advises about 5,000 farmers. “That’s just adding to the problems we’ve got everywhere.”
Wheat futures end well off session lows(Source:CME)
Wheat futures finished 20- to 30-plus cents lower in most contracts at all three exchanges today, although far-deferred months posted losses in the teens. Wheat futures finished well off session lows, ending mid-range in most contracts. Wheat futures followed the lead of corn and soybean lower today. With spillover support that wheat had been riding to the upside gone, the market is without solid support, leaving futures vulnerable to selling pressure.
Wheat Market Recap Report(Source:CME)
September Wheat finished down 34 at 878 3/4, 35 1/2 off the high and 26 up from the low. December Wheat closed down 30 3/4 at 888 1/4. This was 24 up from the low and 31 1/2 off the high. September Chicago wheat traded sharply lower into the closing bell as pressure spilled over from the losses in the corn and soybean markets. Kansas City and Minneapolis wheat traded lower on the day. Technical and fund profit taking hit the wheat market as fund positions drew closer to record levels. Corn closed well off it's session lows which offered slight support to wheat after midday weather maps looked slightly warmer and drier in the western Corn Belt the next 5 days. The western Corn Belt saw above normal heat today and missed showers causing further stress to corn crops in Iowa and Nebraska. The 6-10 weather outlook shows another ridge setting up next week which will push heat into the Central Midwest again. Overall, the market feels very uncertain about the forecast going forward. Outside markets turned extremely negative today adding significant pressure to the commodity complex. Stocks traded lower for the 2nd day in a row and the US Dollar move sharply higher. September Oats closed down 18 at 362 1/2. This was 2 up from the low and 13 1/4 off the high.
Corn futures trade 40-cent limit lower (Source:CME)
September through May 2013 corn futures traded their 40-cent limit lower today, but this sparked a wave of late value buying, helping futures to settle well off their daily lows. September futures closed 24 cents lower, while deferred months pared losses to the single-digits on the close. Corn futures faced followthrough profit-taking pressure today as rains crossed the northern and eastern Corn Belt and the forecast calls for additional rain chances. However, recognition that the crop is in really tough shape (USDA rates it 45% "poor" to "very poor") and that at best rains would stabilize the crop encouraged some late value-buying.
Corn Market Recap for 7/24/2012 (Source:CME)
September Corn finished down 24 at 790, 25 1/2 off the high and 16 up from the low. December Corn closed down 7 1/4 at 778 1/4. This was 32 3/4 up from the low and 11 1/4 off the high. December corn traded lower into the closing bell but managed to settle well off it's session lows. The August and December contracts traded limit lower briefly midday but found support on a slightly warmer and drier weather forecast in the western Corn Belt the next 5 days. Traders took profits for the second day in a row on technical and fund selling. Storm systems passed through Wisconsin, northern Illinois, northern Indiana, and Ohio today which most likely benefited soybean growth during pod-setting. The western Corn Belt saw above normal heat today and missed showers causing further stress to corn crops in Iowa and Nebraska. The 6-10 weather outlook shows another ridge setting up next week which will push heat into the Central Midwest again. The eastern Corn Belt may see an increase in precipitation but accumulation is expected to be light. Overall, the market feels very uncertain about the forecast going forward. Outside markets turned extremely negative today as stocks traded lower for the 2nd day in a row and the US Dollar move sharply higher. September Rice finished down 0.27 at 15.18, 0.03 off the high and 0.03 up from the low.
US drought to cause food price spike but not inflation
WASHINGTON, July 23 (Reuters) - Americans face higher food prices at the supermarket because of a drought this summer, but the increase will not have a lasting impact on inflation or the Federal Reserve's thinking on monetary policy.
Corn and soybean prices on the futures market have surged to record highs amid the worst drought in half a century, with new crop contracts for corn rising 50 percent since early June and soybeans increasing about 35 percent.
GRAINS-US corn, soybeans extend losses on forecast for rains
SYDNEY, July 24 (Reuters) - Chicago corn slipped more than 2 percent and soybeans slid more than 3 percent, extending losses from the previous session, as forecasts of rain eased some worries about the U.S. drought and the euro zone debt crisis continued to weigh on risk assets.
"Overnight we saw a pretty heavy sell-off in all risk assets after the Spanish bonds hit record levels, which managed to spook the financial markets," Michael Creed, agribusiness economist at National Australia Bank said.
China sees good corn harvest, industry demand slows
BEIJING, July 24 (Reuters) - Good weather in China's corn regions has raised expectations that the world's second largest consumer will have a bumper September harvest, and slowing demand from the corn processing industry will also ease pressure on supplies, analysts said.
Anticipating a bumper harvest, some private Chinese feed mills are selling back some of the cargoes they imported in the first half of the year from suppliers in the United States, where drought has driven prices to an all-time high.
US corn, soy crop ratings fall further amid drought
July 23 (Reuters) - U.S. corn condition ratings have fallen for the seventh straight week, declining more than expected as the crop continues to wilt amid the worst drought in the United States in 56 years, government data showed on Monday.
The U.S. Agriculture Department's weekly crop condition report released on Monday afternoon also showed the state of the soybean crop falling closer to levels last hit 24 years ago during the 1988 drought.
Argentine grains inspectors call three-day pay strike
BUENOS AIRES, July 23 (Reuters) - Workers at Argentina's food and animal health agency will start a three-day pay strike on Wednesday, a protest that will disrupt soy and corn loading in grains ports, a union leader said on Monday.
Grains exporters in Argentina -- one of the world's biggest food suppliers -- require certificates from the Senasa agency inspectors before grains and byproducts such as soybean oil and meal can be loaded.
Argentina's small farmers eye alliance with union boss
BUENOS AIRES, July 23 (Reuters) - Small-scale growers in grain powerhouse Argentina are moving toward an alliance with the country's top labor boss in a bid to combat interventionist government policies that they say hurt farm profits and scare off investment.
The agricultural sector has long quarreled with President Cristina Fernandez, who won a landslide re-election nine months ago on vows she would keep strengthening the state's role in Latin America's third-biggest economy. She soon made good on her promise by nationalizing the country's biggest oil company.
India cuts monsoon expectations to below average
NEW DELHI, July 23 (Reuters) - India's crucial monsoon rains are now expected to be below average, the government said on Monday, turning to contingency plans as rainfall has been about a fifth below normal so far and recent rains have not been enough to ease concerns.
The monsoon lost momentum last week, falling 22 percent short of averages and raising the risk of a drought year in one of the world's leading producers of grains and sugar just as global prices hit record highs and domestic food prices soar.
Russia's grain exports seen gathering pace-analysts
MOSCOW, July 23 (Reuters) - The pace of Russia's grain exports is rising after a slow start to the 2012/13 season, despite record wheat prices which hit new highs last week and may rise further this week, Russian analysts said.
Wheat with 12.5 percent protein content was quoted at $310 per tonne in Russia's main deep-water ports last week -- a new record high, Dmitry Rylko, head of the Institute for Agricultural Market Studies (IKAR), told Reuters on Monday.
Some US crops get welcome drink amid devastating drought
CHICAGO, July 23 (Reuters) - Rain will fall early this week in the northern U.S. Midwest, with from 1 to 2 inches expected across a broad parched swath of corn and soybean land roughly north of Interstate 80, an agricultural meteorologist predicted Monday.
"It's good news and bad news today. The good is rain north of I-80 with widespread coverage and temperatures in the mid- to low 90s degrees Fahrenheit," said John Dee of Global Weather Monitoring.
Kazakhstan cuts grain crop forecast due to drought
ASTANA, July 23 (Reuters) - Kazakhstan cut its 2012 grain crop forecast to 12.8 million tonnes on Monday, approaching a post-Soviet record low, as drought persists across parts of the Central Asian country.
The Agriculture Ministry forecast average crop yields of less than 1 tonne per hectare as hot and dry weather damages crops across parts of its northern grain belt. The ministry had previously forecast a grain crop of 14 million tonnes this year.
Dry weather hits EU grain yield outlooks
MILAN, July 23 (Reuters) - Persistently dry and hot weather in southern and south east Europe has hit grain yields in Europe and adverse crop weather is expected there until the end of July, the European Commission's crop monitoring unit said on Monday.
"Europe will remain divided between the North, characterised by low temperatures and relatively wet conditions, and the South, where scalding temperatures will strike the Iberian Peninsula and the Black Sea Area," the unit, called MARS, said in its monthly yields update.
SOFTS-Sugar, coffee ease, focus on Spain bailout risks
LONDON, July 24 (Reuters) - Sugar and coffee futures on ICE eased in light volumes in early trade weighed by fears Spain would need a major bailout and as Moody's Investors Service changed its outlook for Germany and other top-rated euro zone economies.
Cocoa futures edged up as the market consolidated following mixed global grindings results this month, clouding the outlook for demand.
Thailand frees more sugar for export - millers
BANGKOK, July 24 (Reuters) - Thailand has cut by 100,000 tonnes the amount of sugar the government will set aside from the 2011/12 crop for domestic consumption, allowing millers to export more, a milling group said on Tuesday.
Setting aside 2.3 million tonnes of sugar for domestic use could mean that Thailand's exports will hit a record high of 7.9 million tonnes in 2012.
Brazil cane industry expects to make up lost time -Unica
SAO PAULO, July 23 (Reuters) - Brazil's center-south sugarcane industry, which accounts for 90 percent of the country's sugar output, estimates it will be able to recover the days of production lost in recent months to wet weather by the end of the season late in 2012.
Accounting for half of the world's sugar exports, Brazil has fallen behind in its production of sugar this season by nearly 3 million tonnes compared with last year at this time, due to heavy rains over the past months that have stopped mills from crushing the new crop, cane industry association Unica said.
Tanzania rain a big boost to coffee output
DAR ES SALAAM, July 23 (Reuters) - Tanzania expects its 2012/13 (June/April) coffee output to rise 72 percent to 55,000 tonnes, helped by good rainfall, regulator Tanzania Coffee Board (TCB) said on Monday.
Tanzania produced a little over 32,000 tonnes of coffee in the 2011/12 season, lower than a previous forecast of 45,000 tonnes due to drought.
Oil Falls From Two-Day High in New York as Crude Supplies Climb (Source:Bloomberg)
Oil dropped from the highest closing price in two days in New York after an industry report showed crude stockpiles increased for the first time in four weeks in the U.S., the world’s biggest consumer of the commodity. Futures slid as much as 0.7 percent after the American Petroleum Institute said supplies rose 1.35 million barrels last week. An Energy Department report today may show they declined 1 million barrels, according to a Bloomberg News survey before the API data. Prices also fell after Iranian and European Union officials met to establish common ground for another round of talks on the nuclear program that has prompted sanctions against the Middle East nation, OPEC’s second-biggest crude producer.
“We’re seeing a knee-jerk reaction to the prospect that things might be slowing down in the U.S.,” said Jonathan Barratt, the chief executive officer of Barratt’s Bulletin, a commodity-markets newsletter in Sydney. “Keep an eye on the Energy Department data. There’s a lot of negative sentiment creeping into the market.” Oil for September delivery slid as much as 65 cents to $87.85 a barrel in electronic trading on the New York Mercantile Exchange and was at $87.98 at 11:25 a.m. Sydney time. The contract yesterday climbed 0.4 percent to $88.50, the highest close since July 20. Prices are 11 percent lower this year.
OIL-Oil above $103 after China data; Europe weighs
LONDON, July 24 (Reuters) - Oil rose above $103 a barrel after China's economy showed signs of improvement, but gains were checked by further evidence of damage to Europe's economy.
"China is the biggest driver of oil demand and its overall oil appetite does not seem to have suffered so much, as it builds up infrastructure and crude stockpiles," said Tony Nunan, a Tokyo-based risk manager at Mitsubishi Corp.
China's June Iran oil imports at 11-mth high - customs
BEIJING, July 23 (Reuters) - China's crude oil imports from Iran rose to their highest in nearly a year in June despite tough Western sanctions targetting Iran's oil shipments.
The June import figures precede European Union sanctions, which came into effect on July 1 and which banned insurance firms from providing coverage for shipments of Iranian oil anywhere in the world.
Exxon May Lead Drop in Global Oil Profits on Lower Prices (Source:Bloomberg)
The world’s largest oil companies are poised to report a drop in second-quarter earnings after crude prices declined for the first time in three years. Exxon Mobil Corp. (XOM), the world’s biggest oil company by market value, will probably say tomorrow net income dropped 13 percent from a year earlier to $9.3 billion dollars, based on the average of five analysts’ estimates compiled by Bloomberg. Royal Dutch Shell Plc (RDSA), Europe’s top oil producer, is expected to see profit decline 4 percent after adjusting for certain gains and losses. “We expect earnings to be down and for companies to miss the current consensus,” said Jason Gammel, an analyst at Macquarie Capital Europe Ltd. in London. “The oil price is the single biggest factor, and U.S. gas prices were particularly anemic. The one area that looks good is refining margins.”
Brent crude futures, a benchmark oil price used by much of the world, fell 7 percent from a year earlier to average $108.76 a barrel in the second quarter, the first year-on-year decline since 2009 as economic growth slowed in China and concerns mounted that the European debt crisis will erode demand. Oversupplies from burgeoning shale-field output in the U.S. pushed natural-gas prices down 46 percent to average $2.354 per million British thermal units. Slumping prices more than offset gains in production, including the return of Libyan fields, and widening refining margins in the U.S. and Europe.
China to Flood Steel Market Hurting ArcelorMittal: Commodities (Source:Bloomberg)
China, the world’s biggest steel producer, is exporting at the highest level in two years, exacerbating a global glut that may hurt competitors from ArcelorMittal (MT) to U.S. Steel (X) Corp. Monthly shipments abroad rose to 8.7 percent of domestic output last month, the highest proportion since July 2010. Chinese steel mills, set for a record production in 2012, are ramping up overseas sales to avoid a softer domestic market, where prices for the commodity have dropped to a two-year low. ArcelorMittal of Luxembourg, which reports earnings today, and peers in developed markets are closing plants amid slower economies and lower prices. In contrast, Chinese Premier Wen Jiabao is overseeing a $23 billion investment in new mills to stimulate automaking and housing to reignite growth that fell in the second quarter to the slowest in three years. The strategy already is sparking unfair-trade charges by Western rivals.
“Increased Chinese exports take sales directly away from American producers,” Alan Price of Wiley Rein LLP, which acts as the trade attorney for Nucor Corp. (NUE), the largest U.S. steelmaker by market value, said in an e-mail response to questions. “It is highly likely that current Chinese exports across a range of products are being dumped.”
LME Shareholders Poised to Vote on HKEx’s $2.2 Billion Takeover (Source:Bloomberg)
JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and other London Metal Exchange shareholders vote today on a takeover by Hong Kong Exchanges & Clearing Ltd., after a nine-month contest that ended with a $2.2 billion bid. The LME’s board backed the proposal June 15 after offers from rivals including CME Group Inc. (CME), Intercontinental Exchange Inc. and NYSE Euronext. (NYX) The meeting in London is scheduled to start at 9 a.m. The proposal needs the backing of more than 50 percent of shareholders and owners controlling at least 75 percent of the stock in the 135-year-old exchange. At stake is a bourse handling more than 80 percent of world trade in industrial-metal futures, setting global prices for metals from copper to aluminum to nickel. It would be the first overseas acquisition for Hong Kong Exchanges, the world’s second-biggest exchange by market value, and its first contracts in commodities. LME members may get more access to China, which consumes more metal than any other nation.
“It’s a historic milestone for the exchange,” said Michael Turek, a senior vice president at Newedge USA LLC in New York, who started in metals almost four decades ago. “I sense from some other people I talk to that there is an allure of being associated with a more robust growth area in the world at this time.”
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