This one is something to pay attention to. It's what you don't see....
...that's interesting here:
Quote:
Hedge funds raise profile in U.S. grain business
Thu Mar 27, 2008 3:47pm EDT
By Sam Nelson
CHICAGO (Reuters) - The presence of hedge funds in the U.S. agricultural sector expanded on Thursday with the sale of ConAgra Foods Inc's grain business to Ospraie, as speculators increasingly tie their futures trades to physical markets.
Trade sources said the sale was also a sign of tough times for grain companies which must find ways to protect against wild swings in the futures market and raise extra money for margin calls due to a credit crunch.
ConAgra said earlier Thursday it would sell its commodity trading and merchandising operations to Ospraie Special Opportunities fund, an affiliate of investment management firm Ospraie Management.
Link to full article
Another viewpoint
There's a whole lot of "talk" going on about this one. First off, there's other recent "new" hedge funds charging into the commodity biz, being that the mortgage and credit business profit opportunities have dried up. So, it's onward to commodities.
This market's going to be a whole lot more interesting, though. First off, we're already sitting at or near record highs in prices, and the market (in many commodities) may already be close to being fully priced. But, these hedge funds will ring much more liquidity into the commodities markets, and that tends to mean higher, and more volatile pricing. Means that nations buying food exports from the US, but also other nations, will find everything to be more costly.
Secondly, ConAgra appears to be betting that it's a great time to sell their Commodities merchandise and trading business, because (a) getting $2.1 bil US isn't pocket change, plus (b) there is no business disadvantage to them, because they are the only one of the majors which had a separate line of business for commodities trading. Looks like they think the assets they are selling today will be back on the market in a few years for less, and they can buy back if they so decide to.
But this has interesting potential considerations, because these hedge funds are out to make serious returns in commodities, and that means bottom line increasing prices for commodities. And the US is fast becoming one of the "suppliers of last resort" in terms of open market access for grain crops.
Imagine if wheat (Ex.: May, 2008 Wheat at CBOT closed right at $10 a Bu. this last week), goes up another 25%, which isn't out of the ballpark. Imagine $20 a bu. :eek:
This has real implications, because many of the nations which are major food importers are nations we have/had long standing negative balance of trade issues with. Those deficits may start to disappear, because (a) commodity food prices are going up rapidly, and (b) We've (the US) has the available food supply.
One immediate result would likely be that these nations will not want the US dollar to strengthen, because then acquiring the commodities will cost even more.
Game is going to get interesting....
Normally, this might not be a topic for SWJ. But food shortages can tend to create some interesting decision making among nations, and using armed conflict to establish future food supplies is one of those considerations, and it's not like it hasn't been a motivation in the past.
Btw, SWJ is "THE BEST". Love it here, because if you are into thinking, here's the place to be. If you are into "Talking Points", IMO, you best move on.
Those who control oil and water will control the world
Along this topic I thought this article was great at looking towards the food and water shortage issue. There are very few ways to create water and all of them cost orders of magnitude more than oil. All forms of food agriculture require water. Water is the future resource of conflict much like it has always been.
Link to story
Quote:
Those who control oil and water will control the world
History may not repeat itself, but, as Mark Twain observed, it can sometimes rhyme. The crises and conflicts of the past recur, recognisably similar even when altered by new conditions. At present, a race for the world's resources is underway that resembles the Great Game that was played in the decades leading up to the First World War. Now, as then, the most coveted prize is oil and the risk is that as the contest heats up it will not always be peaceful. But this is no simple rerun of the late 19th and early 20th centuries. Today, there are powerful new players and it is not only oil that is at stake.
It was Rudyard Kipling who brought the idea of the Great Game into the public mind in Kim, his cloak-and-dagger novel of espionage and imperial geopolitics in the time of the Raj. Then, the main players were Britain and Russia and the object of the game was control of central Asia's oil. Now, Britain hardly matters and India and China, which were subjugated countries during the last round of the game, have emerged as key players. The struggle is no longer focused mainly on central Asian oil. It stretches from the Persian Gulf to Africa, Latin America, even the polar caps, and it is also a struggle for water and depleting supplies of vital minerals. Above all, global warming is increasing the scarcity of natural resources. The Great Game that is afoot today is more intractable and more dangerous than the last.
MUCH MORE AT THIS LINK
Corn Briefing Room...huh ?
Watcher, Thanks for some intriguing conversation !
Who'd of thought the USDA has a Corn Briefing Room :cool:
Tons of great data, lots of links for old NCOs to research ;), but the majority is far more optimistic than the recent articles.
More interesting is how Argentina simply stands back and watches our corn production (supply and demand) and adjusts "fire" errr production.
Quote:
World Corn Trade
While the United States dominates world corn trade, exports only account for a relatively small portion of demand for U.S. corn—about 20 percent. This means that corn prices are largely determined by supply-and-demand relationships in the U.S. market, and the rest of the world must adjust to prevailing U.S. prices. This makes world corn trade and prices very dependent on weather in the U.S. Corn Belt. However, Argentina, the second-largest corn exporter in most years, is in the Southern Hemisphere. Farmers there plant their corn after the size of the U.S. crop is known, providing a quick, market-oriented supply response to short U.S. crops.
Can certainly use a more optimistic outlook...
because the grain market seemingly is being driven by the negative news. And as a result, prices are going up.
As to Argentina, that's what has tended to occur in prior years. But Argentina has created a major self inflicted wound resulting in a nationwide agricultural strike, which has lots and lots of implications.
Quote:
Argentina Bids To End Farm Strike
Apr 1, 2008 9:49 AM, By Richard Brock
In a bid to resolve a 19-day farm strike that has produced severe food shortages and a major political crisis, Argentina’s economy minister on Monday announced measures to compensate small-scale farmers for the effect of a recent controversial tax hike on soy exports.
Martin Lousteau says the government would offer refunds on export taxes equivalent to the loss that these smaller producers have incurred since the tax was raised under a new system introduced on March 11, when it provoked farmers to block roads and withhold supplies.
Vowing to challenge the heavy concentration of soy production in the hands of a few large producers, Lousteau says the measure would cover 80% of all producers – those who produce just 20% of the country's total output.
Additionally, special transport subsidies will be given to small producers in Argentina's more distant, poorer northern provinces.
Link to Article
There's another issue that's almost certainly going to come up, and that's the adoption and use of bio-engineered corn (like Bayer CropScience LibertyLink corn). All the activists say its unsafe, and they raise all the "Frankenfood" threats and issues. Here's a link to a more balanced outlook:
The other side of the story.
The real issue, long term, is that at least one, if not several options are going to have to start to occur in the near future to alleviate the food shortage issues. Bottom line, is that as in petroleum, food demand is and has been increasing greater than supply (for the last several years).
All the activists shout about "No War For Oil", but will they say the same thing about Food?:eek:
Strategic Grain Reserves? Probably No Time Soon...
Originally posted by Stan:
Quote:
Much like our need for strategic petroleum reserves, policymakers will soon have to come to terms with/or acknowledge that having grain reserves has become just as urgent.
You are probably quite correct, but tend to doubt that it goes anywhere, particularly after our experiences back in the 1960's and 1970's.
We used to have what you are talking about (Strategic Reserves), but it ended up being a giant boondoogle on a scale that was almost beyond imagination. It really was a mess, and if you talk to the guys who were active "back in the day", well they still tell stories about it. Let's just say that it tended to be a real life version of "The road to hell is paved with good intentions".
Seriously, it was bad, and then congress started using the program as "welfare for farmers", and honestly, that just made things worse - even for the farming community.
Remember all the "surplus cheese" owned by the USDA? It wasn't limited to just cheese.
You can only store crops for so long before they go bad (even under the best of conditions), so then you had storage issues, and then there was the program where the feds would provide subsidies for farmer's grain bins, storing federally acquired feed grain, and the audits, and the record keeping, and - what an overall, never ending nightmare.
One of the biggest problems you see today in the AG marketplace is that our storage capacity isn't up to the needs. Demand for building new grain storage has a backlog, and up into December, 2007 it was actually getting longer.
Tend to doubt they (and I mean the farming community in particular) wants to deal with that type of government program any more.
But there's news afoot with worldwide rice production.
Quote:
FAO expects rice production to rise by 1.8 percent in 2008
Market situation remains difficult in the short-term – lower rice trade
2 April 2008, Rome – World rice production is expected to increase in 2008 by 12 million tonnes or 1.8 percent, assuming normal weather conditions, FAO said today. Production increases would ease the current very tight supply situation in key rice producing countries, according to the first FAO forecast for this year. International rice trade is expected to decrease, mainly due to restrictions in main exporting countries.
Sizable production increases are expected in all the major Asian rice producing countries, especially Bangladesh, China, India, Indonesia, Myanmar, the Philippines and Thailand, where supply and demand are currently rather stretched. Governments in these countries have already announced a series of incentives to raise production.
Link to Information
Well, yes and no. A 1.8% worldwide growth in rice production is certainly better than what has occurred for the last several years, but not good enough. And remember, this is just an advance prediction by FAO - it has to actually come true.
The one thing it (an actual production increase) might do is alleviate some price increases on the futures market, but not for short term deliveries.
The other issue here is that UN crop "predictions" tend to be treated as somewhat suspect, at least to players in the commodities market. The term "wishful thinking" tends to come to mind.
But, we sure can use the increased worldwide production, if it comes true.
Btw, the very recent US futures market in grains (particularly corn) is showing some interesting trends. Farmers are seeing a very, very strong market for grains up through May/June, but not so much for future deliveries past that. Why the discount? Interesting question there.
World Bank echoes food cost alarm
The rapid rise in food prices could push 100 million people in poor countries deeper into poverty, World Bank head, Robert Zoellick, has said.
So, we have a new deal coming, but no money to fund it ?
Quote:
The World Bank and the IMF have held a weekend of meetings that addressed rising food and energy prices as well as the credit crisis upsetting global financial markets. Zoellick's proposal for a "new deal" to tackle the international food crisis was endorsed by the World Bank's steering committee of finance and development ministers at a meeting in Washington.
He also urged wealthy donor countries to quickly fill the World Food Programme's estimated $500m (£250m) funding shortfall.
Some intriguing video links such as this police raid in the Philippines at a warehouse suspected of hoarding rice. Doesn't appear to be much of a rice shortage, the rice is just not getting to anyone.
Then finally this tidbit:There is no rice shortage,
Quote:
and the country’s rice supply is stable enough to last for 57 days, said Philippine Department of Agriculture Secretary Arthur Yap. If there’s no rice shortage, why is rice price abnormally high?