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Weekly Commodity Report w/e 31-3-17

This week there is an intersection of economic ley lines: it is the end of the month, the end of the Quarter and another USDA report.

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HF Weekly Commodity Report (7).jpg

Traditionally funds review their strategic positions at the end of every Quarter, and there is evidence that they have been actively adjusting their positions in recent weeks, 'squaring' them to wait and see if their bets are confirmed by the USDA, or were wrong and exit their positions asap. Thus the ends of a Quarter which coincides with a USDA report usually signal a volatile week as both the trade and funds rush for the revolving door.

After a two year investigation (Operation Weak Flesh), Brazilian police believe that two major meat packers, bribed licensed inspectors to approve rotten and salmonella-contaminated meat for export. Acids were used to improve the smell, hygiene and appearance of the meat, and some consignments were adulterated with tapioca, potato, cardboard and water! Some 40 companies are involved; 21 plants are being investigated and three have been closed. Allegedly packers could select unprincipled inspectors ensured that hygiene and export certificates were issued. Seven meat inspectors and 33 Ministry personnel have been implicated, as well as a couple of politicians and a Minister of Justice. The value of Brazilian meat exports is over $14bn /annum. It appears to be another incident of economically-motivated food adulteration. Many countries have banned Brazilian meat imports including the EU which is sending in its own meat inspectors. There will be consequences in terms possible relocation of meat production, independent audits, but what of raw material usage– will livestock production in Brazil fall, leaving more feed ingredients in over-supply?

Matif May wheat futures have fallen from about €177 to €164.50 from 1st to 31st March respectively, making contract lows of €163.75 on Thursday. UK wheat is valued at €172/t so is €6/t higher than the French, which facilitates wheat imports. In Sterling, UK May wheat futures are trading at £147 – where it has been almost level since mid-January. There are over 4000 lots of Open Interest in May futures, representing 400,000t of wheat, so some buyers may opt to take `physical delivery’. The assumption is that the status of UK wheat stocks may not become apparent until contract expiration on 23 May, which could then give a new direction to June and July physical wheat prices. There is still a £15/t difference between old and new crops. The July contract has been shunned to date, with only 21 lots of Open Interest. In terms of new crop, EU crop monitoring service MARS believes that EU weather conditions have been almost perfect, and is predicting an 8% rise in yields to 6.02t/ha (5.6t/ha last year).

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In South America, Brazil’s first maize harvest is more than 60% complete, and the second (safrinha) crop is 70% planted. The Brazilian soya harvest is over 70% complete, with the northern states of Mato Grosso and Goias (bordering the Amazon) 98% complete, and the southernmost state of Rio Grande do Sul only 20% complete. GM soya is about £302/t ex port.

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Cargill, the world’s biggest agricultural commodity trader, has warned that protectionist policies could adversely affect the global economy and could cause a trade war with China. The subtext is that if the US cannot export its soya, what is going to happen to US farmers, soya-dependent China (and Cargill)?

In 1922, Alfred Watkins set out the concept of ley lines in his book ‘Early British Trackways’. He had visited Blackwardine in Herefordshire and noticed that many hilltops trackways and Neolithic monuments could be joined in straight lines, suggesting ancient trackways.

He used the term 'ley' because the lines often passed through places whose names contained the syllable ley. The English Place-Name Society (EPNS) states that 'ley' derives from the Anglo-Saxon 'leah' meaning a woodland clearing.

The EPNS maintains an interesting place name interpreter


Paul Poornan & Martin Humphrey