I am always reluctant to copy out an entire piece, good writing deserves a visit.
In the instant case I must make an exception. The writing is so tight that there is no natural break.
From FT Alphaville:
It could have been very bad for the world’s largest commodities trader. But if you thought for a moment that the escalating wheat crisis might hit the middle-men in the hot seats of the global grain trade, think again.We are just as cynical and suspicious as the good folks of Alphaville:
While consumers, producers and food industry processors of wheat are grappling with price increases of as much as 90 per cent in just three months, one big winner so far in the grain crisis is none other than Glencore, the privately-owned Anglo-Swiss trader, and some other multinational commodities traders.
That has become clear in the last 24 hours, since Russia handed them a convenient escape route from some potentially disastrous wheat supply contracts with a surprise decision to ban all grain exports within 10 days.
Already, on Friday, exporters of wheat from Russia have started to void their supply contracts because of the government’s ban, according to Dow Jones.
The newswire cites traders and exporters saying that several companies with contracts that specify the supply of Russian-origin wheat have declared force majeure, which enables them to cancel contracts by citing circumstances beyond their control.
Meanwhile, as Bloomberg notes, US agricultural companies including Archer Daniels Midland, Monsanto and Potash Corp of Saskatchewan rose in New York trading on Thursday amid speculation that US wheat exports will jump as importers seek alternatives to Russian grain.
However, exporters with contracts to supply wheat of Russian are being forced to find alternative — and more expensive — sources, DJ added.
Indeed, as the FT noted in a separate report, Moscow’s ban has left some of the world’s largest wheat importers scrambling to secure alternative supplies. Cargill, for one, has attacked Russia’s ban, telling Bloomberg that implementing trade barriers in response to higher wheat prices and lower yields will exacerbate supply problems.
Countries from Egypt to Bangladesh, some of the world’s largest wheat importers, were likely to issue tenders in the coming weeks, the report added.
Russia currently has an estimated 6-6.5m metric tons of wheat exports booked for 2010-11 delivery, of which around 2.5m tons has probably been shipped, according to figures from Rabobank. That leaves a huge — and impossible — shortfall for traders committed to supply contracts.
Glencore itself could not have — err, planned it better.
It was only on Tuesday that the FT reported that executives at the firm’s Russian unit, the International Grain Company, had called on Moscow to impose a ban to allow traders to renegotiate their contracts. And what do you know, a few days later…
Glencore later “distanced itself” from the lobbying efforts of its Russian unit, adds the FT, with a spokesperson saying they did not “in any way reflect the views of Glencore”.
However, as the Wall Street Journal reported:
…based on its role in the market, Glencore and other commodities traders could be suffering from rising wheat prices and could benefit from Russia’s decision, which would allow it to void its money-losing contracts.As we noted earlier this week, with soaring demand from key regions of the world and other supply problems beyond Russia’s drought, such as Canada’s floods, Ukraine’s crop failures and India’s grain storage crisis, wheat is rapidly becoming the “gold” of the grain markets.
Rising wheat prices hurt suppliers such as Glencore because they likely had signed contracts to supply wheat at much lower prices. Since the beginning of July, wheat prices jumped nearly 70%, including an 8% rise on Thursday.
"Wheat's in a sweet spot, but run may not last"
Should prices see $8.50 the opportunities on the short side would almost be a lock.I say almost because the serious money in commodities can pretty much get prices to where they want them, at least for short periods....
Ambrose Evans-Pritchard: "Agflation fears as Russia halts all grain exports"; Albert Edwards: "This is more Deflationary than it Looks"
There is no shortage of wheat. U.S. stockpiles are at two decade highs. There may be more going on here than meets the eye....
...Two days ago Bloomberg reported: