Tuesday, August 3, 2010

"Wheat prices ease after Russia predicts stable exports" and "...Speculators ‘Hunt What’s Moving"

Chicago futures are changing hands at 690.500 -2.750.
From the Financial Times:
European wheat prices on Tuesday fell from a two-year high after Russia moved to calm fears on global agricultural markets, saying its grain exports would be stable despite the severe drought that has decimated crops.

High temperatures and a prolonged drought have destroyed at least one-fifth of Russia’s grain crop this year, sparking fears of wheat shortages, the world’s main staple. Those worries had propelled European wheat prices to a two-year high of €211 a tonne on Monday – up nearly 50 per cent since late June.

The Russian agriculture ministry said the country’s grain crop would drop to 70m-75m tonnes this year, but insisted cereals exports would remain stable because of bountiful stocks.
Alexander Belyaev, deputy agriculture minister, said Russia held 21.5m tonnes of grain stocks, enough to buoy the country’s exports this year and cover the nation’s needs.

“The country has sufficient resources to ensure that everything is favourable and reliable,” he told a grain conference in Siberia, news agency Interfax reported.

Mr Belyaev said the drought that set in last month had mainly destroyed crops used for animal feed and promised extra state support for livestock farmers.

In Paris, Liffe November milling wheat dropped 3.9 per cent to €199.75 a tonne following the minister’s comments. In Chicago, CBOT September wheat fell 1.7 per cent to $6.81 a bushel, after touching a 22-month high of $7.11 a bushel on Monday following the rally in Europe....MORE
As we quoted in yesterday's "Climateer Line of the Day: Staff of Life Edition"
...Reuters cited Rich Feltes at MFGlobal, who said he thinks wheat futures will get to $7. Feltes was quoted saying, "Structurally, everybody has been leaning the wrong way, and now you'll have every doctor and dentist wanting to own a piece of this (wheat market) now."... 
*When MarketBeat gets around to putting up a wheat post we should be looking for a lock limit-down day.
From Bloomberg:
Wheat futures may advance by more than 20 percent to as much as $8.50 a bushel as drought in Russia curbs supply and speculators “hunt what’s moving,” according to CWA Global Markets Pty.

The September-delivery contract in Chicago rose as much as 0.6 percent to $6.975 a bushel today, reversing an earlier loss to climb for a sixth session. Wheat reached $7.1125 yesterday, the highest level since Sept. 29, 2008. The most-active contract last traded at more than $8.50 a bushel in August that year.
Wheat has been the best-performing commodity on the UBS Bloomberg CMCI Index over the past six months. The hottest July in Russia in 130 years has hurt crops, adding to harvest losses from hot weather in Kazakhstan and parts of the European Union and from floods in Canada.

“Speculators are entering the market,” Peter McGuire, managing director at commodity trader CWA, said in a Bloomberg Television interview in Sydney today. “You hunt what’s moving, and I think that’s going to continue in the next couple of weeks,” he said.

Wheat output in Russia, the third-largest shipper in the 2009-2010 season, may drop 19 percent to 50 million metric tons this year, the U.S. Department of Agriculture said in a report yesterday. The nation’s exports may decline 23 percent to 14 million tons, the department’s Foreign Agricultural Service said.

Caught Off Guard
Wheat’s surge had caught people off guard, Greg Grow, the director of agribusiness for Archer Financial Services Inc. in Chicago, said yesterday. Pete Sorrentino at Huntington Asset Advisors in Cincinnati was among fund managers and analysts who said last month that prices may drop on bigger harvests. Prices will slump to $4.94 a bushel by Dec. 31, according to a Bloomberg survey of 14 analysts that was published on July 19....MORE
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.

When the Billionaire Hunt brothers were attempting to corner the silver market in January 1980 the head of one of the world's largest grain traders said "Those boys don't know what deep pockets are".
The "commercials" had been shorting into the Hunt bros. buying and the grain trader was at the top of the "commercial" heap.

On January 21 the COMEX went "liquidation only".
On January 22 the CBOT went "liquidation only".
On Tuesday the 22nd silver closed at $34, down 27% from its close the previous Friday.
The Hunt's still had enormous paper profits but any attempt to book them would smash the markets even further.

Prices declined to $17 by March, down 66% from the January high and the Hunt's were receiving calls of $60 Million per day in variation margin. On March 27 the price dropped from $21.62 to $10.80 and one of their brokers, Bache was in violation of net capital requirements and another, Merrill Lynch was on the brink.
As the attorneys got involved over the next few years, oil prices headed south, destroying the value of Daddy's creation (and the brother's piggybank) Placid Oil.

Bunker Hunt filed for bankruptcy in September 1988 as did his brother and Placid.

At the time the grain trader spoke it is probable that the various branches of the Hunt families comprised the wealthies "family" in America.

That's why I say "almost" a lock.