Crop damage - 'demand destruction'

Demand destruction for food?! That means people starve.

Things are getting very serious

USDA sheds light on extent of damage to Soybean, Corn

The USDA report thereby confirms the fears about limited stocks of corn and soybeans towards the end of this crop season. In order to preserve stocks, demand destruction will have to be seen, something that can only really be achieved by seeing continued high prices

Commodity Online,

26 April, 2012

WASHINGTON :Prices were generally higher across the different commodity sectors in the past week, with weather and geopolitics still having the upper hand. There was a limited focus on weak economic growth across the world, which otherwise would argue against rising prices.However, following the monthlong rally, attention will increasingly return to slowing demand.The sustainability of the recent rally, especially in energy, can be put into question.

The DJ-UBS Commodity index rose by 0.4 percent. Ithas now rallied during six of the past seven weeks as the agriculture and the energy sector have experienced strong gains.

The most eagerly awaited “World Agriculture Supply and Demand Estimates” report for many years on Friday gave the first proper picture of the damage to US crop production caused by the worst drought in more than 50 years. In it the United States Department of Agriculture, after having surveyed 27,000 farmers, downgraded their estimates for 2012/13 corn production by 17 percent and soybeans by 11.7 percent compared with a month earlier.

The report thereby confirms the fears about limited stocks of corn and soybeans towards the end of this crop season. In order to preserve stocks, demand destruction will have to be seen, something that can only really be achieved by seeing continued high prices. On that basis we could nearterm see prices retrace a bit, as much positioning had already occurred on the basis of weak production data. Soybeans remains the crop with the tightest supplies and this could eventually trigger some soybean outperformance and see the ratio between the two crops move up from its current level of 2 (soybean price twice as expensive as corn). 

 

Sugar bucks the trend of rising food prices

The price of sugar rallied hard during July and helped drive the UN FAO sugar index up by more than 11 percent during the month. The rally was driven by a slower-than-expected start to the Brazilian harvest as rain hampered the process,coupled with the prospect of lower production in India due to a poor outlook for the monsoon. This raised concerns that the projected 2012/13 production surplus would not materialise. Money managers jumped on the story, not least helped by the bullish attitude towards agriculture commodities in general.

Since reaching a peak of 24 cents per pound, the price has been falling hard, especially following the technical break below 22 cents, and this week the price slumped below 21 cents on continued long liquidation. The net non-commercial or speculative position in NY Sugar for the week ending July 31 stood at 153,000 contracts (17.1 billion pounds), almost equalling the highs seen in March 2012 and September last year.

Improving weather conditions in Brazil following an easing of the wet conditions has triggered a pick-up in the harvest and helped reduce export delays, while industry officials in India still expect that the country will be able to export sugar during the 2012/13 season despite a monsoon thatis currently 17 percent below the average.Weather concerns, however, still linger and these could eventually steal the focus once more.While speculative traders exit unwanted long positions the price of sugar risks overshooting to the downside.