UK wheat price 'to drop to £165 a tonne' - HSBC

29th Nov 2012, by Agrimoney
UK growers should be prepared for a drop in wheat prices which HSBC cautioned could be in for a slump of some 30%, despite continuing setbacks in even getting winter crop sown.

The bank, a major lender to UK farmers, in a report outlining 2013 agriculture forecasts, pegged the average UK wheat price next year at £165 a tonne – a level not seen since March on London futures.

London's current spot contract, January, was trading at £227.00 a tonne on Thursday, with the average at £222 a tonne for the five 2013 contracts.

However, while rain may continue to be plaguing UK farmers - prompting them to cut wheat sowing hopes to the lowest in more than a decade, and leaving 30% of winter crop area still unplanted – the market was vulnerable to the potential for a better world crop, Allan Wilkinson, HSBC Bank's head of agriculture, said.

'Governed by world events'

"The UK crop in the context of the world crop is not is not important," Mr Wilkinson told Agrimoney.com.

"We are governed by world events. We do not shape world events," in the cereals sector.

Furthermore, while £165 a tonne was lower than headline prices, it was "not that far short" of values farmers were currently receiving for 2012 crop, once penalties for its low quality were factored in.

The comments follow a core autumn sowing period which, for most of the European Union and Black Sea area has been "favourable", European Commission researchers said earlier this week, flagging the UK, France and parts of Russia as exceptions.

Even then, Arkady Dvorkovich, the Russian deputy prime minister, on Thursday said that the Russian winter grains data pointed to a "good harvest" in 2013.

One major setbacks to wheat hopes is in the US, where the crop is entering dormancy in its worst condition on records going back to the 1980s.

Nonetheless, the International Grains Council on Thursday forecast world wheat area reaching harvest in 2013 rising to its highest in 15 years.

'Driven by global forces'

Mr Wilkinson's comments were echoed by Jack Watts at the UK's HGCA crop bureau, who said that, despite the poor domestic conditions, "it is important that farmers do not get complacent towards current high prices.

"Markets are driven by global forces largely irrespective of what is happening in the UK."

Mr Watts earlier this month flagged the potential for options as a means for producers worried that they may be unable to get crop into the ground to lock-in historically high prices for 2013 crop.

Traders at a major European commodities house flagged the potential for prices to drop earlier next year, if UK farmers hold out too long selling 2012 crop, at a time of surging imports.

The traders asked: "Does this then leave us with a lump of wheat to ship come April-June in the face of new crop," ie with supplies from the 2013 harvest close to coming onstream?

Given the low quality of this year's wheat currently in bins, "the market could drop at least E20 a tonne to find demand, given today's price parities".

Wheat returns

Mr Wilkinson's comments came as the bank launched a report projecting farm returns for 2013 in a range of markets, showing wheat farmers on potentially for a net margin of £45.00 a tonne, factoring in variable costs of £51.20 a tonne, and overheads of £68.80 a tonne.

For milling wheat, the margin for a good-yielding crop, of some 9.5 tonnes per hectare, was pegged at £53.20 a tonne, including a £20-a-tonne milling premium.

For spring barley - in which farmers look set to plant their biggest area in living memory, seed allowing – the net margin was put at £53.00 a tonne, factoring in a £25.00 a tonne malting premium.

'Supply chains have to be viable'

In the livestock sector, a producer with a 210-cow farm can expect a surplus of some £38,000 in England, including support payments, and factoring in a milk price of 27.0p, below the 29.06p received in January, according to data from the DairyCo dairy bureau.

"We are mindful of the global market, and that supply chains have to be viable," Mr Wilkinson said, at the end of a year which has seen two UK processors merged into foreign rivals.

Mixed lowland cattle and sheep farmers were seen offering a return of at best £11,352, in Wales, with store cattle operations, and hill farms, seen running at a loss, before support payments.

Official flags China's growing crop import needs

29th Nov 2012, by Agrimoney
A top Chinese agriculture official backed measures to prevent farmland grabs in China, warning that the country's waning self-sufficiency will make it increasingly dependent on imports to feed itself.

Chen Xiwen - deputy director of the Chinese Communist Party's leading group on rural policy – said China had to better protect its arable land, and boost farm productivity, to improve an agriculture sector which has struggled to keep up with the country's booming economy.

China would need an extra 40m hectares of arable land - an area the size of Zimbabwe and some 25% of the existing total – to grow enough crops to replace imported volumes.

China, famously, has to support about one-fifth of the world's population with less than 10% of global arable land.

However, current land rules have failed to protect farmland for agriculture, a factor which, with the migration of as many as 230m farm workers to cities so far this century, has undermined China's production potential.

'Expropriated too much'

The comments come the day after China's cabinet voted to tighten laws against land grabs, warning over the threat to food security besides its impact on fuelling rural unrest.

"Rural land has been expropriated too much and too fast as industrialisation and urbanisation accelerate," a meeting of the State Council said, according to the official Xinhua news agency.

"The government must make efforts to beef up support for farmers and place rural development in a more important position."

And earlier this month, Han Changfu, the Chinese agriculture minister, warned over the need for broad agricultural reform, given challenges such as water shortages too.

'Greater risks'

"The next five-to-10 years are a key period for the development of China's agriculture sector - with production factors like land, water and labour getting tighter," Mr Han told the Communist Party Congress.

"Agricultural production is facing greater risks - natural risks, market risks, security risks - and it is entering a period of high investment, high costs and high prices."

Improving Chinese production would mean encouraging a "new type of agricultural player and develop large-scale mechanised farming", in contrast to the current sector predominated by small farms, relying to a high degree on manpower.

The comments come as Hu Jintao, the Chinese president, prepares to hand over power to his successor, Vice-President Xi Jinping.

'Story of their economic growth'

China's growing reliance on imports has been highlighted by data for the first 10 months of the year showing a near-quadrupling, to 1.98m tonnes, in imports of rice, a grain in which the country has been largely self-sufficient.

China has been a net importer only seven times in the last 50 years – three of them being the last three years, according to US Department of Agriculture estimates.

The country has also become a net importer of corn, and this year a big buyer of wheat too.

Macquarie analyst Chris Gadd, flagging "strong demand from China for high quality milling wheat", said that the country's "drive for high quality wheat in China is a story of their economic growth.

"As their populous becomes more affluent they have a greater demand for higher-quality baked goods such as speciality breads along with pastries.

"This shift will drive a great requirement for high quality wheat," he said, if downplaying expectations for wheat imports in 2012-13.

World wheat area to hit highest since 1998 - IGC

29th Nov 2012, by Agrimoney
The area of wheat harvested in 2013 harvest will rise to a 15-year high, despite the setbacks to crops in the US and parts of Europe, potentially paving the way for a rebound in production.

The International Grains Council, in its first detailed estimate for the area of wheat harvested next year pegged it at 223.2m hectares, a rise of 2.2% year on year.

The increase, to the highest since 1998, reflects "elevated domestic and international prices" of the grain, whose value remains near record highs in Europe and Russia, encouraging farmers to raise seedings.

Furthermore, in the northern hemisphere, which has nearly completed winter sowings, "the crop condition is regarded as generally good, and the plants are reasonably well established ahead of the winter", the council said.

'Dry conditions slowed germination'

The exceptions are the US, "where dry conditions slowed germination", and parts of the European Union, namely the UK and France, "where conditions were overly wet", the intergovernmental group said.

Indeed, UK growers which have normally wrapped up winter crop sowings by now, were estimated this week to have 30% of plantings yet to do.

Nonetheless, European Union wheat area overall, at harvest, will increase some 800,000 hectares to 25.8m hectares.

And, in the US, even allowing for an abandonment rate of 14% of sowings of 23.6m hectares (58.3m acres), harvested area will still rise back over 50m acres for the first time since 2008.

'Improved soil moisture'

The forecasts hold out the potential for a recovery in wheat production from the 654m tonnes at which the IGC on Thursday estimated the world's 2012-13 harvest, a 1m-tonne downgrade from last month's figure.

The downgrade, to a level implying a 41m-tonne drop in world output year on year, reflected "slight" revisions to forecasts for crops in the EU and in Australia, where the ongoing harvest was pegged at 21.5m tonnes.

Boding well for the 2013 crop are rains which "improved soil moisture in central and eastern growing areas of Turkey, while drier conditions in western regions promoted winter crop growth.

"Iran's crops also benefitted from rainfall, including previously-dry eastern regions."

A particularly strong rebound in sowings was forecast for Argentina, where harvested area was seen rebounding 25% to 4.5m hectares, after plantings were depressed in the current season by a switch to barley blamed on government export restrictions undermining wheat price potential.

GRAINS-U.S. wheat drops on weak exports, set for weekly gain

Fri Nov 30, 2012
* Wheat expected to bounce back on dry U.S. weather

* Corn could gain due to poor South American stocks
By Mayank Bhardwaj
NEW DELHI, Nov 30 (Reuters) - Chicago wheat futures fell for the second straight session on Friday, dragged down by weak exports from the United States and profit taking after a consistent rally this week.

But wheat is on course to finish the week more than 2 percent higher and also post a tiny monthly rise.

"Some profit taking and poor export numbers released by the USDA set the bearish trend for wheat which had been posting continuous gains this week," said Lynette Tan, an analyst with Phillip Futures in Singapore.

U.S. export sales of wheat and corn were the smallest in three weeks last week, with each missing traders' expectations, U.S. Agriculture Department (USDA) data showed on Thursday.

But wheat is expected to rise again from next week as fundamentals remain bullish, Tan said.

"There are indications that the very reason behind this week's rally in wheat will again push wheat higher next week," she said.

Dry weather conditions in the United States, the world's biggest exporter of the grain, had spurred the longest rally in wheat futures since July before prices eased as traders took profits on Thursday.

Concerns over yield and output of the newly seeded hard red winter wheat remain as drought conditions hit farms in the U.S. Plains.

Also, expectations of a lower exportable surplus from the Back Sea region would lend support to wheat, Tan said.

Chicago Board Of Trade December wheat dropped 0.7 percent to $8.62-1/2 by 0510 GMT, after falling 0.7 percent in the previous session. The most active March wheat also fell 0.6 percent to $8.80 a bushel.

This year drought hit the Black Sea countries, which normally produce about 10 percent of the world's wheat, forcing them to slash their harvest and exports.

Corn also fell due to weak export data. But corn was also expected to inch back due to falling stocks in South America, Tan said.

December corn fell 0.3 percent to $7.49-1/4 a bushel, after shedding 5-1/4 cents on Thursday, its first drop in four sessions.

Soybean fell after registering a three-week rise in the previous session, buoyed by strong soy products exports and forecasts of wet weather in Argentina, the world's biggest exporter of soyoil and soymeal.

January soybeans fell 0.2 percent to $14.45 per bushel.

Grains prices at  0510 GMT
 Contract    Last   Change Pct chg Two-day chg MA 30 RSI
 CBOT wheat  880.00  -5.50  -0.62%  -1.37%  876.79   51
 CBOT corn   756.25  -2.50  -0.33%  -0.53%  743.27   54
 CBOT soy    1445.00 -3.00  -0.21%  -0.09%  1479.19  54
 CBOT rice   $15.16  $0.05  +0.30%  -0.23%  $15.07   62
 WTI crude   $87.72  -$0.35 -0.40%  +1.42%  $86.52   53

(Editing by Jacqueline Wong)

Wheat Halts Weeklong Rally as Demand for U.S. Exports Slackening

By Tony C. Dreibus - Nov 30, 2012
Bloomberg
Wheat futures fell for the first time in five sessions on signs of declining demand for supplies from the U.S., the world’s biggest exporter.

Export sales in the week through Nov. 22 totaled 279,337 metric tons, down 56 percent from a week earlier, the U.S. Department of Agriculture said today.

Since June 1, overseas buyers have agreed to purchase 16.2 million tons, down 10 percent from the same period a year earlier, USDA data show. The government said Nov. 9 that exports would rise 4.8 percent.

“Demand bearishness has reared its head after the export- sales report came out,” Mike Zuzolo, the president of Global Commodity Analytics & Consulting in Lafayette, Indiana, said by telephone.

Wheat futures for March delivery slid 0.6 percent to close at $8.855 a bushel at 2 p.m. on the Chicago Board of Trade. The price has gained 36 percent this year as dry weather reduced global production 6.4 percent to a five-year low.

The grain climbed 3.7 percent in the previous four sessions as dry weather eroded conditions for winter varieties grown in the U.S. Great Plains. About 78 percent of Kansas, the biggest grower of the variety, was in extreme or exceptional drought as of Nov. 27, compared with 36 percent a year earlier, data from the weekly U.S. Drought Monitor show.

Wheat is the fourth-largest U.S. crop, valued at $14.4 billion in 2011, behind corn, soybeans and hay, government data show.

Corn Futures Drop as Export Demand Ebbs; Soybeans Advance

By Jeff Wilson - Nov 30, 2012
Bloomberg
Corn futures fell from a five-week high as demand by producers of grain-based fuel, animal feed and food ebbed. Soybeans gained.

U.S. export sales of corn in the week ended Nov. 22 tumbled 69 percent to 263,140 metric tons from a week earlier, the Department of Agriculture said today.

Production of ethanol slid 1 percent in the week ended Nov. 23 to the lowest in five weeks, the Energy Department said yesterday. The number of chicks placed on feed last week dropped 3.8 percent from a year earlier, USDA data show.

“The rally in prices slowed exports and ethanol production,” Jerrod Kitt, the director of research at the Linn Group on Chicago, said in a telephone interview. “The drop in chicken production also weighed on the market.”

Corn futures for March delivery dropped 0.7 percent to close at $7.5875 a bushel at 2 p.m. on the Chicago Board of Trade. Yesterday, the price reached $7.675, the highest for a most-active contract since Oct. 19. The grain has gained 17 percent this year after a Midwest drought reduced production.

Soybean futures for January delivery rose 0.1 percent to $14.48 a bushel in Chicago. Earlier, the price reached $14.60, the highest since Nov. 9. Export demand increased last week for animal feed and cooking oil made from supplies in the U.S., the world’s biggest producer.

U.S. exporters sold 365,058 metric tons of soy-based animal feed in the week ended Nov. 22, up 84 percent from a week earlier and the most in two years, the USDA said today. Soybean- oil sales surged more than 13-fold to 121,527 tons from a year earlier.

Corn is the biggest U.S. crop, valued at $76.5 billion in 2011, followed by soybeans at $35.8 billion, government figures show.

Govt to export extra 25 lakh tonnes of wheat from own stocks

CCEA also decided to continue exports of wheat and non-basmati rice through private trade

Press Trust of India / New Delhi Nov 29, 2012,
Sitting on huge reserves of foodgrains, the government today allowed additional exports of up to 25 lakh tonnes of wheat from its own stocks to clear the surplus in godowns and ease storage crunch.

The Cabinet Committee of Economic Affairs (CCEA) also decided to continue exports of wheat and non-basmati rice through private trade. The ban on exports of these items through private trade was lifted in September last year in view of bumper output.

Later in July, the government had allowed exports of 20 lakh tonnes of wheat from government stocks through PSUs such as MMTC, STC and PEC till March 2013. Of this, 15 lakh tonnes have been contracted and 8 lakh tonnes shipped out so far.

Through private route, 30.8 lakh tonnes of wheat and 73.4 lakh tonne of non-basmati rice have been exported so far.

"The CCEA has approved an additional export of wheat from FCI godowns. The Cabinet did not mention any specific quantity for exports but there was an agreement to review exports once the shipments touch 25 lakh tonnes," a source said.

The CCEA allowed exports of additional quantity of wheat from the central pool as global prices are lucrative, the source added.

Wheat shipments from India have got higher price of up to $322 per tonne in the contracts entered by PSUs so far.

Exports of surplus wheat will ease storage problems. The government at present has a wheat stock of 40.5 million tonnes, alomost double the stipulated buffer stock requirement of 21.2 million tonnes.

The foodgrains stocks have piled up in the government godowns owing to record production and procurement in the last two consecutive years.

India is exporting wheat mainly to neighbouring Bangladesh, South Korea, Thailand, Vietnam, Indonesia, Yemen, and Oman.

Wheat production stood at a record 93.9 million tonnes in 2011-12 crop year (July-June). The country is all set for a bumper wheat crop this year as well.

Cabinet nod for more wheat, rice exports

OUR BUREAU, THE HINDU BUSINESS LINE
NEW DELHI, NOV. 29:
The Cabinet Committee on Economic Affairs has approved the continuation of the unrestricted export of wheat and non-basmati rice.

This is in view of the adequate availability of wheat and non-basmati rice in the domestic market, an official statement said.

The proposal was moved by the Department of Commerce. Sources said additional wheat exports of up to 2.5 million tonnes (mt) would be allowed from the Government’s stocks.

The Government is sitting on a huge pile of wheat stocks pegged at 40.57 mt as of November 1 about thrice the buffer and strategic reserve at this point in time. The Government’s latest move would help fetch better realisations as global wheat prices have firmed up as drought in countries such as Russia, Ukraine, the United States and Australia has slashed output hurting supplies.

The Government had earlier allowed exports of 2 mt from the Central pool stocks, of which over 7.5 lakh tonnes has already been shipped out of the country. State-run firms PEC, MMTC and STC have issued tenders for export of 1.5 mt so far. On Thursday, PEC Ltd received the highest bid at $328 a tonne from a buyer in West Asia for shipments from the west coast.

India top rice exporter in 2012

30 NOV, 2012, RITURAJ TIWARI, ET BUREAU
NEW DELHI: It's game India for rice exports this year. The country toppled Thailand for the first time in three decades to emerge as the top rice exporter but the latter won the day in sugar exports.

According to the US Department of Agriculture's latest report, India exported 9.75 million tonne rice in 2012, beating Thailand, which could ship only 6.5 million tonne, slipping to the third slot after Vietnam.

In 2011, Thailand had exported 10.7 million tonne rice while India, which opened rice export only in September last year, managed to ship 4.8 million tonne.

However, in sugar exports, Thailand maintained its second spot with an expected shipment of 7.7 million tonne in 2012. On the other hand, India could ship only 3.67 million tonne after the export was freed up from quota restrictions in July this year.

India has always had a price advantage over Thailand, which sells at a premium in the world market. The international price of Thai rice ranges between $530 and $540 per tonne while the same Indian variety fetches anything between $375 and $385 in global markets. "The steep variation in Thai and Indian rice varieties is mainly because of the Thai government's high support price to farmers. The government paid farmers 15,000 baht per tonne for 100% white paddy and 20,000 baht for fragrant paddy to fulfill its election promise.

Iron ore at 6-wk low as China demand sags, heads for monthly drop

Fri Nov 30, 2012
* Shanghai rebar down 3.7 pct in Nov after 2 months of gains

* China steel overcapacity exacerbating impact of winter lull
By Manolo Serapio Jr
SINGAPORE, Nov 30 (Reuters) - Spot iron ore touched six-week lows as demand from top buyer China declined in tandem with falling steel prices, putting the raw material on course for its first monthly loss in three.

Shanghai steel futures fell to their weakest since September on Friday and dropped nearly 4 percent this month as China's winter curbed construction activity and the need for steel.

The most active May rebar contract on the Shanghai Futures Exchange closed up 0.8 percent at 3,495 yuan ($560) a tonne, after slipping to a low of 3,464 yuan, the weakest since Sept. 21.

Construction-used rebar fell 3.7 percent for all of November, snapping two months of gains.

China's capacity glut, long blamed for eating into steelmakers' margins, is exacerbating the usual winter lull, weighing on prices even more.

"What we have seen is that overcapacity has actually got worse, especially for long products, and I see no change in policies to try to fix that," said Xu Zhongbu, chief executive of Beijing Metal Consulting, which advises big state steel firms on technology.

"In the next year environmental protection regulations will be stricter - we now have this beautiful China policy - but this isn't going to address the overcapacity issue because it won't be difficult for these small guys to replace their equipment and meet the new guidelines."

With a weaker steel market, there is less incentive for Chinese mills to buy raw material iron ore, driving down spot prices all this week.

Benchmark iron ore with 62 percent iron content .IO62-CNI=SI fell nearly 1 percent to $116.90 a tonne on Thursday, its lowest since Oct. 19, according to data provider Steel Index.

For November, iron ore is down 2 percent, after surging more than 30 percent over the past two months.

The price could drop further towards $110 next week, said a Shanghai-based trader.

"Some mills are still seeking cargoes but they prefer only those already at sea whose owners would be eager to sell at lower prices. There is no big interest for cargoes due in January," he said.

Miner Rio Tinto sold a cargo of 61-percent grade Australian Pilbara iron ore fines at $118.88 a tonne at a tender on Thursday, a dollar lower than a previous deal, traders said.

Vale sold 65-percent grade material at $123.01 per tonne, more than $3 less than before, traders said.

"The Chinese are taking their foot off the gas on the tenders," said Jamie Pearce, head of iron ore broking at SSY Futures, who expects iron ore prices to be rangebound towards year-end as activity winds down.

Weaker steel demand in winter, high steel output and the unwillingness of steel traders to restock due to tight capital will keep China's steel market under pressure, according to a report by the country's midsized steelmakers published on the website of industry group China Iron and Steel Association.

 Shanghai rebar futures and iron ore indexes at 0701 GMT

  Contract                          Last    Change   Pct Change
  SHFE REBAR MAY3                   3495    +27.00        +0.78
  PLATTS 62 PCT INDEX                118     -0.25        -0.21
  THE STEEL INDEX 62 PCT INDEX     116.9     -1.00        -0.85
  METAL BULLETIN INDEX            117.66     +0.16        +0.14

  Rebar in yuan/tonne
  Index in dollars/tonne, show close for the previous trading day
  ($1 = 6.2281 Chinese yuan)

(Additional reporting by David Stanway in Beijing and Ruby Lian in Shanghai; Editing by Himani Sarkar)

Vale Investment Cut Seen Bigger on Price Slump: Corporate Brazil

By Juan Pablo Spinetto - Nov 30, 2012
Bloomberg
Vale SA (VALE), the worst performer of the world’s three top mining companies this year, is poised to undertake the largest spending cuts since 2009 as iron-ore markets signal prices are set to drop for almost three years.

The biggest iron-ore producer will probably announce next week a $15.3 billion business plan for 2013, according to nine analysts’ estimates compiled by Bloomberg. A similar survey in September put the program at $16.8 billion. The reduction from $21.4 billion in spending budgeted for 2012 would be the first since 2009, when Vale announced a 36 percent mid-year reduction in capital expenditure to about $9 billion.

Chief Executive Officer Murilo Ferreira is selling assets, looking for partners and writing off unprofitable projects after Vale shares slumped to the lowest in almost three years in September on slowing demand from China. The Rio de Janeiro-based company’s leaner budget will probably help bolster investor confidence that his plan will improve profit margins, Renaissance Capital’s Rene Kleyweg said.

“The CEO is starting to make the right decisions in terms of cost cuts and capital discipline,” Kleyweg, an equity analyst at Renaissance, said in a telephone interview from Johannesburg on Nov. 27. “Vale is a better company than it was two years ago.”

Vale lost 11.8 percent for investors in dollar terms including dividends this year, compared with a 4.8 percent return for Melbourne-based BHP Billiton Ltd. (BHP), the biggest mining company, and 0.2 percent for London-based Rio Tinto Group. The shares are down 3.2 percent, more than the 1.1 slide for Rio and the 0.6 percent drop for BHP.

Vale is trading at 6.5 times earnings estimates for the next year, compared with 13.6 at BHP and 8.6 at Rio.

New Management

December iron-ore swaps declined 1.5 percent to $111.96 a dry metric on Nov. 28, according to data from SGX AsiaClear, the largest clearer of the swaps. October 2015 contracts traded at $99 a ton, the data show.

Ferreira, who succeeded Roger Agnelli in May 2011 amid government criticism that Vale wasn’t investing enough, this year cut output of premium pellet products, suspended projects and sold assets for about $1.2 billion as demand wanes in China and Europe, the company’s two biggest markets. China’s economic growth probably will slow to 7.7 percent this year from 9.3 percent last year, according to the average of 56 economists’ estimates compiled by Bloomberg.
The asset sales included a thermal-coal project in Colombia.

The company, which is analyzing bids for its oil and gas assets, hired Banco BTG Pactual SA and Bank of America Corp.’s Merrill Lynch to sell a stake in its logistics unit for about $1 billion, two people with direct knowledge of the plan said earlier this month.

‘Many Possibilities’

Ferreira is also seeking to sell stakes in fertilizer and non-iron ore units including its $5.9 billion potash project in Argentina. Partners for core projects are also being considered, Chief Financial Officer Luciano Siani said on an Oct. 25 conference call.

“The decision has been made but we are still exploring the market to see what’s the possibility to realize value,” Siani said about the possible stake sales.

“We have many possibilities but we will manage those very carefully.”

A Vale press official in Rio said the company won’t comment before its investment program is released.

The company’s share price still doesn’t reflect the efforts to cut costs and spending, JPMorgan Chase & Co equity analyst Rodolfo De Angele said.

“We believe the shares are not pricing in the implementation of changes and a more cautious approach towards growth marked by higher discipline and lower capex,” De Angele wrote in a Nov. 26 note to clients. “Looking ahead, we expect iron-ore prices to stabilize and capital allocation to continue to improve.”

‘Key Risk’

Vale’s net income excluding some items will slump to $10.7 billion this year and $10.6 billion in 2013 from $22.9 billion in 2011, according to the average of six estimates compiled by Bloomberg in the past 28 days. That would be the lowest since the $5.35 billion reported in 2009.

While Vale has taken steps to reduce capital expenditures, it would still need to spend about $40 billion to finish its expansion projects between 2013 and 2017, implying investments of at least $13 billion a year, Alexander Hacking, a New York- based equity analyst at Citigroup Inc., said.

“Many investors are hoping Vale could reduce capex to $12 billion to balance its budget, but this appears unlikely looking at the current stage of key projects,” he wrote in a research note on Nov. 13. “The trend towards lower iron-ore prices in future years is a key risk.”

Cost Discipline

Iron-ore delivered to China’s Tianjin port, a benchmark for Asia, sank to a three-year low of $86.70 per metric ton on Sept. 5. after plummeting 55 percent from a record $191.9 in February 2011. The price has since rebounded 35 percent.

Vale’s executives probably will emphasize the cost discipline efforts as they meet with investors in New York and London next week to present the spending plan, Renaissance’s Kleyweg said.

“We are getting some positive momentum in terms of operational issues and management recognizing the mistakes of the past,” he said. “This is a stock that is fundamentally attractive now.”

Cameroon signs off on $4.7bn Mbalam iron-ore project

By: Esmarie Swanepoel
30th November 2012
PERTH (Mining Weekly) – The Cameroon government has signed off on the development of the Mbalam iron-ore project, inking the Mbalam Convention with ASX-listed Sundance Resources.

The convention underpins an agreement between Sundance subsidiary Cam Iron SA and the government, outlining the fiscal and legal terms and conditions for the development and management of the Mbalam project.

The convention, with a number of other conditions, including an endorsement by the Cameroon National Assembly, would lead to the mining permit and the start of construction.

The signing of the convention was also a condition precedent to the 45c-a-share takeover offer of Sundance by Hanlong Mining.

Sundance chairperson George Jones said on Friday that the signing of the convention was a historic event for Cameroon, Hanlong and Sundance.

Stage one of the Mbalam project would focus on a direct shipping ore project with a minimum project life of ten years producing some 35-million tons a year of ore, while stage two would extend the project life by an additional 15 years, and would produce high-grade itabirite hematite concentrate.

The project currently has a total hematite resource of 775.4-million tons, grading 57.2% iron. A maiden resource of 1.4-billion tons of itabirite mineralisation, at 35% iron, has also been defined at the Nabeba deposit, in the Republic of Congo. This was in addition to the 2.3-billion tons of itabirite previously announced at the Mbarga deposit, in Cameroon.

The maiden resource brought the Mbalam project’s total hematite and itabirite resource to 4.49-billion tons.

The project currently had a capital cost of some $4.7-billion.

Edited by: Mariaan Webb

India throws $15 bn lifeline to world's iron ore miners

AGENCIES, Financial Express
Posted: Thursday, Nov 29, 2012
India/Singapore: India's efforts to clamp down on illegal mining have handed a $15 billion lifeline to global iron ore giants, and there could be more to come.

Steps taken by federal and state authorities to clean up the mining and export of iron ore have shut down output in two key producing states, slashing shipments and forcing steel mills to import a raw material the country has in abundance. Now the Shah Commission, whose report on top exporter Goa led to the state government's ban on mining in September, has turned its attention to the last major iron ore producing state of Odisha.

The exit of the world's third-largest iron ore exporter has been perfectly timed for miners in other countries seeking alternatives for their growing supplies as appetite from top buyer China slows.

The world's biggest producers Vale, Rio Tinto and BHP Billiton have taken some of India's market share in China, Japan and South Korea, and now are even eyeing exports to their erstwhile competitor.

Smaller miners like Australia's Fortescue Metals Group also benefit, as they supply the lower-grade ore that competes directly with India in the Chinese market. "It will be a huge bonus for big miners," said Graeme Train, commodity analyst at Macquarie in Shanghai.

"There'll also be a premium emerging for lower grade ore and India's absence will drive Chinese interest into Fortescue-type products."

India's campaign to end illegal mining -- which authorities say has cost Goa and Karnataka states around 510 billion rupees ($9 billion) in lost revenue in the last decade -- has cut its iron ore output by more than 20 percent in the year to March and

its exports by almost double that. Annual exports, which in the past decade peaked at nearly 106 million tonnes, may dwindle to as low as 5 million tonnes over the next year, analysts say. The roughly 100 million tonnes of lost exports at the current average price of around $110 per tonne and another potential 30 million tonnes of imports of higher-quality ore at around $140 per tonne will cost India $15 billion, according to Reuters calculations, money that goes straight into the pockets of foreign miners picking up the slack. India's role switch is one reason for a rebound in iron ore prices , which this year fell below $87 a tonne to their lowest since 2009 due to China's slowing economic growth. India's iron ore exports to China fell to less than 300,000 tonnes in October -- the lowest in at least two decades – after the ban in Goa. That followed a mining ban in Karnataka in 2011, after shipments there were halted a year earlier.

Goa's once-bustling mining hubs have turned into ghost towns, with scores of empty trucks parked by the roadside. Trains, some still loaded with ore, are stopped on the tracks. "We have been sitting idle for over two months now," said Pritesh Gawas, a 25-year-old worker at Sesa Goa's Sonshi mine.

In January-October, India's shipments to its biggest market stood at 32.6 million tonnes, down nearly half from a year ago, Chinese customs data showed, with South Africa edging it out as the No. 3 supplier. Shipments from Australia and Brazil were up 20 percent and 12 percent, respectively.

INDIA AS A BUYER

The flipside is that India is also starting to ship in ironore in significant quantities.

India has imported 9 million tonnes of iron ore so far in the fiscal year that began in April, estimates Basant Poddar, vice president of the Federation of Indian Mineral Industries, and could ship in 15 million tonnes for the full year. "It is a sad situation that we cannot mine in our own country legally and supply to our own domestic steel industry," Poddar said.

Importers include big producers Essar Steel, Bhushan Steel and JSW Steel, he said.

For the next fiscal year, India's iron ore exports may be no more than 15 million tonnes, while imports could climb to 20-25 million tonnes, said Poddar, making the country a net importer for the first time ever and hurting the competitiveness of its

steel producers. "Being an iron ore-rich country like India, it doesn't make sense to be producing steel on the basis of imported iron ore. It doesn't work out economically for the steelmakers," said Gunjan Aggarwal, senior consultant at research firm CRU in Mumbai.

Of the 800 iron ore leases in the country, only around 300 are operational, said a senior mines ministry official, adding that the supply squeeze should be short lived.

"Systems are being tightened at state-level ... but once the system stabilises, the supply crunch will ease out," said the official, who declined to be named as he is not authorised to speak to the media.

NEXT STATE TARGETED

The mining bans in Goa and Karnataka, which at one point shut all mines in the two states, could now spread to the eastern state of Odisha, which was visited by the Shah

Commission earlier this month. Odisha's state government has fined several mining companies nearly 680 billion rupees ($12 billion) for excessive mining of iron ore over the past 10 years, state Steel and Mines Secretary Rajesh Verma said.

None of those fined has been paid up so far, said Verma. Tata Steel Ltd and Aditya Birla Group-owned Essel Mining dispute the allegations.

A major difference from Goa and Karnataka is that Odisha's ore is high grade and intended for the domestic steel industry rather than export.

If mining in Odisha is stopped, Indian steelmakers may need to import 30 million tonnes of high-grade ore a year, said CRU's Aggarwal, adding that overall exports could fall to as low as 5 million tonnes.

India's federal government maintains the way to crack down on illegal mining is through better enforcement of existing laws, higher export duties and improved tracking of transport. The mines ministry has rejected a recommendation by the Shah

Commission for a blanket ban on exports.

The government instead decided to impose a 30 percent duty on all iron ore exports despite opposition from the mines ministry. It could raise this further or hike rail freight rates, where it already charges a much higher rate for ore intended for export.

The wrangling is not just within the federal government. In Karnataka, the opposition-run state government banned shipments in 2010 in response to pressure from the federal government over illegal mining. Then its chief minister, B.S.

Yediyurappa, resigned after being implicated in a $3.6 billion illegal mining scam.

State measures have otherwise been motivated by a range ofconcerns from damage to the environment by unregulated mining to loss of state revenues from illegal movements of the ore. "The total learning from this is to abide by the law," saidFaisal Shareef, managing partner with Nadeem Minerals, whose mine in Karnataka will restart later this week but will only be allowed to produce about a fifth of pre-ban volumes.

Curbs on illegal mining squeeze iron ore production to half

In 2010-11, exports were to the tune of 102 million-tonnes, which came crashing in 2011-12 to 57 mt

Ishita Ayan Dutt / Kolkata Nov 30, 2012,
Business Standard
The government’s bid to curb illegal mining has resulted in a steep fall in iron ore production. From 208 million tonnes in 2010-11, production is expected to slide to 100 million tonnes(mt) this year.

Provisional figures from the Indian Bureau of Mines indicate t ore production during April-September stood at 72 million tonnes.

“The figure of 72 million tonnes includes a stockpile of 28 million tonnes from Karnataka that is being sold in the e-auction. The trend suggests the figure for the financial year will not cross 100 million tonnes,” said R K Sharma, secretary general, Federation of Indian Mineral Industries ( Fimi).

Production in 2010-11, the year when the ban in Karnataka by the state government was first effected, was 208 million tonnes. Not surprisingly, the sharpest drop in production between 2010-11 and 2011-12 was in Karnataka, at 65 per cent, followed by 12 per cent in Odisha and 6.2 per cent in Goa against the national average of 18.42 per cent.

Exports have dwindled with the mineral-rich states clamping down on shipments. India, which is the world’s third largest iron ore exporter, shipped 14 million tonnes till August 2012. In 2010-11, exports were to the tune of 102 million tonnes, which came crashing in 2011-12 to 57 million tonnes.

User industries in India are now importing iron ore. Major steel producers that do not have captive iron ore mines are depending on imports. The difference in price between domestic iron ore and landed cost of import is about $30 a tonne. “If the landed cost of import is $130 a tonne, then Indian ore costs $160 a tonne,” a steel producer said.

Sharma, however, pointed out the higher prices were on account of a demand-supply mismatch. Lower availability was causing prices to increase, he said.

Availability for domestic users has been a problem since 2011 when mining operations were banned in Karnataka while Odisha and Goa also drastically reduced mining operations due to investigations by the Shah Commission.

But the genesis of the problem goes further back. In July 2010, the Karnataka government issued orders to ban the movement of iron ore. This prompted Odisha to review its export policy. Finally in 2011, the Supreme Court imposed an interim ban on mining in the Bellary district of Karnataka. Subsequently, though, the Supreme Court granted relief by allowing NMDC to mine one million tonnes of iron ore a month, though the requirement of steel producers in Karnataka is 2.5 million tonnes a month. In September, Goa, too, decided to halt mining activity on account of irregularities. In Goa, mining activity had come to a standstill, Sharma said.

India has approximately 23.59 billion tonnes of iron ore. Of this 12.906 billion tonnes is hematite ore and 10.68 billion tonnes magnetite ore (low-grade). However, 75 per cent of the magnetite ore reserves are in Karnataka and Goa.

‘Pooled’ pricing of coal unfair

PRATIM RANJAN BOSE, THE HINDU BUSINESS LINE
29 November, 2012

Reckless promotion of thermal power projects has necessitated the import of high-cost coal. Why should old power producers share part of this higher cost?

In resource management terms, ‘pooling’ is referred to as grouping together of assets, and related strategies for minimising risk and enhancing performance. The same concept, introduced by US bankers to manage sticky housing mortgages, triggered the financial crisis in 2008.

The analogy helps understand the Union Government’s prescription to force every user of thermal coal to share the cost of imported fuel, in order to bail out a smaller section of private investors in power generation.

CREATING RISKY ASSETS

In the middle of the last decade the government adopted a mammoth thermal power capacity addition programme, without much readiness on the coal production front. Coal, the government preferred to believe, would be abundant — and started granting linkages.

Once the linkage was awarded, Coal India (CIL) — the State-owned commercial monopoly — issued a ‘letter of assurance’ (LoA), to be treated as a ticket for a private sector investor to claim 70 per cent project finance. And, similar to the rush for 2G spectrum or coal blocks, ‘investors’ made a beeline for thermal power generation.

Some of them were gripped by an overwhelming feel-good factor. Others, with prior experience in producing ‘mouth fresheners’ or developing real-estate, saw an opportunity to make easy money. ‘Project plans’, aided with ‘linkage’, were trading at a premium.

Distress signals were evident from as early as 2008-09, as CIL started reporting ‘negative balance’ of coal to the linkage committee.

But at that time, all caution was thrown to the winds. Linkages rained. Banks preferred to shut their eyes and ears to the ongoing debate on environmental restrictions, stifling growth of the mining sector, and kept sanctioning loans based on LoAs.

To complete the recipe of disaster, policymakers allowed the private sector to enter into aggressively priced power purchase agreements with various State utilities, through tariff-based bidding, without much room to pass on volatility in cost of fuel.

The investors thought they would mint money through higher capacity utilisation and open market sales of part of the generation. But, state-owned power companies found the proposition ‘risky’ and stuck to the age-old formula of selling power on a less remunerative ‘cost-plus’ basis, leaving room to recover fluctuations in coal prices.

Meanwhile, the champions of market economy lauded private sector for its “risk appetite”.

THE MESS

The bubble burst once CIL dragged its feet in honouring those LoAs. Under government pressure, the coal company finally committed 65 per cent domestic supplies — less than the normative requirement of 80 per cent to break even — to all units either commissioned since April 2009, or to be commissioned till March 2015.

Nearly 15,000 MW of private sector capacities — already on stream, at an estimated cost of Rs 75,000 crore — turned unviable. With a cap on electricity tariff, they cannot afford to use costly imported fuel to mitigate 9 million tonne (mt) supply gap. The fate of another 20,000 MW private capacities, under implementation, hangs in the balance. Up to Rs 52,000 crore of equity finance is in the doldrums. Also at stake is a substantial part of the projected Rs 1,23,000 crore loan finance in these projects.

On the other hand, approximately 25,000 MW capacities (including 10,000 MW already in place), implemented by state-owned sector, are relatively safe. They can pass on the cost of imported fuel. Since most such utilities, like NTPC, have a large pool of existing capacities with an adequate supply of domestic coal, there should not be much impact on the average cost of electricity either.

Assuming NTPC consumes 134 million tonnes of domestic coal of 4,200 calorific value, electricity consumers may have to shell out an additional 4 paise a unit on an average, to help the company mitigate 2.5 mt short-supply of domestic coal (in 4,300 MW new capacities) through imports.

BUNDLING OF ASSETS

There is little doubt that private investment in India’s power sector is in trouble and CIL has a role in it. It is equally true that the investors invited the trouble by virtue of their aggressive business decisions. And, the government has not merely failed to curb such unhealthy competition, but ended up fuelling the bubble.

Ideally, the government could have taken note of its tariff policy faux pas and offered bailout package to the affected investors. But, it prefers to place the burden on electricity consumers. CIL is asked to import requisite varieties of thermal coal to create a common pool of fuel. Consumers will be charged the average weighted price of the pooled resources.

In other words, electricity consumers of the country’s 75,000-80,000 MW strong State-owned facilities — which followed a safer business model — will now pay for the reckless business decisions of some private sector players.

But that’s not all. Average quality thermal coal is at least three times more costly in the international market. Naturally, the higher the quantity of imports through this mechanism, the sharper will be the rise in prices of domestic coal. A very rough estimate suggests, price of average domestic thermal coal (4200 GCV) may go up by 20 per cent, if the government mitigates a total shortfall of 15 mt in 2012-13 through price-pooling. The price rise will be a sharper 40 per cent, to cater to the projected 36 mt shortfall in 2014-15.

RISKY PROPOSITION

The rise in coal prices may send shockwaves through the country’s cash-starved distribution utilities.They have already run up an aggregate borrowing of over Rs 2,00,000 crore to finance day-to-day operations. With pressure mounting on them to bridge this finance gap, power tariff across the nation started spiralling.

A sharp rise in cost of coal may either add to their under-recovery, leading to a fresh pile-up of borrowings to banks, or non-payment of coal and electricity dues as is already evident in many States. And, that may not help generators — including those in the private sector — either.

LEHMAN LESSON

In essence, the government proposes to spread the financial risk of those stranded assets to the entire system such that power becomes expensive for all. The expectation is that private assets will be able to utilise the situation in their favour. But, it forgets two aspects. First, if the low average tariff of electricity traded on the grid is any indicator, such a step may stunt demand, upsetting growth prospects.

The US is yet to recover from the aftershock of spreading risk.

Power cos may buy coal from sources other than CIL: Govt

AGENCIES, Financial Express
Posted: Thursday, Nov 29, 2012
New Delhi: Power companies may secure coal from alternative sources in the absence of sufficient supply of the fuel from state-run Coal India, Parliament was informed today.

"As per the new coal distribution policy of Ministry of Coal, in order to meet the domestic requirement of coal, Coal India may have to import coal as may be required from time to time," Power Minister Jyotiraditya Scindia said in a written reply in the Lok Sabha.

He added that developers may also obtain fuel from alternative sources in case of any shortage of assured supply of coal from Coal India.

Earlier this week Coal Ministry had said that Coal India had written letters to power companies seeking their consent for supply of imported coal on cost plus basis under the modified Fuel Supply Agreement (FSA).

Cost-plus basis means cost of importing coal by Coal India plus additional charges.

Meanwhile, 30 power plants have entered into pacts with the coal behemoth.

The state-owned firm is likely to enter into pacts with 48 power units.

Power companies waiting to sign the FSA with CIL would have to arrange for 17 per cent of coal on their own either through import or e-auction to run their plants at 85 per cent plant load factor.

CIL proposes to use MMTC or State Trading Company to import coal.

The Centre provides 90 per cent of the project cost as capital subsidy for establishing Rural Electricity Distribution Backbone (REDB) and Village Electrification Infrastructure (VEI) and provides free electricity single point connection to BPL households under RGGVY.

Scindia said the responsibility of implementing the scheme is with the state governments but several members, including some from the Treasury Benches, objected.

He stated that in 70-80 per cent of the cases the state electricity boards are implementing it.

"A monitoring matrix is being formed at the district level," Scindia said and accepted suggestion from Opposition benches that the local MP should be involved in this.

Bunker Prices : 30.11.2012

Source : Bunkerworld.com

	IFO380		IFO180		MDO		MGO
Singapore	599.00		609.00		931.00		941.00
Rotterdam	584.00		608.00		-		923.50
Houston	612.00		691.50		1,021.00		1,008.50
Fujairah	598.00		622.00		-		1,012.50
Los Angeles	668.00		711.00		-		1,067.50
Canary Islands	611.50		639.50		968.00		989.00
Busan	645.00		665.00		965.00		975.00
Genoa	604.50		638.00		-		995.00
Auckland	785.00		-		-		1,088.00
Montevideo	673.50		702.50		-		1,158.50
Valparaiso	702.50		801.50		-		-
Colombo	700.00		760.00		-		1,110.00
New York	616.00		651.00		-		-

Baltic Dry Indices 29/11/2012

BDI           1097        -       07
BCI           2241        -       34
BPI             994        -       15
BSI             760        +      09
BHSI          446        +      04

Rains stop UK farmers sowing 30% of winter crops

26th Nov 2012, by Agrimoney
Poor weather has prevented UK farmers from sowing 30% of winter crops, Origin Enterprises said, amid growing fears for this year's dismal conditions having knock-on effects on 2013 and potentially 2014 harvests too.

Origin Enterprises, the owner of the Agrii agronomy chain, said that "approximately 70% of target arable [planting] has been completed to date in the UK", below a figure of 100% usually by now.

The estimate represents one of the first of the extent of the delays caused by the rains which, having given the UK its wetter summer in a century, have remained to hamper autumn field work too.

Currently, there are 210 flood warnings and 300 flood alerts in England and Wales thanks to fresh storms which gave many areas more than two inches of rain over the weekend, with three inches still forecast for northern areas.

Agrimoney.com research two weeks ago indicated sowings were 60% complete. The HGCA crop bureau is expected next month to unveil an initial sowings report, with farm ministry data not expected until 2013.

Longer-term threats?

The "sustained period of unseasonably wet weather" had "significantly impacted [the] winter planting programme", forcing farmers to consider sowing outside the normal seeding window, or delaying until the spring, Origin said.

"Farm management plans are now being adapted to extend autumn planting where weather and soil conditions allow along with a switch to spring 2013 cropping," the Irish-based group said.

The lower yields fostered by late-sown crops, and inherent in spring grains and oilseeds compared with autumn-planted peers, is also raising concerns of another below-par harvest in 2013, after a 2012 result which saw wheat yields at a 20-year low, and bushel weight come in at the lowest on record.

"And even 2013 might not be the end of it," a UK grain trader told Agrimoney.com.

"If farmers plant something in the spring like linseed which is not harvested until well into the autumn, and there is another poor year for autumn sowings, the damage from this summer could carry on into 2014 as well."

Farmers hold fire

Origin said that while it saw "good sales" of agronomy services and seed applications in the August-to-October period, volumes of many inputs, such as fertilizers, were "lower", with farmers delaying purchases closer to the timing of application.

Nonetheless, the group's revenues from its core agri-services operation rose 11.2% to E351.2m, with its Polish Dalgety agronomy operation performing "very satisfactorily" and feed sales in Ireland being encouraged by limited on-farm fodder supplies, following a poor 2012 summer.

And the group forecast a boost to its performance ahead from the UK delays, as farmers catch up on sowings in the spring.

"The challenging weather conditions experienced by primary producers to date will lead to an increased level of seasonality in the 2013 financial year for our agri-services business as a greater weighting of crop planting activity is expected to take place in the spring period," the group said.

Market reaction

The statement was termed "in line" by Dublin broker NCB, which restated a "buy" rating on Origin Enterprises shares, saying the group had "good" long-term growth prospects.

"We believe Origin has significant opportunities to grow market share and revenue per customer in the UK, but also has significant opportunities to recreate its Agrii business model in other European markets, particularly in Eastern Europe," NCB said.

"While the stock deserves to trade on a discount due to its lack of liquidity," being 69% owned by foods group Aryzta, "we believe it continues to offer value".

Rival broker Davy restated an "outperform" rating on the shares, which recovered early losses to close at E4.20 in Dublin, unchanged on the day.

Time running out for Brazil's cane crush overtime

26th Nov 2012, by Agrimoney
The clock is ticking for the extended crushing period which has allowed mills in Brazil to, at the last gasp, overtake their cane processing volumes from 2011, prompting a late revival in ethanol and sugar output.

Unica, the industry group, said that mills in Brazil's Centre South, responsible for nearly 90% of sugar production in the top producing country, crushed 26.5m tonnes of cane in the first half of this month – 42% more than in the first half of November last year.

And it took to 482.0m tonnes the volume of cane crushed since April, up from 478.8m tonnes at the same time last year.

"This was the first fortnight in which the current year's crop grind exceeded last year's," Antonio de Padua Rodrigues, the Unica president, said.

The result "confirmed our expectations that the volume of cane available for the production of sugar and ethanol in this year is higher than that found in 2011-12", Mr Rodrigues said.

'End of the crop'

The catch-up in volumes from a rain-delayed start reflects a turn drier in the weather since and a determination by mills to make the most of a cane crop for which yield prospects were boosted by the precipitation.

As of November 15, only 41 mills, accounting for 7.3% of the region's total capacity, had shut for a seasonal down-time, during what is typically a wetter period, compared with 166 mills a year before.

However, the grinding pace should slow in coming weeks, "indicating the end of the cane crop", Unica said.

'Intense production'

The jump in processing volumes took sugar output so far in 2012-13 to 31.1m tonnes, up 1.6% year on year.

However, in the first half of November, a bigger proportion of cane than a year before was directed at making ethanol.

"The pace of production of anhydrous ethanol is still intense, totalling 19.61 litres of product per tonne of cane, and giving security to the supply prospects after the end of the grinding period," Unica said.

In New York, raw sugar futures for March delivery closed up 0.1% at 19.15 cents a pound.

Sugar a big winner of fund rejig - wheat a loser

26th Nov 2012, by Agrimoney
Soymeal and sugar are to be the biggest winners of an index fund reweighting exercise which may provide some - but only temporary - relief to poorly-performing soft commodities, Macquarie said.

Traders are beginning to prepare for an annual rejig in January at index funds in which they, primarily, rebalance their portfolios back in line with the weightings of the indices they track.

This will bring substantial buying in many poorly-performing commodities in 2012 – such as most soft commodities – to return their weightings to appropriate levels, with better-performing crops sold down.

As an extra twist for the early-2013 revamp, some indices are adding extra contracts into the mix, with the DJUBS index taking in Chicago-traded soymeal, with a 2.6% weighting, implying the purchase of more than 61,000 lots, on Macquarie calculations.

The index is introducing Kansas wheat at a weighting of 1.3%, in part at the expense of Chicago wheat, for which the weighting will be reduced by 3.4 percentage points.

"Substantial contracts will likely be sold off in commodities such as Chicago wheat, with further losses in soybean," Macquarie said.

Purchasing softs

However, the prospect of the revamp is being particularly closely watched in soft commodities in which another variety of investor, the speculator, have historically large short holdings, leaving futures vulnerable to a price spike if they are encouraged to take a round of position closing.

Marex Spectron earlier this month flagged this as a potential, temporary, support for prices of New York arabica coffee, in which speculators have a record net short, encouraging a drop in values which extended on Monday, driving futures to their lowest since June 2010.

According to Macquarie, using also data for funds following S&P indices, index funds will purchase more than 12,000 arabica coffee futures during the reweighting, besides more than 8,000 cotton lots and nearly 40,000 in raw sugar.

"[Index fund] exposure to coffee, sugar and cotton will increase due to their lacklustre price performance in 2012," the bank said.

'Could provide some support'

Expressed as proportion of open futures contracts, this implied in fact a bigger impact on the arabica market, with the futures bought equivalent to 8% of open interest, compared with 5.6% for raw sugar and 4% for cotton.

Traders will be positioning themselves ahead of this, which could provide some support to the softs prices," Macquarie analyst Kona Haque said.
However, it will not be enough on its own to spur significant short-covering by speculators, given "what remains a fairly unexciting price outlook for 2013", she added.

"In the absence of tighter fundamentals, [reweighting] alone will not be enough to encourage shorts to add significant enough new length."

'Structural surpluses are emerging'

Indeed, Macquarie was "struggling right now to see what it would take to encouraged managed money and swap dealers to cover their shorts and add new length", Ms Haque added.

"Structural surpluses are emerging for [coffee, cotton and sugar], which will likely maintain pressure on prices in 2013 too."

Raw sugar futures hit a two-year low earlier this month, depressed by a recovery in Brazilian output, after a rain-delayed start to the season, and the prospect of a world production surplus.

World coffee output is expected to return to surplus in 2012-13 and, with rains boosting Brazilian flowering, there are hopes of output remaining in surplus in 2013-14 too.

World cotton inventories are expected to end 2012-13 at a record, boosted by a recovery in production in countries such as the US at a time when demand is being curtailed by world economic malaise.

Evening markets: grains, but not coffee, defy market malaise

26th Nov 2012, by Agrimoney
While grains and oilseeds look as if they are beginning to find their feet, coffee's quest for a bottom appears to have remained fruitless, with arabica beans on Monday hitting a fresh two-year low.

New York's little-traded December arabica coffee lot set a contract low of 132.25 cents a pound, a fresh low since June 2010 for spot lot, before recovering ground to close at 139.90 cents a pound, a drop of

The better-traded March contract finished down 1.3% at 148.90 cent a pound, a two-year low for a nearest-but-one contract.

Lynette Tan at Phillip Futures noted "ample supplies, weak import demand from major importing countries and the lack of fresh fundamental news to lift the markets".

Institutional u-turns

In fact, there was some fundamental reason for investors to buy the bean, with the Colombian growers' federation at the weekend cutting to about 8m bags, from 8.5m bags, its forecast for domestic output in 2012.

But many investors had factored in another disappointing Columbian harvest, and are looking forward ahead to a strong 2013 Brazilian crop, expectations of which have been boosted by rains which have promoted flowering.

And Macquarie gave a slap to hopes that the index fund reweighting, one cause of buying pressure for unpopular soft commodities, would prove sufficient to change speculators' thinking on the beans.

With their net short positions at a record high, a change of heart among speculators could spark a real comeback in the bean.

At least there is hope for bulls, such as Brazil's Conselho Nacional do Café, which highlighted that "some of the institutions that have come touting a more pessimistic tone a few weeks ago had the opposite opinion".

Sucden Financial noted that "appetite for a significant extension to the downside does not yet seem to be there as the 148.00-cents-a-pound physiological support held and pushed prices back up".

'Bit of a negative tone'

In Chicago, and the grain and oilseed pits, price gains were the order of the day.

Not huge ones, with corn for December finished up all of 0.2% at $7.47 ¼ a bushel.

But they were notable nonetheless on a day when many assets falling back as, with the US back from Thanksgiving holiday, attention returned to the fiscal cliff and the need for a budget resolution to avoid it.

"The outside markets are offering a little bit of a negative tone, while leaders try to revamp the austerity package for Greece," Benson Quinn Commodities said.

"Washington will be watched closely as our leaders get back to work on solving issues related to the fiscal cliff."

Shares fell 0.6% on Wall Street in late deals, while the CRB commodities index shed 0.4%.

'Gone dry'

But one factor grains and oilseeds had going for them was the renewal of weather concerns over South America, prompting investors to inject a little more risk premium back into values.

"Expect dry conditions in large portions of Brazil to garner some attention going forward," Benson Quinn Commodities said.

"The southern one-third of Brazil has now gone dry," rival broker US Commodities said.

Gail Martell at Martell Crop Projections said that in the southern state of Parana, "while October rains were ample, November has been dry," with a moisture deficit of 210-270mm (8.3-10.6 inches) in the last three months overall.

"What makes drought even more ominous is low subsoil moisture from a dry winter season."

'Soggy conditions have resumed'

Meanwhile, Argentina has been hit by "fresh heavy rainfall from a wave a strong thunderstorms".

"Soggy field conditions have resumed," slowing field work, again, after a period of recovery in corn and, especially, soybean plantings.

And that is not the end of the rains, weather service WxRisk.com said, forecast the arrival of a "strong piece of energy by the end of the week" which will bring "significant showers and thunderstorms to 70% of central eastern and northern Argentina as well as Paraguay with rainfall amounts between   1-2 inches (25-50mm)".

At broker Allendale, Paul Georgy said: "Argentina has more rain in the forecast with already less than desirable planting conditions."

'Very large US sales'

As an extra reason to buy soybeans, the US Department of Agriculture unveiled yet another export sale of US soyoil, of 20,000 tonnes to "unknown" destination.

"There is also still a lot talk about the large US soyoil sales that were made last week," Darrell Holaday at Country Futures said.

"Those are very large and will certainly post a bid under this market in the near term."

As an extra support to soyoil itself, one of the two main products, with soymeal, produced from crushing soybeans, rival palm oil enjoyed a strong performance in Kuala Lumpur, rising 1.5% to 2,432 ringgit a tonne.

Soyoil for December closed up 0.5% at 49.27 cents a pound, while soybeans for January also added 0.5%, to $14.18 ¾ a bushel, despite data showing a retreat in US exports, as measured by cargo inspections, to 45.5m bushels last week, from 66.9m bushels the week before.

'Now competitive'

Wheat did less well, in part feeling some pressure from its own drop in export sales, which dropped to a meagre 7.8m bushels from 11.4m bushels the week before.

This put a dampener on improved ideas of US competitiveness in the world wheat market, with US Commodities noted that "wheat support continues from rising European values and shrinking Black Sea supplies.

"US wheat exports are now competitive with European Union ones."

Still, signs of strong world demand offered some support, with Iraq tendering for 50,000 tonnes of wheat, and Algeria in the market too, on top of Jordan's quest for 100,000 tonnes announced earlier.

'Only silver lining'

Furthermore, wheat is engulfed by its own production hiccups too, with the UK's sowing setbacks for winter crop being highlighted by Origin Enterprises, while the EU's Mars unit cautioned over France and Russia too, while being upbeat over prospects for many European Union countries.

In the US, where dry weather continues to threaten hard red winter wheat seedlings, the GFS weather model "indicates virtually no opportunity for rainfall in 90% of the hard red winter wheat area over the next 15 days", Mr Holaday said.

"The winter wheat condition will continue to deteriorate.

"The only silver lining is that most report that the wheat has not gone into dormancy, so rainfall would be helpful. But that rainfall is not on the horizon."

Wheat comparisons

Chicago wheat for December closed up 0.2% at $8.49 a bushel.

London wheat did better, helped by ideas of the poor planting conditions, as well as the starting of the Vivergo wheat ethanol plant, bringing extra demand onstream.

London's January lot added 1.1% to £220.00 a tonne.

Paris wheat for January lagged, closing unchanged at E269.75 a tonne, pausing after a period of outperformance.

"Reduced supplies from the Black Sea region have kept the price of Paris wheat elevated," Ole Hansen, head of commodity strategy at Saxo Bank, said.

"Since August the price of Paris compared with Chicago has moved from an $0.80-a-bushel discount to an $0.80-cents-bushel premium."