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Published on November 15, 2010 by admin · No Comments
Commodities tumbled across the board, part of a wider market selloff as worries grow that China will take additional actions to slow its surging economy.
Data from China released Thursday showed inflation rising faster than anticipated, which could force China’s central bank to raise interest rates or take other steps to slow growth. Grains and metals had risen on the report Thursday but they backtracked Friday along with crude oil and equities markets. Cotton and sugar, which fell from multi-year highs earlier this week, saw additional declines.>>>
Wheat rose for the first time in four days as cold weather threatened crops in China and Canada, the world’s second-biggest exporter.
An overnight freeze damaged wheat, canola and barley in Alberta and Saskatchewan, said Drew Lerner, the president of World Weather Inc. in Overland Park, Kansas. In China, the cold may hurt corn in the biggest growing-region, according to the National Grain & Oils Information Center website. That may boost demand for wheat to use in livestock feed.
“Canada’s harvest problems are helping prices,” said Darrell Holaday, the president of Advanced Market Concepts in Manhattan, Kansas. “The Chinese freeze threat is another thing. We’re going from one weather scare to another.”
Wheat futures for December delivery rose 20 cents, or 2.8 percent, to close at $7.3925 a bushel at 1:15 p.m. on the Chicago Board of Trade, ending the week up 0.3 percent.
The price has gained 7.8 percent this month on speculation that reduced production in Russia and Ukraine will boost demand from other exporting countries.
The U.S. is the biggest wheat exporter, followed by Canada, Russia and Australia, according to the Department of Agriculture. The grain is the fourth-biggest U.S. crop, valued at $10.6 billion in 2009, behind corn, soybeans and hay, government data show.
Corn gained 3.5 percent today and is up 17 percent this month on speculation that adverse weather will curb production as demand rises.
“So much of the wheat in the world is used for feed,” Holaday said. “It’s tied at the hip to corn.”
The cotton harvest in India, the second-biggest producer and shipper, may be less than forecast if monsoon rains last longer than normal in main growing regions, according to the Confederation of Indian Textile Industry.
Production in the year from Oct. 1 may be less than the 32.55 million bales estimated by the Cotton Advisory Board last month, Confederation Vice Chairman Prem Malik said in a phone interview. Output this year is estimated at 29.5 million bales, according to the board. An Indian bale weighs 170 kilograms.
The missed forecast may further tighten global supplies, stoking prices that have surged to the highest level in 15 years on slumping inventories and damage to the crop in China, the largest producer. U.S. mills have been “panic” buying, according to brokerage Varner Bros. in Cleveland, Mississippi.
“If the rains persist, then definitely it’s going to affect the crop and there could be a possibility of damage,” Malik said from Mumbai yesterday. “The plants will not get the sunlight,” Malik said.
Cotton is the best performer over the past year on the UBS Bloomberg CMCI Index, surging 47 percent. The most-active contract, for delivery in December, advanced as much 1.1 percent to 96.81 cents a pound on ICE Futures U.S. in New York today, the highest price since June 1995.
Export Plan
Lower-than-forecast output may hurt India’s plan to export as much as 5.5 million, 170 kilogram bales in the year from Oct. 1. Global inventories will fall to 45.4 million, 218 kilogram bales in the 12 months to July 31, the lowest level in 14 years, according to U.S. Department of Agriculture data on Sept. 10.
The Indian “textile industry will be stalled because the availability of raw material is not there,” said Malik. “Domestic prices are bound to be strong as arrival of cotton is not there because of rains.”
India’s monsoon rains, the main source of irrigation for the nation’s 235 million farmers, normally draw to an end from September, the last month of a four-month season. Still, so far this September, rains are 122 percent of the 50-year average and clouds will begin to withdraw only by the end the month, the Indian Meteorological Department said on Sept. 14.
In the western state of Gujarat, the nation’s biggest cotton producer, rains were 54 percent above normal between June 1 and Sept. 15, according to the weather office. In Maharashtra, the second-largest grower, rains have been 25 percent more than average, it said.
‘In a Panic’
Rogers Varner, president of Varner Bros. in Cleveland, said yesterday that U.S. mills “have been in a panic” seeking supplies. “The higher the price goes, the more afraid the mills get and the more buying that they’re doing,” Varner said.
Cotton futures may surge to $1.25 a pound by January as supplies dwindle, O.A. Cleveland, a professor emeritus in agricultural economics at Mississippi State University, said on Sept. 14. Prices may reach as much as $1.05 within six weeks because supplies are tight and demand is increasing, John Flanagan, president of Flanagan Trading Corp., said Sept. 15.
India will limit cotton exports to 5.5 million bales in the season from Oct. 1, with a “prohibitive” duty to be imposed on shipments above that level, Commerce Secretary Rahul Khullar said on Sept. 4. Textile Secretary Rita Menon said on Sept. 14 India plans to delay registration of export contracts by two weeks until Oct. 1. Exports this year may be 8.3 million bales.
The cotton crop in China is in worse condition this year than in 2009 after low temperatures and prolonged rains delayed planting and crop development, the Xinhua News Agency said Sept. 11, citing Ma Shuping, deputy director of planting at the Ministry of Agriculture. The nation will need to boost imports as the textile industry expands, Xinhua cited Ma as saying.
The USDA on Sept. 10 raised its estimate of China’s cotton imports in the 2010-2011 season to 2.776 million metric tons from last month’s forecast of 2.722 million tons as the production outlook weakened.
Cotton advanced for a fourth day, extending a rally to the highest price in more than 15 years as cold weather threatens the crop in China, the world’s largest user, boosting import demand and tightening global supplies.
December-delivery cotton advanced as much as 0.6 percent to 95.08 cents a pound on ICE Futures U.S. in New York, the highest price since June 1995. The contract traded at 95.06 cents a pound at 9:25 a.m. Singapore time.
Cotton-growing regions in central China “could turn wetter and cooler again early next week,” Telvent DTN Inc. said in a forecast yesterday. The condition of the country’s crop has deteriorated, compared with a year earlier, after low temperatures and prolonged rains delayed planting and crop development, the official Xinhua News Agency said on Sept. 11.
“There’s a concern that global supplies will tighten,” said Chung Yang Ker, an analyst at Phillip Futures Pte. in Singapore. He forecast the price may rise to $1, without citing a timeframe.
Global inventories will fall to 45.4 million bales in the 12 months ending July 31, the lowest level in 14 years, U.S. Department of Agriculture data showed on Sept. 10. A bale weighs 480 pounds (218 kilos).
Cotton may rise to $1.25 a pound by January as supplies dwindle, O.A. Cleveland, a professor emeritus in agricultural economics at Mississippi State University, said yesterday.
Brazil, the world’s fifth-largest exporter, cut the tariff on imports of the fiber to zero from 10 percent from October to May as domestic supplies fall short of demand, Agriculture Minister Wagner Rossi told reporters in Brasilia yesterday.
India, the world’s second-biggest grower, plans to delay registration of export contracts by two weeks until Oct. 1, Textile Secretary Rita Menon said yesterday.
The nation, estimated by the USDA to account for 18 percent of global cotton exports last season, is limiting overseas sales to 5.5 million bales in the year starting Oct. 1 and will impose “prohibitive” duties on shipments more than that amount.
Australia 2010-11 Wheat Crop Forecast Raised To 25.1 Million Tons
Australia has revised up its official winter and summer crop production forecasts sharply, following average to above-average rainfall in the Eastern Australia province in recent months. Including substantially higher production of wheat, the bigger crop could raise the amount available for exports in the coming year.
Combined with sharply higher global grain prices, this is expected to add billions of dollars to the country's export revenue, and should ensure a bumper year for Eastern Australian growers and suppliers of rural merchandise and services such as fertilizers and export logistics.
Australia's wheat production in the crop year ending March 31 will jump to 25.1 million metric tons, a 14% rise from a June estimate and a 16% jump from the 21.7 million tons produced in 2009-10, the Australian Bureau of Agricultural & Resource Economics said in a quarterly crop report Tuesday. That represents a 36% jump from a five-year annual average.
China Downplays Grain Imports, But Effects Could Be Seismic
Top Chinese economic officials have in recent weeks issued a string of assurances about China's grain self-sufficiency, downplaying a surge in grain imports this year that could portend a potentially seismic shift in the global grain trade.
Because of China's economic size, such a change, even by small degrees, could mean millions of tons of grains diverted to the Asian giant, setting off far-reaching changes in global shipping and grain production trends.
The latest assurances, reinforcing those from other senior government officials, came Tuesday from Zhang Xiaogang, deputy director of the National Development and Reform Commission, the country's top economic planning agency.
"Apart from soybeans, imports of wheat, corn and rice, among other grains, have been small, not even 1% of the country's domestic output," the state-run Xinhua news agency quoted Zhang as saying at the World Economic Forum "Summer Davos" forum in Tianjin.
"Domestic grain prices basically won't be affected by the global market," he said.
In fact, China's grain imports have risen sharply this year.
Official data for the first seven months showed wheat imports at 1 million metric tons, double the level seen in the same period a year earlier. August data won't be released until next week. Over the same period, corn imports have risen nearly 62 times to 281,971 tons. Rice is up 45%.
Additionally, customs data understate import levels by including only out-of-quota shipment volumes, analysts say. So far this year, corn imports from the U.S. have in fact exceeded 1 million tons.
Despite the potential impact of the rise in import numbers, however, the trend may not be immediately visible in prices.
China's grain reserves are well above the global safety standard of 18%, "adding strength to (China's) ability to control grain prices," Zhang said.
The government uses its grain reserves, the world's largest, to buffer domestic grain market volatility, and has so far succeeded in staving off a series of corn, wheat and other food price rallies this year.
China doesn't officially disclose its grain reserve levels, but the stockpiles are estimated at 45% of output levels.
Abare's wheat forecast is above those of other analysts, which have been mostly estimated the crop in a 22 million to 23 million tons range, though Profarmer Australia last week predicted a crop of 24 million tons.
Australia is a major global supplier of wheat with a domestic consumption of only around 7 million tons, leaving the rest of the produce usually available for exports.
Abare said the expected increase in wheat production will underpin higher exports in the marketing year that begins Oct. 1. Exports are expected to rise 21% on year to 18.4 million tons, from an estimated 15.2 million tons this marketing year and an actual 14.7 million tons in 2008-09.
Total output of winter crops this year now is estimated at 40.7 million tons, surging 16% from the 35.2 million tons produced last year.
"Recent rains have added to one of the best starts to a winter cropping season in several years, and significantly boosted the yield potential of the winter crop leading into the crucial spring phase before harvest," Abare Deputy Executive Director Paul Morris said in a statement.
"New South Wales has the prospect of achieving some of the highest yields in ten years and, combined with a high area cropped, is expected to drive the increase in national production," Morris said.
An upgrade to the production forecast for eastern states is expected to more than offset a downward revision for Western Australia, where winter crop production is now expected to be the lowest since the 2006-07 drought, Abare said.
"If we're talking 25.1" million tons of wheat, that would be the third biggest crop on record, said Russell Amery, President of the grains section of lobby group Victorian Farmers' Federation.
India Likely To Aim For Record Wheat Output - Official
India will likely aim for a record wheat output of 82 million metric tons this crop year through June 2011, helped by good rainfall and water reserves climbing above the 10-year average, a senior farm ministry official said Tuesday.
India--the world's second-largest wheat grower--typically sets an output target each year, which shapes its policies such as supply of cheap seeds, fertilizers and the government's procurement price for the grain.
Late rains helped India reap a record harvest of 80.71 million tons in the crop year through June 2010, but this created storage problems. The situation may worsen with increased crop yields in 2010-11.
The government aims to deal with the problem by raising warehouse capacity in collaboration with private companies, but it will take at least three-four years to be implemented fully.
A rise in output may encourage the government to lift a three-year ban on wheat exports when it reviews the decision later in 2010.
Higher production may also ease food inflation, which had accelerated to the double-digit level after a drought last year, and help the government implement a proposed law to supply grains at a fraction of cost to the poor.
"Our main focus this rabi (winter) season would be to increase yields. We will supply adequate seeds and fertilizers before the planting begins [in October-November]," the ministry official, who didn't want to be identified, told Dow Jones Newswires.
The government will encourage farmers to use high-yielding seeds and follow good farm practices such as timely sowing and fertilizer usage to raise crop productivity, the official said.
Last week, Agriculture Secretary P.K. Basu said water levels in India's reservoirs were 136% more than a year before and 102% of the 10-year average. Higher water levels at reservoirs will likely help winter crops.
The monsoon season, which brings most of India's rains, usually runs from June to September and winter crops are mostly dependent on water reserves. Good showers this year have improved soil moisture in the country's farmlands, which were parched following the worst drought in nearly four decades in 2009.
Pakistan faces a dearth of big information technology companies, prompting many dejected IT professionals with reasonable experience to think about leaving the country for a better opportunity which can match their qualifications and experience.
As soon as an IT professional attains experience of eight to ten years, he feels consumed by the need of finding a high-paying job which smaller IT companies cannot afford.
Dr Arshad Ali, DG School of Electrical Engineering and Computer Science, National University of Science and Technology (NUST), a top public sector university, agrees with this bitter reality.
“It is true that IT professionals face hurdles to their career growth after getting 8 to 10 years’ experience,” he said, adding the reason is an absence of big IT firms in the country which can adequately pay the experienced professionals and provide them with opportunities for further growth.
“Dearth of big IT firms is a problem which is somewhat linked with a lack of research opportunities,” he added.
“Obviously, when you do not have big companies which can pay enough, the experienced IT professionals have no choice but to leave the country and find lucrative jobs in other countries,” he said.
Few IT companies do research work in Pakistan. And those which actually do, their activity is usually not futuristic instead a majority of them undertake low-tech software development work. “Research is limited only to individuals and that need to be institutionalised,” Ali said.
On the academic front, very few universities in Pakistan are conducting specialised research, he said, adding some of the faculty members at NUST are doing research work for Massachusetts Institute of Technology (MIT), Stanford University, Caltech, Centre for European Nuclear Research, Geneva and others. In — United States, he said, IT companies grant scholarships to their employees who have an average experience of 8 to 10 years to get further education and conduct research. This helps develop their capacity to do research and pursue a long career in the relevant field of work.
President Pakistan Software Houses Association (Pasha), Jehan Ara, agrees that after some years of experience IT professionals usually say goodbye to the country and this is a strong perception in the country.
She stressed that Pakistan desperately needs more companies that can hire and provide required opportunities for experienced IT professionals.
“Every country goes through a cycle in which smaller companies grow little by little and then turn into bigger and stronger concerns,” she said. “Every country welcomes this and this is how companies will also grow in Pakistan.”
For those who seek a longer career in the IT sector, opportunities for specialisation do exist in Pakistan where a professional can stay associated with the industry for a long time.
A lot of IT professionals in search of managerial positions leave technical jobs. However, a plethora of managerial positions are also available in the IT sector where these professionals can pursue a longer career without abandoning their area of expertise, she said.
Muhammad Salman, an IT professional working in an IT firm in Karachi, said many of the professionals including him aspires for a long career in Pakistan but end up in some foreign country.
”Another IT professional, who has over 15 years of experience, partly agrees with the perception that senior IT professionals leave Pakistan owing to a less attractive local market.
“Though there is a dearth of research in IT firms and universities, it does not mean that all professionals leave the country because of this reason. But yes about one-fourth of them do move out of the country owing to the absence of big companies,” he maintained.
China, India and the Philippines are examples in Asia where you can find a lot of companies doing good business and research. Particularly in the last 20 years, a number of IT firms have set up their businesses in these countries and are doing respectable research, he added.
Natural disasters may block any increase in China’s grain production this year as the worst floods in a decade ruin crops.
Flooding cut harvests of early rice in the major growing areas of southern China, Xinhua News Agency cited Vice Agriculture Minister Chen Xiaohua as saying yesterday during a government inquiry on grain safety. Crops in low-lying areas of the country’s fertile northeast were also damaged, he said.
China’s corn imports in July surged after traders bought the most overseas grain in more than 10 years to replenish shrinking domestic supplies. Early rice production this year fell 6.1 percent to 31.3 million tons, the National Bureau of Statistics said on its website yesterday. The world’s most- populous country grows almost a third of the globe’s rice and cotton, and produces about half its pork.
“This year’s weather will not reduce the output,” Chen Shuwei, a manager at Beijing Orient Agribusiness Consultant Co. said in a telephone interview. “China will not have a shortage in the next one or two years.”
Low temperatures due to floods delayed the ripening of winter wheat by five to seven days, and spring sowing in the northeast by seven to 10 days, the minister said. Lower rice output won’t stop overall summer grain production from equaling the levels of previous years, making it China’s seventh year of bumper harvests, Xinhua quoted the government’s Chen as saying.
Yalu Floods
Heavy rain in the northeastern province of Liaoning since July flooded the Yalu River on the border with North Korea, the region’s second-worst overflow since 1949. Liaoning and neighboring Jilin should brace for further heavy rainfall this weekend, the National Meteorological Center said today.
Officials at the inquiry said they are confident in the coming autumn harvest, which produces more than 70 percent of China’s annual grain output, Xinhua said. The report cited Chen as saying the seeding area has been increased, and quoted Zhang Xiaoqiang, a vice minister of economic planning, as saying enough grain is in storage to prevent shortages.
A rise in global grain prices won’t affect prices in China due to its ample reserves, Zhang said. Imported wheat, corn and rice equal less than 1 percent of China’s output, he said. Corn rose to a 14-month high yesterday on signs of increased demand for U.S. supplies, after drought reduced crops in Russia and parts of Europe, and flooding cut acreage in Canada.
Corn Harvest
Corn output in China, the world’s second-biggest producer and consumer of the grain, may rise 4.8 percent this year to 165 million metric tons on increased planting and good weather conditions, according to a report this week by Cngrain.com, a portal owned by China Grain Reserves Corp., manager of state grain stockpiles.
Total planted area may have expanded 2.2 percent to 471 million mu (31.4 million hectares), it said. Delayed planting and heavy rains in some regions didn’t have a significant impact on crops, the report said.
China probably won’t order further corn imports this year as global prices climb and on speculation the domestic harvest will be better than expected, according to Wanda Futures Co., the second-biggest brokerage by volume on the Dalian Commodity Exchange.
Nearly all the commentary we have heard on this question says the same. “Yes, the prospects of a Double-Dip recession have increased but it remains unlikely that it will happen”. We feel that there may be just a hint of self-interest in these answers. The shockwaves that will reverberate should some say it is going to happen, or if the news confirmed that it had started would rattle the markets hugely. Despite the ability to disseminate news instantly, we have to wait a month before reliable figures are published to confirm one way or the other that this is or is not the case.
On the other hand a recession or depression has become a state of mind too. If consumers believe it is coming, it will come and at the moment that is the mood out there among the consumer. He is saving because he could become a victim if he hasn’t cut debt and save. No doubt the sight of a neighbor being evicted stimulates thrifty habits. And that’s what is coming from consumers now. They aren’t spending. It’s becoming a financial winter out there and we believe consumers minds are bringing on the recession again. Surely that’s bad for gold?
What is happening in the Global Economy?
As we now live in a global economy national economic climates heavily impact the global scene and particularly the U.S. national scene. Look from outside in as a foreign investor that doesn’t have to invest there, what would you do? Well China is right there and this is what they’re doing:
U.S. Treasury data show that China has cut its holdings of Treasury debt by roughly $100 billion over the past year to $844 billion. Discreetly, the main surplus countries, China, Japan, and the U.K. [Mid-East petro-dollars] have been slowing down in the last two years. In August they bought the least amount of U.S. debt this year.
China is diversifying as it continues to hold down its currency, buying record amounts of Japanese, Korean, Thai, and no doubt Latin American bonds, in place of U.S. Treasuries. It is also ‘limit’ buying gold in quantity through the London bullion banks, buying scrap ores or buying direct from miners such as Coeur d'Alene in Alaska. Excessive Dollar holdings are also going to more hard assets such as strategic reserves of oil and coal, and probably industrial metals. State entities are buying up natural gas reserves in Africa and Central Asia, or oil sands in Canada, or timber in Guyana.
There are considerably more activities by countries and institutions that are Dollar diversifying that we don’t have enough room to describe here, but it all leads to an expectation of a falling Dollar. The trouble is that so many dependant currencies will try to fall with it to protect their trade relationship [watch the Yen] that the fall will not be easily apparent in exchange rates, but in the falling buying power of the Dollar. When we describe this we are not talking about a change in exchange rates but changes that will bring about structural changes in the current monetary system based on the U.S. Dollar.
Then what?
Don’t think for a moment that the U.S. will follow the path of Japan. Deflation is not an option for the consumer driven economy of the U.S. We believe that the path Mr. Bernanke has chosen for the U.S. has to be followed all the way. Today, he stated that he was ready to act to defeat deflation, should it arrive. Quantitative Easing will lead to inflation. Inflation is an acceptable alternative to deflation, because it is easier to cure inflation than deflation. But the government of the U.S. is likely to wait until deflation is biting before they act, then the stimuli will have to be heavy as will consequential inflation. This prospect is bringing tremendous doubts about the value of Dollar and other currencies.
U.S. monetary authorities will place U.S. interests well ahead of any others, so don’t expect a globally coordinated policy against deflation. It will be every nation for himself.
The surplus nations will, as they are doing now, follow the defensive measures described above. But it may take weeks before this is accepted. So now is the time to act.
And Gold?
The big picture for the long-term could not be better for gold, than it is now. Gold has proved capable of performing well in deflation, in uncertainty, in fear. Internationally it is liquid in all parts of the world. It is internationally acceptable cash. More than that, it is an effective counter to the devaluing of currencies through quantitative easing or currency devaluations.
