Rice Rally?

Rice Rally Puts Some Premium Back in Futures

CONWAY, Ark.-(Commercial Grain Inc.)--Last week’s strong recovery in futures prices may have had some mild support from the fundamentals, with the wet weather in coastal areas, concerns over the late development of much of the Mid-South crop and a reversal in the recent climb of the U.S. dollar. However, most of the futures strength seemed driven by technically-oriented traders.

U.S. cash markets did not fully follow the rally in futures and Asian markets remained quiet and relatively steady this week. It's a bit early to expect the normal seasonal price rebound that tends to come in futures once the market has discounted the impact of new-crop production, but it is not unusual to see a 3- to 4-week futures rally followed by a retest of the lows in October.


Jim Daven
Commodity Analyst

Ag Economist: Producers Still Have Viable Marketing Tools (w/ audio)

MANHATTAN, Kan.-(AgWatch)--As market volatility increases, producers subsequently face greater risk than they have in previous years.

Agricultural economist Kevin Dhuyvetter says one thing producers must not do is underestimate market volatility:




Dhuyvetter says there are three main marketing tools that producers have: hedging, options and forward contracts.

He first explains the hedging process:




Dhuyvetter then describes how producers can use options:




Third, Dhuyvetter outlines the most popular marketing tool among producers, the forward contract:




Dhuyvetter says he thinks these tools can still help producers market a crop, but he adds that historical trends shouldn't serve as reference points anymore:

Factors Affecting the Cotton Market

Many different factors continue to affect the cotton market. For example, the grain and oilseed market has slashed cotton production as many U.S. growers have shifted out of cotton and into corn and soybeans.

Dr. Gary Adams, Vice-President of Economic and Policy Analysis for the National Cotton Council, says some signs indicate that other countries will also moving out of cotton and into other crops.





Adams says a slumping global economy has hurt demand for cotton.





Adams advises producers to continue monitoring the futures markets.





Adams says that when looking at the world supply and demand, cotton prices may experience some upward pressure in the futures.

Unexpected Bumper Crops Unlikely to Seriously Affect Prices

CHICAGO-(Chicago Tribune)--As recently as 10 years ago, a bumper crop of corn was welcome news for farmers and consumers alike. The farmers would have more bushels to sell, which would drop prices for those buying eggs, steak and turkey at the grocery store.

But in the era of ethanol, even the extraordinary harvest predicted Tuesday by the government will likely provide little relief from the pressure of high prices, which hang over growers, food producers and consumers like a scarecrow.

The Agriculture Department projected this year's corn crop has withstood rains and flooding to deliver a harvest of 12.3 billion bushels _ 573 million more than it expected last month and second in size only to last year's harvest.

With ethanol expected to consume more than 30 percent of that harvest, the economy has embarked on a new cycle in which bumper yields instantly find new buyers, the prices stay higher and farmers face greater expenses for land and fertilizer, causing them to respond by continuing to plant more corn.

"We're going to be caught in that price squeeze again," said Art Bunting, president of the Illinois Corn Growers Association. "We either have to increase yields or increase the price and we don't have power over either one of those things."

Bunting is an ethanol proponent, quick to claim that diverting corn to the gasoline additive does not explain the inflation that has struck in supermarket aisles. Agriculture interests blame high oil prices.

Yet food industry analysts note that consumers are also trapped by prices they cannot control.

An ideal mix of sunshine and rain has brought December corn futures down 33 percent from recent highs to $5.28 a bushel on Tuesday. The immediate impact of the agriculture report is that prices are not expected to shoot through the roof again.

But few see prices for commodities or food trending downward.

"You should be expecting to see higher prices in 2009 on the grocery shelves, but the good news is it might not be as severe because the weather has been so good," said Robert Moskow, an analyst for Credit Suisse.

A decline in corn prices does not necessarily translate into savings in the check-out line, since many food companies would be reluctant to slash costs. They see a broader trend over the next year of rising costs because of fundamental changes to the agricultural sector.

"I think they are telling investors that in the long term, the days of $2 a bushel corn are behind us," said Matt Arnold, an analyst for Edward Jones.

When flooding washed out swaths of Iowa in June, some market analysts feared that the damages could send corn to $9 a bushel. That possibility emboldened meat processors who were lobbying for the suspension of federal ethanol mandates.

But the doomsday scenarios that flowed out of the flood started to evaporate as the clouds parted and farmers checked prices at the Chicago Board of Trade.

With September futures shooting past $7.60 a bushel, the farmers had an incentive to replant their fields, explained Alan Brugler, president of Brugler Marketing and Management LLC, a commodities trading adviser in Nebraska.

"Price makes an excellent fertilizer," Brugler said.

The cooperative weather during the past month then improved the average yield, which the Agriculture Department said would be 155 bushels an acre, 6.6 bushels better than the previous prediction.

Ethanol supporters such as the Renewable Fuels Association greeted those numbers by praising the American farmer for overcoming "historic obstacles."

Ethanol producers blame record crude oil prices for food inflation, routinely saying that only a nickel worth of corn is contained in a box of cornflakes.

The Agriculture Department report marked the second straight victory for the ethanol industry, after the Environmental Protection Agency last week rejected a request last week by Texas Gov. Rick Perry that the mandates be waved.

But the livestock and poultry industries are warning that their own prices will continue adjusting to expensive corn. These companies largely favor the suspension of ethanol mandates, saying that the corn feed used for cattle, chickens, hogs and turkeys has become unaffordable.

"If the harvest turns out to be what the USDA predicted, the government will have dodged a bullet," said Joel Brandenberger, president of the National Turkey Federation.

The potential for a poultry shortfall could be on the horizon, a consequence of the same summer flooding that led corn prices to spike.

Moroni Feed, a turkey processor in Utah, plans to temporarily shut down operations for three months after Thanksgiving, a decision the company, which has $125 million in annual revenues, reached because of the cost of corn.

Its last set of eggs hatched on Thursday, said Moroni spokesman Kent Barton, describing the process involving the company's breeder farms and processing division as a "series of roving blackouts." Poultry producers intend to limit the supplies of chicken and turkey, so that prices rise and profit margins can improve.

Barton said the ethanol mandate creates an "unlevel playing field" between meat processors and the fuel refiners.

"In the end, it's the consumer who pays," Ken said.

Rice Update

Weekly Rice Update - Monday, August 11, 2008

The new marketing year for U.S. rice began on August 1 and carryover export sales from 2007/08 are a record large 612.3 TMT. Outstanding sales to begin the new year are 677.8 TMT, compared with the year-ago figure of 396.3 TMT.

There was a notable cancellation of 30 TMT in sales to Iraq this week and one caution about the large carryover sales is that declining prices could encourage some additional cancellations in the weeks ahead. The August 1 crop survey indicates total U.S. rice production of 204.1 million cwt, up 1.3 million cwt from our prior forecast.

Almost all of the increase is in the long grain class. We have increased our 2008/09 export forecast by 0.5 million cwt and let the balance of the production increase flow through to raise our forecast of carryout stocks slightly to 21.0 million cwt. We have lowered our forecast futures price ranges and our season average farm price forecast by 75 cents per cwt.


Jim Daven
Commodity Analyst

Video: Farmers in Thailand Ditch Machines for Water Buffalo

THAILAND-(Reuters)--As fuel prices increase, farmers in Thailand are choosing to use more economical means to carry out their work--water buffalo.

Water buffalo wallowing in mud are a common site in Thailand's paddy fields, but their relaxation period is now over.

Due to to the rising price of fuel more farmers are using the animals to till the land and plow their fields, instead of machinery.

Water buffalo cost between $375-540 and have proven a cheap alternative to the diesel plow.

Basmah Fahim reports.

Cheaper Diesel?

ENERGIES: Crude oil prices this month appear poised to make a long-deserved return to fundamentals. The shift should pressure oil prices toward a fundamentally justified level between $80-$100 over the next few months.

The major source of pressure should come from the “invisible hand” of commodity index fund liquidation, while background pressure will come from weakening demand and growing supply.

Index fund flows are difficult to gauge, but supply/demand statistics have shown an oil market in surplus since late-last year.

Congressional efforts to drill in the OCS (outer continental shelf) may add pressure if compromise is reached. Demand statistics show a decline in OECD (Organization for Economic Co-operation and Development) countries. However, non-OECD demand is still strong.


JIM DAVEN
COMMERCIAL GRAIN, INC.
501-505-8000

Weathering the Storm: How Brazil Became the World's Hottest Market

BRASILIA, Brazil-(Newsweek)--The specter of rising food and fuel prices now threatens to destroy an era of unprecedented global prosperity, with two notable exceptions: Brazil and Canada.

Both countries produce and export enough food and fuel not just to offset the worst of global inflationary pressures but even to turn the price spike from a menace to a boon. They are the only two major economies where prices have not burst the upper limit of the central bank's inflation target. And of the two, Brazil is by far the more surprising success story.

The country that suffered the longest and perhaps the most debilitating bout of hyperinflation in recent history is now a rare island of relative stability and prosperity. Brazil's inflation is running at 6.5 percent, a rate that worries the country's money minders but thanks to their zeal is still the lowest level in all the major emerging markets.

Luck has helped. Brazil is blessed with vast resources, including timber, fresh water, gold and the world's largest cache of iron ore. Farms stretch from horizon to horizon, and while most of the world is running out of arable land, Brazil has more than 70 million hectares still to plow.

Plumbing deep water reserves, the country has announced massive oil finds that may total 30 billion barrels, the largest discovery in the Western Hemisphere in three decades. For Brazilians, who once joked that "Brazil is the land of the future, and always will be," this good fortune is a serious shock. "Brazil has had interesting moments before, but this is extraordinary," says Otávio Vieira, executive director of private banking at the Swiss-owned Banco Safdie, who has seen his portfolio swell by 150 percent since 2006.

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