ANZ Morning Brief – Soft commodity prices

SOFT COMMODITY PRICES. Last night’s GlobalDairyTrade result of a 0.7% increase in the average winning price, but softer milk powder prices confirmed reports that prices have plateau for now. Trade reports are indicating most buyers have their immediate requirements covered, but order books are firming up for 2013. The catalyst for another leg up may well be when export markets shift from Southern to Northern Hemisphere supply at the start of Q2 2013. Northern Hemisphere producers remain under pressure from high feed costs across the board limiting options to substitute to other feedstocks. Grain markets strengthened by 0.75% overnight, as drought conditions persist in the US . The catalyst was the third straight week of deterioration in the US winter wheat crop after drought expended across the Great Plains . Hopes have also been dashed for livestock producers in the US and elsewhere that the Environmental Protection Agency might waiver, lowering or modifying the RFS mandate for ethanol production. Last Friday the EPA released a note indicating this would not happen. The EPA saying waiving the RFS mandate until corn supplies recovered next harvest would have minimal impact on ethanol demand. So far ethanol production has averaged 8.5% below year ago levels since September. In part this reflects the impact of high grain prices, but even more so slow petrol demand, the use of ethanol credits from prior years and lower overall crude oil prices. The decision leaves Northern Hemisphere dairy and other livestock producers in an uncomfortable position, especially if energy markets were to pick-up. Such a pick-up in energy demand and subsequent further squeeze on Northern Hemisphere producers margins could potentially signal the next leg up for dairy prices.

OTHER EVENTS AND QUOTES:  Jean-Claude Junker, the head of the Eurogroup, said that while he saw “good chances” of a “conclusive” Greek decision tonight, he’s not “entirely sure”.


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