Russian ‘panic’ prompts plans for corn imports
“Panic”-stricken Russian corn consumers are planning imports, while Egypt is “aggressively” buying up wheat, reports said, as the fallout of the poor former Soviet Union crop continued its upheaval of the grain trade.
Many Russian livestock farmers are “in a panic and fearful of the situation” because of waning feed supplies, Alex Kholopov, an adviser to the US Grains Council said.
The squeeze reflects a reluctance by grain growers to sell down stocks, hoping that prices elevated by the country’s worst drought on record would get even higher, and despite the export ban which has cut off their access to foreign buyers.
“Some of the top Russian corn consumers believe there will not be enough grain in Russia this year,” Mr Kholopov said, adding that they were “making plans to import corn from other countries”.
Russia, which is attempting to ramp up its livestock industry, has also unveiled plans to release grain from state stockpiles.
Egyptian millers squeeze
The statement followed a revision to US Department of Agriculture estimates which quadrupled to 650,000 tonnes the department’s estimate for Russian wheat imports in 2010-11, and to 700,000 tonnes the forecast for purchases of foreign coarse grains.
And it came as a report from the USDA’s bureau in Cairo flagged the rush by Egypt, the biggest wheat importer, to buy up supplies, despite prices some 50% higher than two months ago.
Private sector buyers, which import some 3m-4m tonnes of wheat a year, were likely to feel “the major impact” of the ban on Russian exports, on which Egypt has increasingly relied.
They typically hold only one-month’s stock, and have “already started to buy from other countries”, notably the US, snapping up 300,000-400,000 tonnes of wheat in the last two-to-three weeks.
‘Moving aggressively’
The state grain buyer, the General Authority for Supply Commodities (GASC), has deeper reserves, of 4m-5m tonnes, sufficient to last about four-to-five months, the bureau said, adding that Egypt’s food security had not been jeopardized by the Russian export ban.
Nonetheless, the authority was “moving aggressively” to replace 540,000 tonnes of Russian supplies cancelled by the export ban.
The government was considering an increase of up to $700m in the budget for purchasing wheat in 2010-11.
“This amount will depend on how much wheat GASC needs to import over the remainder of the June-to-May fiscal year, as well as the prevailing prices in the world market,” the report said.
Shipment cancelled
The cut-off of Russian wheat exports, and the difficulty some merchants are having in finding grain at prices they contracted before the rally, continued to reverberate through the grain trade on Friday.
A European supplier was reported to have cancelled the shipment of 80,000 tonnes of Black Sea wheat to Bangladesh.
Meanwhile, Algeria bought 200,000 tonnes of milling wheat of unknown origin.
On the market prices continued Thursday’s rebound, standing 1.3% higher at $7.23 ½ a bushel in Chicago at 13:45 GMT, and up 1.6% at E216.50 a tonne in Paris.
In London, November feed wheat was 3.1% higher at £159.00 a tonne.
BEIJING, Aug 9 (Reuters) – China’s corn supply is expected to remain tight in the coming crop year that starts from October, although output this year is on track to rise from 2009 because of acreage increases, industry participants said on Tuesday.
Recent floods in northeast Jilin province, a major corn producer, were unlikely to have a very negative impact on production as little corn was planted in affected areas, they added.
“The recovery in feedmeal demand and year-end holiday consumption will help to keep prices at high levels despite a possible output increase,” said an analyst with Chicorn Network.
“Chinese users from the feedmeal sector are keen to buy more U.S. corn because of strong demand,” said a corn manager with Cofco’s corn unit.
Chinese importers have booked 1.25 million tonnes of corn from the U.S. so far this year on an output fall last year and a rise in consumption, the largest volume in a decade.
Besides feedmeal demand, government reserve houses were likely to buy a large volume of the crop after the coming harvest to refill dwindling stocks, said analysts.
The government sold a total of 1.04 million tonnes of corn on Thursday during its weekly auction, 66 percent of the 1.58 million tonnes it offered for sale.
Analysts expect corn output in 2010 to rise by more than 10 million tonnes from last year. (Reporting by Zheng Xiaolu and Tom Miles; Editing by Chris Lewis)
2010-08-10 12:20:00
Ukraine corn harvest faces ‘significant’ downgrade
By Agrimoney.com – Published 06/08/2010
The corn crop in Ukraine, the world’s biggest exporter of the grain outside the Americas, faces a “significant” downgrade because of the mounting heatwave, agribusiness giant Kernel has warned.
The oilseeds-to-silos group said that sunflowers, of which Ukraine was the world’s second-ranked producer last year, had survived relatively unscathed the hot weather which “has intensified of late”, bringing temperatures approaching 40 degrees Celsius.
The sunflower harvest was, provided het and dryness do not persist, on course top reach the 7m tonnes expected by the US Department of Agriculture, whose forecasts set global benchmarks.
However, corn “could be affected” by the weather, Kernel said, adding the USDA estimate of 13.0m tonnes “could be significantly reduced”.
More heat expected
The warning came hours after analysts at UkrAgroConsult cut by 350,000 tonnes to 12m tonnes their estimate for Ukraine’s corn crop, blaming the hot weather, which typically sets back pollination and the process of early grain formation.
“The Meteorological Office forecasts that the heat will last for minimum 10 days,” the Kiev-based group said.
“And grains are still forming on 25-30% of corn acreage and the heat may damage these crops.
“Consequently the yields may decline,” UkrAgroConsult added, cutting its estimate for the Ukraine average by 5% to 4.62 tonnes per hectare, with a figure of about 4 tonnes per hectare expected in Kharkov, Lugansk and Dnepropetrovsk.
Export slump
Kernel added that it expected Ukraine’s wheat harvest to finish up around 18m tonnes, in line with government forecasts, if nearly 3m tonnes below last year’s figure.
Barley output would fall by 1.3m tonnes to 9.5m tonnes.
Exports of the two grains would come in at 10.0m tonnes, excluding any shipments drawn from stocks carried over from last year, the company said.
Shipments from the 2009 harvest reached 15.2m tonnes.
Corn more vulnerable than soy to a wheat reversal By Agrimoney.com – Published 08/02/2010
Corn, which topped \$4 a bushel for the first time in six months, looks more vulnerable to a price reversal than soybeans, which hit an eight-month high, if wheat’s rally runs out of steam, analysts said.
Corn’s rise to a day high of \$4.04 ½ a bushel in Chicago – the best since January, and representing a rebound of nearly one-quarter in less than five weeks – owed something to fundamentals.
“If you had thought before which crop was most likely to rise, it would be corn,” said Mike Mawdsley, at Iowa-based broker Market 1, pointing to factors including Chinese buying of US corn and the relative paucity of corn stocks, as compared with use, a key input into commodity prices.
America’s corn inventories are set to end 2010-11 at 1.37bn bushels, according to US Department of Agriculture estimates, representing a thin 10.3% of demand. For wheat, the ratio is nearly 50%.
‘The prop’
However, in the main corn’s rise was a spillover from wheat, with the two having some crossover on many uses, such as livestock feed.
Furthermore, it looked like the grains were in the early stages of the battle for plantings for next year’s crop, with many farmers facing soon a decision on sowings, Don Roose, president of US Commodities, said.
“Wheat is the prop. If wheat goes, then corn goes,” he told Agrimoney.com.
And there was the potential for corn yield increases to lift US production, with Nebraska, Wisconsin and part of Iowa appearing on course for records.
Weaker demand
Indeed, look at US rainfall figures through the growing season, and “you could just die” they were so positive, said Darrell Holaday at Country Futures.
Meanwhile, use figures may be revised lower given the impact of high prices on curbing demand, he added.
“The USDA is probably going to have to cut ethanol use by 100m bushels. Then there are low hog numbers, low cattle numbers, so feed use is going to suffer too.”
It was “just wheat” that was helping corn prices. “If wheat breaks \$1 a bushel, corn will break \$0.40 a bushel [lower],” he said.
‘Real issues’
However, prospects for soybeans looked supported by the “incredibly strong” demand from China, which is on course for imports of 48m tonnes of the oilseed in the closing 2009-10 crop year, up 17% in a year, Mr Roose said.
“Of our crop disappoints at all, and if demand stays up, we could be vulnerable” to a supply shortfall which would support prices, he said.
Mr Mawdsley noted the wetter forecasts “across the major growing areas”, which could potentially set back soybean crops.
“We could start to see some real issues,” he said.
* Evening markets: hot day for crops ends on cooler note
* Russia’s woes lift wheat prices above landmarks
* Drought threatens ‘big hit’ to Russian sowings
* Rising sales lift Corn Products’ earnings hopes
* China has begun ‘new era’ of corn imports
Sugar Rallying as Ships Clog Brazil Ports, India Rains Diminish
By Elizabeth Campbell and Debarati Roy – Aug 2, 2010
The record 122 ships awaiting sugar exports at Brazil’s ports and the 3 percent drop in India’s monsoon rainfall show why Colin P. Fenton expects this year’s worst-performing commodity to rise more than gold.
Vessels outside the six main ports in Brazil waiting to load 3.62 million metric tons are being delayed by wet weather, according to Santos Associados Consultoria Ltda. and shipping company Unimar Agenciamentos Maritimos Ltda. Low inventories in India mean any crop short of forecasts will send prices “markedly” higher, said Hussein Allidina, the head of commodities research at Morgan Stanley in New York.
The 1.7 percent rise in demand this year means the ratio of stockpiles to consumption will drop to a two-decade low of 32 percent, International Sugar Organization data show. While a 22 percent gain in July brought prices close to the year-end estimate of 10 analysts surveyed by Bloomberg News last week, bulls say shortages will push sugar higher. The Philippines, India, Pakistan and Indonesia are “virtually out” of reserves, said F.O. Licht, a researcher operating for more than 130 years.
“A bull market has emerged in sugar,” said Fenton, the chief executive officer of Curium Capital Advisors LLC, a Boston-based researcher on global raw materials, and a former commodity analyst at Goldman Sachs Group Inc. He owns exchange- traded notes linked to sugar futures in New York and expects a 28 percent rally by year end to 25 cents a pound.
Sugar traded on ICE Futures U.S. in New York jumped to a four-month high of 19.67 cents on July 29, compared with the average estimate of 19.75 cents by year end. Gold, which reached a record $1,266.50 an ounce in June, will average $1,200 in the fourth quarter, 1.4 percent more than now, according to the median of 18 analyst estimates compiled by Bloomberg.
Rising Sweetener Costs
Another sugar rally may increase costs for Krispy Kreme Doughnuts Inc. and candy makers Hershey Co. and Tootsie Roll Industries Inc. already hurt by prices that doubled last year.
In 2009, sugar rose the most in 35 years as rain damaged crops in Brazil, the biggest producer, and dry weather curbed output in India, the second-largest. The commodity led gains in the United Nations’ Food Price Index, which rose 20 percent. This year, sugar fell 27 percent, the most among 24 commodities in the Standard & Poor’s GSCI Index, as buyers balked at costs and forecasters predicted a surplus after two years of deficits.
All that changed in the last two months.
Marcos Lutz, the chief executive officer at Cosan SA Industria & Comercio, the world’s top cane processor, said on June 17 that output next year in Brazil’s Center South, the largest growing region, may be lower than this year’s 28 million tons.
Export Logjam
Datagro Ltd., the Sao Paulo-based consultant and researcher, cut its forecast on July 23 for total Brazilian production, estimating 37.5 million tons for the year that began April 1 from 38 million. Unica, an industry group, said July 13 it may lower its forecast.
Trucks carrying sugar in Brazil are waiting as long as 40 hours to unload their cargoes at ports, according to C. Czarnikow Sugar Futures Ltd., which has been publishing market reviews since 1873.
The backlog of ships is more than twice last year’s 46 vessels. Ports stop sugar loading to avoid water damage. Latin America’s largest economy ships 54 percent of the world’s sugar exports, up from 20 percent a decade ago, according to the U.S. Department of Agriculture.
Global demand will be 8.5 million tons greater than output of 158.2 million tons this year, according to ISO’s most recent estimates on May 13. The shortage will be made up from inventory forecast to be at 52.8 million tons on Sept. 30, the group says. Next year, production will rise 9 percent to a record 172.5 million tons, creating a 2.5 million-ton surplus, the ISO says.
Brazilian Ports
Toby Cohen, the head of analysis at London-based Czarnikow, said in a report today that the logjam at Brazil’s ports means that the market’s “return to surplus in the 2010-2011 season may be illusory.”
Buying accelerated as prices slipped from a 29-year high of 30.4 cents on Feb. 1 to a 13-month low of 13 cents on May 7, Morgan Stanley’s Allidina said.
Thailand, the second-largest exporter, bought 74,350 tons of domestic supply on July 13, the first such purchase in more than 30 years. Pakistan is allowing traders to import 500,000 tons without duties until Nov. 30. Indonesia will boost buying before the Islamic holy month of Ramadan starts this month, when consumption peaks, said Stefan Uhlenbrock, a senior analyst at F.O. Licht in Ratzeburg, Germany.
Unexpected Supply Limits
“We’ve got some countries where their crops could also be negatively affected by weather, particularly countries like Thailand and China,” said Leonardo Bichara Rocha, the ISO’s senior economist. “Therefore, the surplus may not be as high as people are anticipating.”
India’s monsoon season, the main source of irrigation that runs from June to September, produced 3 percent less rain than average as of Aug. 1, the Indian Meteorological Department said today. The monsoon was 16 percent below normal in June.
“Output will be higher this year, but not the bumper year people think,” said Kyle Tapley, a meteorologist at Rockville, Maryland-based MDA EarthSat.
The Indian Sugar Mills Association said the crop will rise to 25 million tons next year from 18.7 million tons in the season ending Sept. 30. Maryland-based MDA Earthsat forecasts 20 million tons, while Michael Ferrari at Weather Trends International Inc. in Bethlehem, Pennsylvania, said output will be at least 7 percent less than most estimates.
Crops May Recover
There’s time for supplies to recover because the monsoon doesn’t end for another two months. Prices will drop to 13 cents to 14 cents by the end of the year, said Judith Ganes-Chase, a former Merrill Lynch & Co. analyst who runs a consulting firm in Katonah, New York.
“Bumper crops are expected both from Brazil and India, and if they are translated into reality, there will be a global surplus of about 3-5 million tons,” said Claudio Oliveira, a trader at New York-based Castlestone Management LLC., which oversees $500 million, including sugar futures.
Even after last month’s gains, prices would have to more than triple to get to the 66 cents reached in November 1974.
Futures contracts show traders expect little flexibility in supplies. October sugar traded at a 5.2 percent premium to March futures on July 30. In the week ended July 27, speculators increased bets on rising prices to the highest level since April, data from the U.S. Commodity Futures Trading Commission show.
European Dry Spell
The European Union may produce less sugar because of dry weather, according to Lars Hoelgaard, the deputy director general of agriculture and rural development at the Brussels- based European Commission.
Rainfall in northern France, Belgium, the Netherlands and western Germany was 60 percent to 80 percent of normal amounts in the 180 days through July 5, according to forecaster Martell Crop Projections. That includes the main EU sugar-beet regions.
In the U.S., where the government limits imports to protect domestic growers, deliveries are up 3.4 percent in the six months ended March 31, compared with a year earlier, according to The Sugar Association, a Washington-based industry group whose members including Imperial Sugar Co.
Even though the USDA raised its raw-sugar import quota twice this year, the industry needs at least another 300,000 tons of imports to meet demand, said Tom Earley, an economist and vice president at food and agriculture consultant Promar International.
Krispy Kreme, the second-largest U.S. doughnut chain after Dunkin’ Brands Inc.’s Dunkin’ Donuts, increased prices for some products after a jump in sugar and shortening costs.
Chocolate Costs
“The biggest price increase has been sugar,” Douglas R. Muir, chief financial officer of the Winston-Salem, North Carolina-based company, said in a June 3 conference call. “We have substantially higher sugar costs in the system.”
Hershey, based in Hershey, Pennsylvania, incurred a second- quarter pretax charge of $86.2 million that included rising sugar costs. Tootsie Roll, the Chicago-based maker of Charms lollipops, said in a statement that second-quarter profits fell 18 percent and were “significantly impacted by higher ingredient costs, primarily sugar.”
“Sugar is at a critical state in which marginal shifts in supply and/or demand can create parabolic price movement,” said James Dailey, who manages $145 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “Sugar appears to be excellently positioned to make a run at the mid 1970’s high in the next year or two if there are major supply constraints.”
We received an update from the fields from our “road warrior” John K. Here is what he writes about the field and crop conditions he is seeing right now.
John Writes:
Hi Kevin…here is the crop info as seen from my truck window going up and into central Michigan….
Lots of variability in the crops from farm to farm. Thousands of acres of corn and beans that looked just great from the road as you passed by…not able to see into the center of the fields. Then, an overpass gives you a view not seen from flat ground. Lots of open, bare ground w/ no crop surrounded by 6 inch yellow corn stalks that grow up and change color as the open hole expands outward.
Beans give you the same picture lots of times. Many times a re-plant is visible…with many of those drowned out.
Going around the South end of Lake Michigan…lots of flooded areas are plainly visible…too many 2–3–4+ inch rain storms. Going into Michigan, a lot of farm ground showed no crop…too wet to plant, or even get last years fall tillage work done. Saw one field that still had last years corn crop in it.
Many farm fields had 2 to 6 inch beans…planted in clean ground.
Saw more than a couple corn fields in Central Michigan with 2 foot to 6 foot corn…taken over by weeds that were as tall or taller than the corn. Other corn and bean fields with 2 to 5 foot crops of cat tails in most of the water holes.
The storms that pounded Milwaukee and Chicago last week…came right across Lake Michigan and drenched many parts on Michigan.
Only had the opportunity to speak with one cash renting farmer, he said he will probably break even with this years crop. That means he’ll work for free. OUCH!!
I’ll be going to Milwaukee in one week. I’ll let you know what I see.
KTI Road warrior .. John K, Peoria Illinois
Thanks as always John for your boots on the ground insight, I look forward to being out there with you come harvest time this fall.
Also, several of our other positions such as sugar, have been moving swiftly into profit territory. Your March Sugar call has gone about 40%+ and the October (which was almost down to -90% has now just about back to break-even and possibly ready to go profitable, an amazing recovery in a very short time.
Both the October Sugar and the Canadian Dollar trades are losing time value quickly though. Remember the October sugar options go “off the board” in early September. So time is of the essence. It is also a reminder of just how quickly commodities options can move.
Also, the Canadian Dollar position is offering us an opportunity to recoup some equity and this trade is at critical resistance levels. Take a look.
We always need to balance risk reward and some equity is better then no equity on a trade, especially with time this short. We will keep you posted.
Be on the lookout for any trading updates as well as other big announcements about our new media and educational products and partnerships aimed toward the commodities and resource investor who wants to take charge of their own financial destiny, all this and more from KTI next week.
Have a great weekend!
For Media Bookings & Broadcast in the US & Abroad, Please contact Karen Terwilliger at media@kerrtrade.com 203-559-7247 or 203-403-2552
China to Buy 15 Million Tons of Corn in `New Era,’ Council Says, Citing Li
By Luzi Ann Javier – Jul 26, 2010
July 26 (Bloomberg) — Pauline Loong, politics and policy risk analyst at CIMB Securities in Hong Kong, talks with Bloomberg’s Haslinda Amin about the trade relationship between China and the U.S. Loong also discusses China’s currency policy. (Source: Bloomberg)
China may import as much as 15 million tons of corn in 2015 as demand outstrips local supply and the country enters a “new era” of buying from overseas, the U.S. Grains Council said, citing Shanghai JC Intelligence Co.
Imports may total 1.7 million tons this year and 5.8 million tons next year, the council said, citing Shanghai JC Chairman Hanver Li. Even with normal weather, the second-largest corn consumer won’t be able produce enough to meet demand as incomes rise, the council said on its website, citing Li.
China’s reemergence as a net corn buyer may help to drive global prices higher. Imports of 5.8 million tons would surpass China’s previous record purchases in the 1990s, according to U.S. Department of Agriculture data. Corn is used to make animal feed, with demand rising as consumers buy more meat and dairy products.
“The natural market to supply China in the corn space is certainly the U.S.,” Luke Mathews, a commodity strategist at Commonwealth Bank of Australia said, referring to the top producer and exporter. “China buying is certainly something that’s going to be supportive for global grain prices.”
Corn has risen 8.5 percent since April 27, a day before the USDA reported the first corn sales to China by U.S. exporters of at least 100,000 tons since 2001. The December contract on the Chicago Board of Trade narrowed losses today, trading 0.2 percent lower at $3.8375 a bushel at 1:15 p.m. in Beijing.
‘New Era’
“Demand for corn in China is simply outstripping the country’s production trend,” the council’s statement said, citing Li, who spoke through an interpreter. “A new era of China importing corn is here,” Li was cited as saying. A phone call by Bloomberg News to the head office of Shanghai JC Intelligence today was not answered.
The Asian nation had been a net exporter of the grain in recent years, including last year, when it sold 172,000 tons, compared with purchases of 47,000 tons, according to USDA data. China’s corn harvest totaled 164 million tons last year, down 1.2 percent, the statistics bureau said in May.
China’s previous record imports totaled 4.29 million tons in the year to September 1995, according to data from the USDA. Imports of 5.8 million tons may make the nation the fourth- largest buyer, overtaking Egypt, according to the department.
Corn imports by China, the world’s most populous nation, may surge to 10 million tons in 2015, according to a forecast earlier this month from Akio Shibata, chief representative for trading company Marubeni Corp.’s research institute. The company is Japan’s biggest grain trader.
Meat and Eggs
China’s expanding economy is boosting demand for meat, milk and eggs because as incomes rise people buy more food, Li said, according to the council’s Global Update report, dated July 22. Li was speaking at the group’s 50th annual board of delegates meeting. The council develops export markets for U.S. harvests.
The country had reached a “turning point,” Shanghai JC’s Li was cited as saying, referring to the period when China becomes a regular importer. Bad weather this year had cut output, local prices were rising and stockpiles were dropping, Li said.
The rising demand for food in China offered “an excellent opportunity” for increased corn shipments, Thomas Dorr, the grain council’s president, said last month. China may buy as much as 1 million tons over the next 18 months, Dorr forecast.
China has been selling corn from state stockpiles this year to cool local prices for immediate delivery that have risen 8.8 percent, according to data from Shanghai JC. At the same time, the nation has stepped up overseas purchases amid concern that the year’s crop may drop after bad weather.
“For now, imported corn will be limited, and will have limited impact on China’s domestic market,” said Yu Xiaomeng, an analyst at research company Beijing Shennong Net. Domestic crops looked fine, even with some weather concerns, she said.
To contact the Bloomberg News staff on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net; William Bi in Beijing at wbi@bloomberg.net
———————
SUGAR
Dryness may overtake wet as sugar threat
Dryness may overtake rain as the bigger threat to sugar supplies, Rabobank has warned, even as forecasts of wet weather helped prices to a fresh four-month high.
Traders blamed forecasts of more rain at Brazil’s seaboard for a rise in raw sugar to touched 18.66 cents a pound in New York, the highest for a near-term contract since late March.
The wet weather poses to cause further hold-ups for the queues totalling more than 100 ships waiting to take on sugar in Brazil, the top exporter, by forcing ships to keep hatches shut, and so preventing loading.
“The big end customers, the Middle East, Far East and so on, all pretty much depend on Centre South Brazil for their sugar,” Thomas Kujawa at Sucden Financial said, referring to the country’s top sugar producing region.
“Buyers are having trouble getting the sugar out, and that is what people are reacting to.”
Yield hits
However, further ahead, dry weather may dent supplies by accelerating the seasonal decline in the Brazilian harvest, Rabobank analyst Andy Duff warned.
“Although July has brought several days of very wet weather, there remains some concern that dry conditions this year may impact cane yields both towards the end of this season and next season,” he said.
Furthermore, sugar beet crops in the European Union and Russia look set to fall short of early hopes, hurt by the drought which is slashing their farmers’ grain yields.
“Both [countries] are large importers,” Mr Duff said.
“Unless offset by improved production prospects elsewhere, these developments effectively increase the market’s vulnerability to any shortfalls in Brazilian and Indian production.”
The widespread expectations of a return of global sugar production to surplus, compared with demand, in 2010-11 was “vulnerable”, he added.
Crop revisions
The comments came as the Russia Sugar Producers’ Union lobby group warned that it might cut its forecast for domestic sugar output, blaming dry weather for slowing root development in beet crops.
In Brazil, Datagro, the sugar an ethanol analysis group, cut by 500,000 tonnes to 32.9m tonnes its forecast for sugar production in the Centre South, citing dry weather in May and June.
Plinio Nastari, the Datagro president, said: “The effects of the drought should start to become clearer from here out, especially with the late maturing cane that will be harvested from October through December. It is very underdeveloped.”
However, higher plantings have are raising hopes for India, where Uttar Pradesh Sugar Mills on Friday forecast that sugar production in Uttar Pradesh, the country’ top cane-growing state, would jump by 35% in 2010-11.
New York’s October raw sugar contract closed down 0.2% at 18.31 cents a pound, with white sugar for the same month closing up $0.50 at $559.20 a tonne in London.
——————–
GOLD
WEEKEND INVESTOR
July 23, 2010, 8:27 p.m. EDT Bullion buyers bank on gold coins
Precious metal glitters for investors seeking to hedge financial chaos
By Claudia Assis, MarketWatch
SAN FRANCISCO (MarketWatch) — Apart from a New York City phone book listing, gold dealer Manfra, Tordella & Brookes, Inc. does no advertising. Lights are on all day because the shop sits in a basement.
Yet MTB, as the firm is known, has never been busier. Every day, people find their way to the Manhattan store with one thing in mind: getting their hands on gold bullion coins, as soon as possible and as much as possible, before the financial Armageddon they fear renders the dollars in their pockets worthless.
Welcome to the world of bullion coin investing, a business that has soared alongside the popularity of gold despite its disadvantages. The world’s thirst for gold coins has risen more than sovereign government mints can quench it, with demand on track this year to outpace 2009, itself a record.
Bullion coin investing may cost you
Investing in bullion coins has risen alongside gold’s popularity, catering to a small subset of investors who want physical possession regardless of how much more they may pay. Claudia Assis reports.
The coin craze is part of gold’s growing investment allure, based on fears of currency debasement, inflation, a debt debacle in Europe, and rising debt levels in the U.S. But the boon has also brought the practices of some retailers in the industry to question, with at least two U.S. companies under investigation for allegedly misleading consumers.
Bullion run
Bullion coin investing caters mostly to a subset of investors who want physical possession of gold and regard anything else as lesser investments, no matter how much more they have to pay, ounce per ounce, over gold futures prices or the difficulties they are likely to face when unloading their bullion.
Long having captured the hearts of a few in the periphery of the investment world, gold has won over some of Wall Street’s elite. Investment stars such as Paul Tudor Jones, of giant hedge fund Tudor Investment Corp. and John Paulson, of Paulson & Co., all have invested heavily in gold in recent years.
Investing in bullion coins is not to be confused with investing in collectable coins, although both are manufactured and sold by mints across the world. Bullion coins are valued entirely for their metal content, not for their collectible value or the denomination hammered on them. For many, they are an affordable and portable way to invest in gold.
It’s no coincidence that May was one of the best months in recent memory for the bullion coin business, and gold in general. It was also the month that concerns about a European debt crisis reached their highest note, and gold hit its first nominal record high since December.
“It’s been unbelievable. May was phenomenal,” with June sales and so far July a bit slower but still way above average, said Michael Kramer, one of the owners of MTB.
Precious-metals research firm GFMS estimated that 229 metric tons of gold coins were sold in 2009, up 22% from the 187 metric tons of 2008 and almost 70% from the 135 metric tons that moved in 2007.
“It looks as though we are going to surpass 2009,” said Phillip Newman, research director of the U.K.-based firm.
The U.S. mint ran out of some bullion coins last year and in 2008, and the Austrian mint added a third shift to catch up on their stocks. In his Manhattan store, Kramer caters to about 45 coin buyers a day, up from fewer than 10 a day in previous years, as the firm’s forte is wholesale.
MTB is one of only eight authorized firms in the U.S. able to purchase U.S. Mint bullion coins directly and sell them to coin shops nationwide and abroad. The U.S. Mint does not sell bullion coins to the public, as it does with commemorative and other coins.
Europe’s Week Ahead: BP and Shell report
European markets will get their first chance to react to the bank stress tests, with the latest earnings from BP, Royal Dutch Shell, Deutsche Bank and UBS all likely to be closely watched.
In addition to the new swarm of retail customers, MTB saw heightened interest from European coin retailers. “They couldn’t find enough coins in Europe, and they were buying from us.”
The Austrian mint, which, alongside Canada’s mint and the U.S. Mint is a top mint by sales, had to add a night shift to its two day shifts to counter delivery delays of two to three weeks and depletion of stocks.
“We did run out of stocks, we were living off our daily production.” said Kerry Tattersall, director of marketing at the Vienna-based mint. The third shift was recently discontinued after the mint built up its inventory.
Risky insurance
Ongoing fears about the pace of the global recovery have only given gold more momentum, with futures prices hovering just below $1,200 an ounce and the consensus looking for $1,300 an ounce before the year is out.
Gold coin buyers already pay $1,300 and beyond for their morsel of shiny metal. Premiums for coins are around 5% to 10% for one-ounce coins, and higher for lesser-weight coins.
In contrast, gold bars, which are cheaper to produce, carry premiums half as expensive. In gold investing, the premiums for coins are only higher than premiums paid for jewelry, where prices also reflect fashion, artisanship, and other factors.
“Coins are unable to give you the most bang for your buck,” said Jon Nadler, an analyst with Kitco Metals Inc., a dealer of coins and other bullion products. “Secondly, you are going to have questions about liquidity … it’s not going to be as easy as you think to sell them.”
Coin owners are also exposed to total loss in case something happens with their storage arrangements, Nadler said. Even bank safes are not covered in case of catastrophes and physical damage to the buildings that house them, to say nothing about the danger of home burglaries.
The financial breakdown scenarios invoked by some die-hard gold coin and bar buyers also don’t work for Nadler. With the collapse these scenarios envision, “you probably need lead, not gold. And who’s going to make you change?”
Gold watch
Most buyers are not concerned with small change or exit strategies. Some people sell their coins to raise emergency cash, but most are in for the long run and eschew the ups and downs of the futures markets and exchange-traded funds, which are “paper gold,” said Parker Vogt, owner of Camino Coin, LLC, a retailer in Burlingame, Calif.
In recent months, two Southern California coin retailers have drawn attention for the allegedly high premiums charged to customers and their sales tactics.
Earlier this week, Santa Monica’s City Attorney’s Office announced an investigation into Goldline International and Superior Gold Group, both based in the city, after receiving dozens of complaints in the past two months. The city said the Los Angeles County District Attorney’s Office is also involved and the investigation is in its early stages.
In May, Rep. Anthony Weiner (D-N.Y.) requested that the Securities and Exchange Commission and the Federal Trade Commission investigate Goldline, a frequent cable television advertiser. The agencies haven’t yet responded.
Weiner accused the company of high-pressure sales tactics “and tall tales about the future of gold to sell overpriced coins that can be bought somewhere else for cheaper,” according to a report produced by Weiner’s office. The average Goldline markup was above 90% the melt value of the coin, the report said.
Goldline executive vice president Scott Carter said in a telephone interview that the company takes the complaints made to the City of Santa Monica seriously, but they represent only a fraction of Goldline’s thousands of transactions.
Congressman Weiner’s contention of price gouging is also unfounded, he said, as Goldline charges premiums of 35% for its highest-priced collectible products and the average 5% to 10% for bullion coins.
“The allegations are inaccurate,” Carter said of Weiner’s report. Clients are offered “comprehensive” disclosure documents and must review a risk information package before doing business with Goldline, he said. The company has a seven-day, full-refund policy, one of the most generous in the industry, he added.
At Superior Gold Group, Managing Partner Bruce Sands said in an email that he was “not aware” of either Santa Monica’s or Los Angeles County’s investigations.
“We have a full compliance department which is a third party verification,” Sands said.
“We record every call to make sure any decisions made by a potential client is documented,” he added. “Potential and current clients call the Superior Gold Group of free will with concerns about economic market conditions and look to precious metals as a hedge for diversification. We also have any and all clients sign an account agreement that outlines our terms of service to process their order(s).”
There are alternatives to coins, even for those willing to pay the premiums for physical gold. A few companies offer vault storage for bars purchased, and the Perth Mint sells gold certificates, with the metal sitting in vaults in Western Australia.
Some exchange-traded funds also offer physical gold, including SPDR Gold Shares (CONSOLIDATED:GLD) , iShares Comex Gold Trust (CONSOLIDATED:IAU) , ETFS Physical Swiss Gold Shares (CONSOLIDATED:SGOL) and Sprott Physical Gold Trust (CONSOLIDATED:PHYS) though actually taking delivery can be costly. See related story.
For some, the portability of coins is their best feature. Kitco’s Nadler recalls buying gold coins from Iranian and Vietnamese refugees in Southern California.
The ability to buy less than one ounce is also a big draw. A similar coin craze swept the world in 1999, as some feared a social breakdown — and inoperative ATMs — caused by the Y2K bug.
Yet there’s no denying that, for many buyers, tangible coins simply carry an emotional appeal. If customers are investing a big chunk of their money, MTB’s Kramer said, “they want to see what they are getting. They don’t want to see a piece of paper.”
A Resource Trader Rewind video from January 2nd, 2007 Kevin talks about gold setting up to explode higher, p.s. This is when gold was at $640 or so, those were the days. Watch Here!
The concept of inflation has been around since the beginning of time. Inflation is a rise in the general level of prices of goods and services in an economy. Inflation can be measured in any time period, but it becomes noticeable over a longer time frame when looking at prices.
There can be daily inflation when hyperinflation is in full effect, and this has happened in many South American and African countries. When there is hyper inflation good and services are re priced on a day to day basis. It can get so bad that employers will pay people intraday so that they can buy goods during their lunch break because the prices might be rising so dramatically.
Currency and inflation go hand in hand. The amount of a particular currency you posses will determine your buying power. If prices start to rise because of inflation the currency you have in your bank account will not buy you as much as it did. The opposite is true when there is deflation. When the cost of goods and services start to decline your currency will buy you more.
There is a fine line between too much inflation and deflation. Economist will often have different opinion on where a good medium might be. Most feel that a small steady rate of inflation is best as compared to zero or negative inflation. When inflation rises, hard assets like real estate and gold will become more valuable. Your buying power will be less for items like clothes and food, but is offset if you own hard assets.
The cause of inflation is usually an increase in the money supply. In today’s economic environment the government is pumping money into this supply, trying to stimulate economic growth. They government can do this by selling debt in the form of United State Treasury Bonds and Bills. If no one wants to loan us the money, the Treasury department will simply buy its own bonds, this is basically like printing money.
If there is more money pumped into the system each unit of currency should theoretically be worth less because there is more of it. You will then need more of it to buy the good and services in the economy.
At the moment the inflation rate has remained zero to negative, even as the government is pushing money into the economy. This is because the money being put into the economy is being used by the banks and people to pay down debt. Since there were big losses incurred during the middle part of the decade, the money supply is going to pay down these losses.
If the money was going directly into the pocket of people, and they would be spending it, then there would be more signs of inflation. Employers are not paying more either in the current environment. Wage increase is also a sign of future inflation, so when wages start to increase, inflation might be down the road.
The countries in the world today that have less national debt will be in far better shape than those who have issued bonds to pay for their debt problems. The more smoothly the economy is working the higher the interest rate will be. The higher rate is because the government is not trying to stimulate the economy, just trying to maintain an environment where there is very low inflation.
Any investor can look at forex currency charts to gauge the strength of a countries economy. When the currency is lower versus other currencies investors can assume the country is experiencing low growth and the government is trying to stimulate spending.
Investors will put their money into a currency that is appreciating because the country is more than likely raising interest rates to combat too much growth. Investors are always looking for the best yield, and the countries economics and money supply play an important role in money management decisions.
Sign up here for more information on KTI, our newsletters and other services for commodity trading
Kerr Commodities Watch
Kevin has combined his 20 plus years in the futures industry
with cutting edge technology delivered by KerrCommoditiesWatch.com to
bring subscribers across the globe expert trade recommendations
and resource opportunities in commodities and resource equities.
Visit now and sign up!
Contact Kerr Trading International
US Offices: New York Office
Kerr Trading International
The Chrysler Building
405 Lexington Ave, 26th Floor
New York, NY 10174
1-866-30-WATCH
Connecticut Office
Kerr Trading International
3 Big Shop Lane | Office #4
Ridgefield, CT 06877
Phone: 203-403-2552
Fax: 203-587-1117
Posts
