Commodity Blog

Posts Tagged ‘drought’

The severe drought in Texas, US, is bringing the hay crops to the lowest level in more than a century, pushing the feed prices for the dairy and beef producers up. Texas produces not only cattle but is also the biggest growing region for hay, which is used as the cattle feedstock across the whole country.

Price of some varieties of hay rose more than 50 percent during the last 12 months. The ongoing worst ever recorded drought destroys the grass and forces farmers to opt for more expensive cattle feed — mainly corn.

It’s estimated that this year, only one crop of hay will be collected compared to three crops harvested during normal years. The farmers are expected to harvest 57,605 million acres of hay this year — the lowest level since 1909. The corn is currently sown on 92,282 million acres — the highest post World War II level.

Corn futures is currently trading at $676.25 per bushel on CME as of 15:18 GMT today — up 0.26 percent during the day.

Crude oil dropped today on concerns the Ireland won’t be able to resolve its debt problems and crisis will spread to other European countries. Optimism for Ireland bailout receded after Moody’s Investors Service said that it may downgrade Ireland’s credit rating. Concerns for other debt-laden European countries also suppress demand for commodities. January delivery for crude oil dropped $1.13 (1.4 percent) to $80.85 per barrel as of 12:35 on NYMEX.

Corn and soybeans in Brazil may experience a drought similar to the one in 2005, which harmed 13 percent of crop. The country received below-average precipitation since October. Experts say that heavy rains, followed by drought, may be very harmful to harvest. Estimated output of corn next year varies between 51.8 million and 52.7 million metric tons, while expected soybean harvest is put in range between 67.7 million and 69 million tons.

The rice futures rallied today as the investors bet that the huge discount of this commodity’s prices compared to other grains will spur the demand and growth. As both wheat and corn may seem overbought to many investors to rally further, the funds are turning their heads to rice, which is currently the worst performing of all grains this year.

The floods in Pakistan and the drought in Thailand also contribute to the better outlook of the rice futures at least for the next few weeks. While wheat rose by about 100 percent since June this year, rice dropped about 1/4 of its price, resulting in the widest price gap since early 2008 for these two commodities. The traders believe that the current price may go up by almost a third by the end of the year and suggest looking at supply as the main moving factor. If the weather continues to press on, the rice will continue to rally.

September rice futures is trading near $11.27 per 100 pounds as of 15:37 GMT on CBoT. It rose from $10.94 or more than 3 percent today.

Wheat reached 13-month high levels today as the weather troubles continue to remain a major concern of the main commodity suppliers across the world. It also looks unlikely that China or India will sell from their wheat stockpiles to satisfy the global demand.

Floods in Canada and droughts in Australia, France, Kazakhstan and Russia threaten the grain production in those regions. According to the market researchers, the wheat production in Western Australia is to fall by 9.5 million ton this year. Russian exports may be decreased by the government limits this year as the crops are falling there.

Despite the fact that the world consumers will have to buy more grain from the southern hemisphere this year, such big holders of the wheat stockpiles as China and India will probably refrain from parting with them. Analysts believe that the prices will stop rising so fast only if some other exporters will cover the supply deficit. Technical analysis factors support the bullish point of view.

Wheat went up from $586.25 to $599.50 as of 16:33 GMT on CBoT today, a spike to $609.75 was recorded earlier.