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US Shutdown Prompts Investors ‘To Cut Ag Exposure’
UK, 8 th Oct 2013, by Agrimoney.com The US government shutdown, and the resulting dearth of official statistics, are prompting investors to quit agricultural commodities over concerns about diminished market transparency, and of a “data dump” when Washington reopens. Agricultural investors and businesses are still attempting to assess the knock-on effects of the closure since Tuesday of Washington functions, thanks to an impasse between lawmakers over setting the US budget. The US Grains Council, whose funding beyond 2013 is threatened by the crisis, became one of the latest to caution over the severity of the shutdown, terming it a “matter of great urgency” which, if not resolved “in a timely manner” will cause “significant damage” to crop export programmes. “This is no time to be in lockdown mode. Delay costs sales,” the council, which promotes US grain exports, said. “We have a good crop coming on that needs to be marketed.” ‘Moving to the sidelines’ However, there is increasing talk that the shutdown, in halting the flow of US Department of Agriculture data, is prompting investors to shun the market, over fears about the vacuum of official information. One of the purposes of the USDA’s normally extensive dataflow is to promote transparency, with the daily export sales alerts system, for instance, introduced after the so-called Great Grain Robbery in 1972 when Russia, below the market radar, undertook huge purchases of US grain. The void in “fundamental data has many traders moving to the sidelines,” Kim Rugel at Benson Quinn Commodities. “If not necessarily leaving the market, the speculator is not adding to new positions with Thursday’s volume down from Wednesday.” ‘Massive data dump’ Particular concern has focused on the potential for the shelving of the USDA’s Wasde crop report, a much-watched monthly crop briefing, which was due on October 11, but is looking increasingly unlikely to be released given the lack of adequate time for preparation. “Concern that the USDA’s October report could be delayed may lead to some additional short-covering as speculative shorts look to take risk off the table,” another trader said. However, a surfeit of information may also be a concern once the USDA does resume operations, with the potential for a “torrent” of backlogged data, Richard Feltes, at RJ O’Brien, cautioned. “A massive data dump could trigger sizeable market moves, similar to the volatile market reaction to recent quarterly corn stocks updates,” Mr Feltes said. “The potential for elevated price volatility later this month is increased, a reality that may push selected players to the sidelines.” ‘Removes a constructive factor’ In fact, the shutdown has produced one positive factor for agricultural commodities in depressing the dollar, a factor which “always prompts some buying”, Darrell Holaday, Country Futures said, with a cheaper greenback making US exports that much more competitive. However, Jefferies analyst Anne Frick flagged some negative pressures stemming from the dearth of USDA data which, in meaning no daily export sales announcements, “removes a constructive factor from the market. “The seasonal pick-up in soybean export inspections would likely go unnoticed,” Ms Frick said, also noting a potential setback should the Wasde be released late. A delayed report “may allow enumerators to pick up some yield improvement in late-maturing soybeans from the late season rains”, and confirm rumours of harvest results proving better than had been feared. Continue reading
Russian Farming ‘Better Bet Than Romanian’
The yield risks of farming in Russia may actually be less than those of Romania, SovEcon said, amid a widespread debate over the two countries’ merits sparked by Velcourt claims over “dishonesty” and climatic volatility. Velcourt, the UK-based agricultural consultancy and investor, sparked a heated reaction in Russia’s agriculture sector by claiming that the “endemic” dishonesty was “a major issue” in the industry, whose fortunes were also rendered “volatile” by a difficult climate. Velcourt, which manages more than 50,000 hectares in the UK, has opted for Romania as a target for a move into eastern European farm investment, terming it “one of the world’s foremost agricultural investment opportunities”. However, yields in Romania are actually more variable than those in Russia, Moscow-based SovEcon said, using wheat, a widespread crop in both countries, as the comparator. ‘Significantly more volatile in Romania’ In Russia, the average wheat yield, between 2008 and 2012, varied between 1.84 tonnes per hectare and 2.39 tonnes per hectare, on World Bank figures, with the data giving a so-called standard deviation, a much-used measure of volatility, of 0.26. For Romania, the wheat yield varied between 2.36 tonnes per hectare and 3.99 tonnes per hectare, giving a standard deviation more than twice as big, at 0.61. “If you included data from this year, when it looks like Romania achieved a very good yield, the volatility would likely look even higher,” SovEcon managing director Andrey Sizov said. “It looks like wheat yields are significantly more volatile in Romania than Russia.” Spring vs winter This may be down, at least in part, to two agricultural advantages of investing in Russia, the first being the more even spread of winter and spring crops in farms’ growing schedules. “If we have a poor winter crop, this can be partly offset by the spring crop. In Romania, they mainly plant winter crop,” Mr Sizov told Agrimoney.com. Furthermore, Russia allows more easily the purchase of huge areas which enable more efficient farming, and at prices of some $500-600 per hectare for black earth land, compared with $3,000-4,000 per hectare for comparable farmland in Romania. “In Romania, it is hard to control much land. A large farm will be one of more than 5,000 hectares. “In Russia, a big farm would be more than 50,000 hectares, with the largest at 500,000 hectares. “If you want to invest in large-scale farming in Europe or the Black Sea countries, of 50,000-100,000 hectares or more, the only options are Russia & Ukraine.” Soviet hangover Not that having a large farm is all upside, with Mr Sizov acknowledging that having a huge enterprise made it “harder to control” theft, which was “an issue” for the country, as elsewhere in Eastern Europe. “Partly, we can blame our Soviet past,” and collectivised farms, owned and run by the state under the communist regime in operation until 1990. “Then, there was an attitude that ‘everything belongs to collective farms. So everything belongs to me’. That still remains the case for some people.” However, “that will not be such a big issue in the future, because the mentality of people is changing”, with the retirement of workers remaining from the Soviet era. ‘Trusted partners’ Velcourt, which has flagged Romania’s place within the European Union as a reason to invest, has acknowledged the risks of the country’s variable weather, and said it has included results from 30 years of climatic information in its modelling. “Working with trusted partners, allied with farm soil selection, will mitigate risk to some degree,” Richard Williamson, the group’s farms director, told Global Trader. Continue reading
