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Market on a Roller Coaster

Date Added: 25/02/2011

Market currently undergoing volatile price  movements

This week has seen some violent price movements as the market has struggled to digest the impact of the various factors occurring.

 Not least of the issues occurring at present is the surge in oil prices with Brent crude at one stage touching $119 a barrel. This has represented a real dichotomy since high oil prices should represent a good opportunity for biodiesel and bioethanol producers to lock in good crush margins. However there has been an overriding sell off in grains generally which may or may not have been precipitated by the troubles in the Middle East. There is a worry that these problems will cause a reduction in demand especially if high oil prices push the world back in recession. A more likely explanation is that there was a wave of fund liquidation as any uncertainty in the market caused nervous longs to book their existing profits. On Tuesday Chicago markets on corn, wheat and soya experienced limit down moves, whilst on Wednesday the Matif oilseed rape market experienced a 50 euro movement trading from unchanged to at least 25 euros down and then back to unchanged.

On Thursday we received the latest estimates on plantings for coming US growing season. Corn plantings are seen at 91.5 million acres and soya plantings at 77.8 million hectares, both significant increases over last year. However yields will have to exceed the 5 year average in order for stocks to increase from the current low levels.

As regards oilseed rape, Oilworld have calculated the EU will import will 930,000 tonnes of Australian osr, we estimate that this figure should be over 1 million tonnes. Given the size of these imports we think the EU supply demand on oilseed rape is more comfortable than previously thought so the old crop highs have now probably already been met.

There should however still be scope for new crop prices to rally as stocks of all commodities will continue to be tight next year even with above average yields. Any weather problem that occurs should present price increases which will the opportunity to sell at better prices.

 Regards,

 Owen

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