October 7, 2008

 

 

Global wheat price could slump more if index-based funds continue to withdraw from commodity markets.

 

A senior trading manager at Western Australia-based Cooperative Bulk Handling Ltd, Grain Pool marketing unit, Josh Roberts said late Monday, 29 September 2008 a slump in global wheat prices could have gone further if index-based funds continue to withdraw from commodity markets.

 

He said higher global production is one of two major bearish factors impacting wheat prices; the other is the withdrawal from the market of a portion of the index-based funds, which have built big, long or bought, positions in agricultural commodities in recent years.

 

As the global credit crisis unfolds, index funds have been forced to liquidate or sell some of these long positions as investors redeem investments.

 

Roberts said in a statement that the reduction in their positions has so far been fairly orderly, given the size of their positions they're holding. However, if the pace of redemptions and the resulting liquidation quickens, a more severe sell-off in wheat futures is a real possibility.

 

Monday, CBOT December futures contract fell 45 cents to US$5.9525 a bushel, to less than half the peak of US$12.5750/bushel in mid March.

 

Roberts said a potentially positive aspect of this development would be that agricultural derivatives would once again be largely driven by buyers and sellers of grain rather than pure financial players.

 

The net impact of these factors has resulted in a cut of A$22 to A$358 a tonne gross in the estimated return on collective export sales of Australian Premium White grade wheat by CBH.

 

The estimated return on a CBH canola pool for the new crop has already been cut A$15 to a range of A$550-A$570/tonne gross.

 

Roberts said Australian prices have been insulated to some extent from the global slide by continuing weakness in the Australian dollar and falling ocean freight rates.

 

CBH' barley pools have held unchanged.

 

It said the feed barley market has been quiet with the end of Ramadan in Saudi Arabia, the world' biggest buyer, meaning a week of celebrations and public holidays, while buyers are also conservative in expecting any change in subsidy levels in Saudi Arabia this week.