LCH.Clearnet Raises Deposits On Wheat And Corn After Price Gains

LCH Clearnet SA, the French arm of Europe’s biggest clearing house, raised the deposits it demands from clients to trade milling wheat and corn futures on NYSE Liffe in Paris after prices jumped.
The margin for milling wheat futures will climb to 1,300 euros ($1,595) per contract from 1,200 euros, LCH.Clearnet wrote in a statement on its website yesterday. Margin requirements for corn will rise to 1,000 euros from 900 euros, the clearinghouse said.
Milling wheat futures have climbed 33 percent in the French capital this year to 259.25 euros a ton, while corn futures have advanced 28 percent to 252.25 euros a ton. The changes will come into effect with the margin call tomorrow morning for positions at today’s close, LCH.Clearnet wrote.
This should send a signal that the price of basic food commodities such as Corn and Wheat are set to rise further, after rising already over 30% this year.
Some people have estimated that the effect of speculation adds up to 20% to the price of basic food items, which may made trading in such commodities morally dubious, however, I would say that it is not the individual investors so much as the massive banks with the potential weight to move the market that are responsible for the majority of the increase in the price of food, but alas, such is the world we live in. In addition to speculation, I think the biggest driver of food prices is the making of food into fuel, such as corn based ethanol. Although there are experiments happening with thing such as switchgrass in order to extract food from plants that cannot be eaten, but this does not solve the problem. Instead of planting the ground with crops that bear food, the fields will be planted with crops that yield food. In fact, one could even say that moving to switchgrass or some other kind of ethanol made from crops that are inedible is even worse, because if there is a surplus, then it cannot be eaten.

For a table on World Corn consumption by country, look here:



The huge drought engulfing the USA is going to push Corn prices sky-high, as this extract from spectumcommodities.com will demonstrate.

[begin extract]

The United States is the largest producer of corn in the world. Averaging 236,041 TMT of production, the U.S. produces more than double the amount of corn that China produces, the world's second largest corn producer. The United States is also the largest consumer of corn in the world, with average consumption of 183,119 TMT. Since the U.S. produces more than it needs, imports make up only a small portion of the U.S.'s total supply. In fact, average imports are only 322 TMT. On the other hand, the United States has enough excess corn production to have average exports of 49,079 TMT, making the United States the largest corn exporter in the world. All of this is done while still keeping ending stocks at an average level of 35,116 TMT, the second highest corn ending stocks in the world.

Corn is grown throughout the United States Midwest, with concentration mostly around the states of Iowa and Illinois. There are minor growth areas along the East Coast, but the vast majority of U.S. corn is grown in the central corn belt. Corn planting in the mid-west begins in mid-April and runs through the end of May. Corn silks during the months of July and August, and harvest usually runs from the first of October through the end of November. The corn production calendar is pushed ahead one month for the southern areas of production.
[end extract]

This means that the US October harvest is going to considerably smaller than usual due to drought conditions. This has lead me to have a look at the other harvest times from around the world to see exactly how much the world will be short of corn.

[begin extract]

Over the past five years China has produced an average corn crop of 115,586 TMT. This makes China the second largest producer of corn in the world. China is also the second largest consumer of corn in the world, averaging a yearly consumption of 112,014 TMT. China on average has imported 944 TMT, and exported 4,560 TMT of corn. This makes China the world's fourth largest exporter of corn. China's ending stocks average for corn is 92,407 TMT, leaving China with the highest world ending stocks.

Corn is grown over a great portion of China, with the major growing areas located in the northeast and south central regions of the country. Minor growing areas lie between the two major areas, serving to connect the two. The province of Jilin is the largest corn producing state in China, producing 13.3 percent of Chinas total corn. The second largest corn-producing province is Shandong, which produces 12.6 percent of the nations total corn. Corn on the north China plain is planted from the first of April to the middle of June. The harvesting of corn starts in mid-August and runs through the middle of October. For most of southern China, corn is planted from the first of February through the middle of April. Corn harvest runs from the first of July through the end of August.

[end extract]

This means that the Chinese Corn harvest has already happened.

[begin extract]

Brazil, with an average production of 34,179 TMT, is the third largest producer of corn in the world. Brazil is also the third largest consumer of corn in the world, consuming 35,073 TMT on average. Brazil imports 1,017 TMT ranking them as the fifteenth largest importer of corn in the world. On average, Brazil exports 398 TMT of corn. Brazil's average ending stocks are 2,632 TMT, giving them the third largest ending stocks average in the world.

Corn in Brazil is grown mostly in the eastern region of the nation. The state of Parana produces 18 percent of the nations total corn, with the state of Rio Grande Do Sul producing 13 percent of the nations total corn. For the majority of Brazil, corn is planted from the first of October through the end of December. Corn is harvested from around the first of February through the end of June.
[end extract]

In other words, we wont be getting any Corn from Brazil until February at the earliest. 

[begin extract]

Mexico, with average production of 17,910 TMT, is the fourth largest producer of corn in the world. Mexico is also the fourth largest consumer of corn in the world, with average consumption of 22,617 TMT. Mexico imports an average of 4,806 TMT of corn, making them the fourth largest importer of corn in the world. Mexico's exports are substantially lower, averaging only 82 TMT, making Mexico the sixteenth largest exporter of corn in the world. Average corn ending stocks in Mexico are 2,044 TMT.

To some degree corn is grown throughout all of Mexico, with major production areas concentrated to the greatest extent in the southern regions of the country. The state of Jalisco leads the country in corn production, accounting for 15 percent of the total corn produced in Mexico. For most of Mexico, corn is planted from the first of May through the end of June. It then silks from mid-July through mid-August. Mexican corn harvest begins around the first of October and runs through the end of December.
[end extract]

So the Mexican Harvest comes in at the same time as the US harvest and is likely to be one of the few supplies of corn around at that time (October-December)

[begin extract]

France is the sixth largest producer of corn in the world, averaging a production of 14,791 TMT. Average French corn consumption is 7,774 TMT. The same average has France importing 214 TMT of corn. Due to its large production average and moderate consumption level, France is the third largest exporter of corn in the world. Average exports are 7,295 TMT. Ending stocks for France average 1,453 TMT.

In France corn is grown throughout the entire country, with the major growing areas located in the southern part of the nation. The region of Aquitaine accounts for 21 percent of the nations total corn, and the state of Midi-Pyrenees accounts for 13 percent of the nations total corn production. Corn is generally planted in France from the first of April through the end of May. The corn harvest usually begins around the first of September and runs through the end of November.
[end extract]

Therefore, it can be safely assumed that France's wheat will be in high demand in Q4

[begin extract]

India is the seventh largest producer of corn in the world, averaging 10,504 TMT of production. India, on average, consumes 10,473 TMT of corn, ranking them as the sixth largest consumer of corn in the world. India has an import average of 90 TMT of corn. India exports an average of 18 TMT of corn.

Corn in India is grown in small, inland pockets throughout the country. The state of Uttar Pradesh produces 16 percent of the total corn in India, with the state of Bihar accounting for 14 percent of India's total corn production. Corn in India is usually planted from around mid-May through the end of July. Corn harvest can be expected to begin around the first of November and run through the end of January.
[end extract]

I suspect that the supply squeeze may start to get better in November when the Indian harvest comes online.

However, that pretty much completes the list of major exporters. As far as I can tell, until November / December, there is going be a very high demand for Corn. In a sense, the ethanol producers have backed themselves into a corner, when the harvest in the US fails, the US will use all of it's bullying power to buy corn from other countries that need it to feed their inhabitants. The idea that Ethanol is somehow 'green' is a complete fallacy, just the amount of energy used to convert the corn to ethanol is a very energy intensive activity. The real reason for ethanol is that every piece of technology on the planet runs on the internal combustion engine or a variant thereof, not only that, but oil is used to make all of our drugs and fertilisers, which, as far as I am aware, you cant make our of corn, I dont know, i'm sure someone could figure it out, but once again, it would most likely be a process that consumes more energy than it produces, so it doesn't really save anything, except the lives of rich people.

Mind you, the world is unfair. I didn't make it that way.. If you have a problem with the way the world works, then perhaps you might like to take it up with God. I've been trying him for years, but all I get is his VoiceMail... =)

Christopher Carrion.