Currencies
The £ has continued to make small gains this week trading around $1.37 against the $ and €1.14, which had both previously been resistance levels. The vaccine roll out across the world now and the rate of economic recovery, will be key drivers for some time to come, although the hope is that the UK is ahead on their roll out compared to other countries, we may see recovery signs sooner?
Wheat
Global markets started the week lower with fund money taking the opportunity for profit taking. In the US, 20% of the corn contracts are now held by the funds - traders who have no intention of taking a physical contract and who are looking to move the markets to make their profits. This can cause huge price swings in the market as we have seen. Prices have since recovered, although off their previous highs, as buying resumed.
Liffe wheat started the weak down £4.50 on old crop but has since recovered back around £2.50. Support in the UK is still coming from imports which have been slow in the first part of the year. Looking at new crop, there is no real driver there at the moment. Plantings are up 28% on the previous season, which is no real surprise, but it does put us in a position where we are now dependent on the yield to decide if we would be net exporters or have a small import requirement. The emergence over the coming weeks should start to give us more of a steer as to the likely direction of new crop prices.
Soya
Soya saw significant drops at the early part of the week, circa £35/T. The improved weather picture across South America spooked both the bears and the fund holders into a sell off. Since then, prices have recovered slightly, being dragged up by a recovering corn market. Brazil is wetter than ideal in the South of the country which is now slowing harvest. There is the threat of strike action as well by Brazilian truck drivers from 1st February which will need to be monitored going forward.
And Finally…
The Hedge Funds vs `The Little Guy’ – turning the tables….?
You have read above how the Funds are holding long stocks of Corn, yet they do not actually want to take delivery of it. The story is not new, as the funds have been manipulating our markets for over a decade, as just another financial bauble for them to play with. The funds have huge amounts of money, and bet long (the market will rise) or short (that the market will fall), and in so doing influence any markets they enter. They have often been responsible for the influencing 4 last peaks in both wheat and soya prices, and hitherto, the agricultural sector have been powerless to respond.
Until this last week, when for once the tables turned. A little known game shop chain in the US called Game Stop became the subject of shorting strategies from numerous Hedge Funds, and in so doing the price of the stock went down.
The users of the shop, and small time investors did not like the pressure, and have fought back, using small scale individual investor platforms called Robin Hood and Reddit.
They have successfully turned the tide on the market price, driving back up higher than the level at which the funds entered the market, turning their positions to loss making. One hedge fund has lost over $2bln on the peasant investor action, and are beginning to bail out.
Pressure has been applied on these small trading platforms to limit share trading activity in the battleground shares on the pretext that individuals could lose their life’s savings. Some of the small trading platforms have also been having problems executing orders, probably because the back office of some of these platforms is run by some of the same hedge funds that are losing their money.
Whilst Maggie Thatchers’s old adage of `you can’t buck the market’ will ultimately prove true, and there will be tears as this business concludes, it does make you wonder if agricultural markets could somehow become separate, and not be influenced by these same hedge funds.
Regards,
Kay Johnson & Martin Humphrey
