90 seconds at 9 am: Global growth outlook less bullish

Outlook for dairy and redmeat markets brighten; OECD sees weakness in the US, UK, Russia; US loan demand soft; China inflation moderates; UST 10yr yield at 2.38%; oil and gold stable NZ$1 = 72.7 US¢, TWI-5 = 76.8

11th Jul 17, 7:33am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news some key indicators in some key economies are losing their lustre.

However, the latest food price and production forecasts from the FAO/OECD show a healthy future for dairy products. WMP is expected to see rising demand along with steady price gains over the next decade. The story is similar for butter and cheese. Beef prices are not expected to rise much from here over the same time period, they forecast. But the growth in production of sheepmeats in China is one eye-popping statistic in this release. It will dwarf our industry. Having said that, the FAO sees prices rising for sheepmeats back to level-pegging with beef by 2026.

And the OECD released its leading indicators overnight showing that improving global economic growth has become less likely this year as the outlooks for the US, the UK and Russia have all weakened. Canada an Europe show momentum improving, and there are similar signs for China. Only the major economies are included in this review.

In the US, the latest Federal Reserve report to Congress details how their slowing is occurring. They said banks reported a broad decline in loan demand during the first quarter of 2017, even as lending standards were basically unchanged.

In China, the latest inflation data for June shows no resurgence at the consumer level (+1.5% pa), and a leveling out at the producer level, even if it is still running at a relatively high +5.5%.

And staying in China, the clampdown on uncensored information is gathering pace. The state authorities have ordered telecoms carriers to block anyone using a private VPN, a common technique to skirt the "Great Firewall".

In New York, the UST 10yr yield has slipped slightly, now to 2.38%.

The price of oil has stabilised at US$44.50 a barrel, while the Brent benchmark is now just on US$47. Apparently the sale gas revolution has spread to China which claims output is up +76% and vast new reserves are being discovered.

The fall in the price of gold is less today, down by just -US$2 to US$1,211/oz.

The Kiwi dollar is basically unchanged at 72.7 USc. On the cross rates we are holding at 95.6 AU¢, and at at 63.8 euro cents. The TWI-5 index is still at 76.8.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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3 Comments

by Andrewj | 11th Jul 17, 8:34am 1499718880

I don't have link to this, buts its from Grants interest rate observer;

Silo, sell high

What happens when low prices and solid demand meet vast supply? The agricultural commodity market is currently providing watchers with such a case study, as robust worldwide appetite for soybeans and corn has run into record inventory in those grains.

Amidst the recent emergence of Brazil as a major source of production, worldwide soybean reserves are poised to jump by 21% from the prior year to a record 93.2 million tons, according to estimates from the USDA. World corn ending stocks reached a record 212.5 million metric tons in June, roughly 47% higher than the ten year average reading of 144.9 million metric tons.

Abundant supply is putting the squeeze to Brazilian farmers who have played no small role in the expanded production of recent years: Brazil is today the world’s number one soybean exporter, while its corn crop is expected this season to surpass 100 million tons for the first time.

Brazilian farmer Nelson Antonini, who sits on the board of farm cooperative Copasul, tells Bloomberg that “Warehouses are still full of soybeans while farmers start the winter-corn harvest.” Federico Azevedo, a manager at farmer’s group Aprosoja, reports that “we’ve seen a great number of farmers ordering silo bags to store corn.”

Demand has not been the problem. Worldwide domestic “crush” usage (grinding the beans into oil, its predominant usage) is forecast at 301.5 million metric tons in 2017-18 in the June WASDE report, a 3.7% year-on-year increase. 2017-18 worldwide corn usage for domestic feed is forecast to rise by 2.5% over its prior season levels, per WASDE. China has been a prime contributor to demand growth; Chinese soybean imports in May registered a record 9.59 million tons, nearly 26% higher than their prior year levels and 55% above those seen in 2015.

The laws of economic gravity may be putting a halt to the beans influx sooner than later: Reuters this week reported that ships carrying as much as 700,000 tons of soybeans are parked along the Chinese coast, waiting for space to offload their wares. An anonymous trader summed it up to Reuters: “The beans can't be discharged because they don't have enough warehouses.”

Back in Brazil, inventory-laden farmers are faced with a decision as existing soybean stocks will soon compete for space with the imminently-arriving winter corn harvest. Agricultural analyst Luiz Fernando Roque of Safras & Mercado advises: “If they had to choose between saving the soy or corn, they’re likely to prioritize corn sales and hoard the beans. Farmer’s don’t want to sell at current prices.”

Mark Twain is purported to have once said: “Buy land, they’re not making it anymore.” Then again, Rick Perry recently offered: "Here’s a little economics lesson: supply and demand. You put the supply out there and the demand will follow."

That more contemporary counsel has evidently not been lost on farmers around the world.

by Cowpat | 11th Jul 17, 9:48am 1499723280

Jafalad came on this website first thing yesterday morning stating 'he' had just sold their Onehunga rental property, 60 potential buyers, 6 bidders ,investors everywhere on Sunday evening auction. Why would you sell for only $ 511,000 .

by James007 | 11th Jul 17, 9:51am 1499723464

It is amazing how much people are prepared to pay for a used apple box on a piece of dirt.