Few Changes in Feed Peas

VANCOUVER - Jul 19/09 - SNS -- European feed pea markets were little changed during the past week, with prices completing the transition from old to a new crop pricing basis in all major markets.

Pea values appear unaffected by the gyrations evident in major feed ingredient and protein markets. Recent weeks have seen soybean meal follow a whipsaw pattern, which is constantly and dramatically changing the price at which peas are a competitive ingredient in livestock rations, from a protein perspective.

Alaron Trading Corporation's Tim Hannagan notes feed ingredient markets are continuing to find support from end user buying and even news China is selling old crop stocks is good news in the long term because of its tendency to import replacement stocks.

"There was talking late week that China was getting ready to sell some of their strategic grain reserve. On the surface this was looked at by some as bearish. After all, if China sells grain it would end up going to surrounding Asian neighbors. Their neighbors yearly buy three quarters of all the U.S. exportable course grains. This lends thought our exports will decline.

"At first that is true, but here is the real story: China looks to sell only a small portion of their corn and bean reserve and that portion is grain that is shelf life is coming up and low in quality. Their Asian neighbors are more interested in quantity at value over quality. They also save on shipping costs due to their port proximity. China then turns around at the U.S. harvest time and buys high quality grain at harvest low cash bids. This essentially becomes bullish for new crop sales as China replaces old crop inventory sold to neighbors with new crop U.S. grain.

"Those who follow their pattern of grain rotation saw them do this the two prior years. This further suggests the potential of aggressive Chinese buying come harvest time here. They are not looking to reduce inventory into 2010 but increase grain reserves for next year and beyond. This switcheroo also satisfies their commitment to the World Trade Organization Membership in being a responsible member and supplying to needy countries and not just a buyer. It is part of the game to look like a good world trade citizen," Hannagan said.

"Let's move on now to a situation about to present it to the grains that will put in a bottom near term and generate a rally into mid to late August. The first thing to understand is that Index funds and trend following funds do not know a bushel of grain from a phone booth and they do not want to- their seasonal trend traders who essentially do the same thing every year.

"All that changes are the price starting and stopping points with some lower and higher but their trading trends largely start and turn within a week or so from year to year. The two prior years saw the traditional early planting and emergence rally into June gives way to a sharp July break followed by an August rally. This year's fundamentals are near identical to last year to the day.

"Corn and beans made our June's high followed by a break this first half of July. A bounce mid month last July was 60 cents on beans and 50 cents this week mid month off Monday's low to Wednesday's high. Corn last year fell from its June high to a mid July low then an 18 cent bounce. This July collapse was followed by a 20 cent bounce from Monday's low to Wednesday high.

"Last year's late planting dates left corn and beans yet to enter key yield time so another drop after the mid July bounce occurred as we had not entered key yield development time yet. Late July into August posted a $2.00 rally in beans and 1.25 in corn by August 25th. This year suggests a similar pattern could occur. The low for corn and beans will occur if not this wee, certainly before Friday, July 24th. Then corn and beans will see trend following funds begin before month's end buying back portions of their short position to balance books and pay bonuses on profits taken before the month's end. This will bring an element of strength."

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