THE BIG I-CON: MARKET MANIPULATION VIA ELECTRONIC MEANS. Can They serve two masters?

THE BIG I-CON: MARKET MANIPULATION VIA ELECTRONIC MEANS. Can They serve two masters?

Definition of I-CON: Electronic Media Misinformation.

The Tug-of-War Continues. The "Commodity Bermuda Triangle" transforms Into a Sling-Shot, Ready for a David and Goliath Battle for Supremacy Between the Bulls & the Bears

A few months ago we published some text around 3 categories of grain brokers operating within Australia 1. Grower Broker, 2. Buyer Broker and 3. Grain Trafficker Broker.

Please note: The information conveyed below are the views of Dr Mario Bonfante and are not to be taken as advice only food for thought. It is an unbiased observation of current market conditions. Always make your own enquiries and take into account your own personal and commercial circumstances when buying or selling.

"Trafficker Grain Broker"

This Grain Broker Category somehow represent both the Buyer and according to them The Seller with the highest level of integrity...

(some do but some don’t check with Grain Trade Australia Org GTA and ask them for a copy of their broker conduct policy and broker operating guidelines)

GTA: Phone: 02 9235 2155

Email: Operations: [email protected]

I’m sorry but without very tight engagement policy, disclosure statements, duty of conduct and transparency (which most Traffickers don’t have) I find it extremely difficult to understand how these types of brokers can lawfully be permitted to operate within any Australian business structure, in particular financial / commodities. In other countries these brokers are called agents or reps and only serve one master at a time.

Is your information being sold? Charging a consulting fee to disclose your commercial information.

It becomes a question of information transparency, is your commercially sensitive information being sold into a boys club? Time to find out. Lets face it, some say the Australian Grain / Commodity Industry is still in its infancy and needs more time to develop… Really!

I disagree, we owe it to the industry as a whole to protect and support committed, honest and hard working industry stakeholders, because they are the ones who suffer at the hands of the “trafficker” How?... It’s called “Market Conditioning’ if you see something often enough you might tend to start believing it. The trafficker charges a fee and some charge both the buyer and the seller and others “Charge a Consultancy Fee of up to $10,000 per month for advice! Hmm..

Data Analysts: 

If you can effectively collect the following information

1.Total Yield in each state/region in each product segment2.Consumption estimates from the prior year, domestic and export3.Estimates of total site storage capacity against vacancy or deficit +/-4.Harvest pricing signals both delivered site or on farm within each region5.Transport differentials for each and between site and more traditional

deliver zones including shipping etc.

1.Estimate of sales pre-harvest for the 1st period Jan-Jun & Post harvest

sales 1st period Jan-Jun

1.Compare each and allow for a conservative error margin.2.Develop a hedging strategy against US markets.

The 1st and 2nd Period Trap

The above points are just eight of the more common data that can be easily collected and that the Trafficker uses and some sell into their club. 

Example: If you know that the total consumption for Barley delivered into Geelong Melbourne between the 1st period Jan-Jun is 4M/mt and then using the above 8 points your calculation tells you that Geelong Melbourne is at 70% sold for the 1st period, then there is only 30% not covered right?

So, at harvest this year delivered site offers ranged within $340-$360/mt with an average delivered Melbourne of approx. $400/mt. So the 30% not covered needs to fall well under $400/mt in order for end-users to react to purchasing to fill the gap, its only logic and a fair commercial decision.

The Fluctuation trap: what could happen in this scenario (not likely this season given we have low yielding year but it could) is that the onsite held grain pre-purchased and delivered to various sites can be held well into the 2nd period Jul-Dec or even rolled-over (I doubt it this year) because of the recent tumbling cereal prices, this then extends delivery periods and security of supply. Which is an accumulators job, to secure supply at the best possible price.

Whether or not you like 1st and 2nd period contracts for the reasons outlined above, they are a good tool for security when buying or selling creating certainty on a fixed term at a fixed price, for those of you that prefer to play then perhaps short term contracts are your thing and it gives you something to worry about throughout the year rather than have a good earned holiday… oops!

As this happens and supply becomes depleted the “Triangle" turns into the shape of a “Y” the slingshot as I call it, meaning the trade starts gravitating toward the supply resistance creating more power on the supply side forcing prices to rise. Of course there are many variables and circumstances that the market can develop to combat this like, imports, and a shifting to alternate supply sources and the most common :circle the wagons...and starve trade supply bids and force it into a hand to mouth strategy to bleed out trade longs.

As mentioned above, In low yielding years end users look to secure large parcels hoping to snag supply security well into the deferred period (July to December), however only small parcels are being offered for sale on shorter delivery periods. Of course when this happens we tend to see a squeeze in the market leaving trade suppliers with no other choice but to sell-off; and growers, only willing to dribble out small parcels to suit their needs and in hope of a spike in the market!

Victorian prices are expected to firm slightly this week, with a very bullish outlook according to our grower feedback. On farm Barley in Victoria UPaveraging around $340 to $345 and Wheat at a more traditional gap of around plus $15 to $20 – On Farm $350 -$370 depending on location. 

However Victorian Oats, Lupins and Peas are increasingly difficult to source, this is reflected by some of the highest pulse prices in Australian history.

NSW continues to strengthen as reports from our WA connections tell us that there is not much grain left in grower hands and given the slowing export activity prices in WA have jumped to record levels again with Oats around $400+ Wheat & Barley $345-$365. This makes shipping grain over to the East coast a non-competitive exercise UNLESS prices on the East coast increase significantly, does the WA market know something we don’t?? or perhaps it is just given that in a year with such low stocks and increasing demand; it’s there for the picking? And with a long 6 months to go the question still remains.. ”How Much Grain Is Actually Left In Australia”?.. Apparently there is plenty in Canada!

Most traders use moving averages as a simple but effective tool when making decisions. Its all about support and/or resistance, focusing the market's attraction back to the mean. However commodity markets tend to sea-saw between these "averages" leaving traders with no choice but to play piggy-in-the-middle twisting and turning between buyer bids and seller offers, in the hope of catching the mean. If price signals are higher than the moving average it shows support, however when lower, it shows a level of resistance.

A diligent and observant player would see this sew-saw as a battle between the Bulls & The Bears as they attempt to snag a position in either direction. So, if the market is showing support meaning it is higher than the moving average for that period, it gives the trader a logical argument to take a position… right? And then if the market shows resistance, the logical excuse is to sell-off… right? Of course when this happens the market trend then begins to demonstrate NEW LOWS on average.

The above, is happening in the Australian commodity market now. Resistance is forcing the trade to sell-off any long positions, dribbling or rather bleeding out small parcels as the “mean” slowly creeps up to new averages. Growers on the other hand are not dissimilar, however with the added advantage of controlled flow as needed and only selling small parcels as they need cash-flow. This allows grower held parcels to sit back and watch the Bulls fight the Bears for temporary supremacy.

Growers digging heels in awaiting the magic $400+/mt in Victoria but will it happen?

Here we are, at the end of the first period and still the “Squeeze” continues. Only 10 weeks ago we saw a $50 gap between Wheat & Barley for delivered bids into various locations. Then came the reality check! End users switched to buying barley over wheat because it represented better value and of course wheat tumbled and barley spiked slightly and the gap closed to a more traditional spread ($15-$20).

Please remember to leave your comments and questions on what’s important to you. And read a more detailed snapshot of market indicators in the text below.

A quick note, The Grainpro team will be at the Speed field days on July 31st and August 1st, we hope to see you there and put a face to a name.

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MARKET UPDATE 3rd JULY 2019

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AUD / USD ??$0.69.7

US MARKET:

Still in shock after USDA report.. But recovers overnight.

AUSTRALIA

Price Fluctuations Below Reflect Averages Only

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3rd JULY 2019 EXPECTED BIDS & OFFERS

Left Side: Market Bids ■ Right Side: Offers & Seller Expectations. Final Bids & Offers May Vary Depending On Exact Pickup or Delivery Location. Prices in AUD per metric tonne

Continue to Pricing Update: www.grainpro.com.au/news