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Markets are “seriously mispricing” the risk associated with the El Niño weather phenomenon and its “incredible implications for food inflation,” says Les Finemore, co-founder of Moreton Capital Partners. In a video interview with Bloomberg, he predicted a “dramatic reshaping of the global food situation.”
- The play: Moreton Capital Partners is targeting $500 million for a special-purpose vehicle that would trade multiple commodities likely to be affected by the weather phenomenon, Finemore said. That includes South African corn, Malaysian palm oil and Australian wheat.
Moreton aims to raise the funds by the end of September and will seek various trading strategies from cross-commodity relative-value trades to long and short positions in futures and swaps, Finemore said. The fund will target large institutional investors, including insurers, endowments, and pensions that have significant weather-risk exposure.
Finemore also sees opportunities in soybeans, sugar, coffee and vegetable oils, along with water. There may even be opportunities beyond agriculture, like the Shanghai aluminum contract, if there is dryness in China that puts pressure on hydropower, a source of energy for smelting. “We will kick off trading almost immediately in early July,” he told Bloomberg. “We’ve been focused on the Iranian war situation. The next event will be El Niño.”
Limited drought relief in Europe: A stunning heatwave across Western Europe has driven European corn futures to contract highs and lifted wheat futures, while delivering a horrific impact on human and animal health. Extreme temperatures ranging from 105 to 116 Fahrenheit have been seen across France, while southern England saw temperatures above 100 Wednesday afternoon and similar readings were recorded in western Germany, northern Italy and Spain, noted Drew Lerner of World Weather Inc. Lerner said in a note that the hottest weather will shift to the east later this week into the weekend before abating next week and the following weekend.
“Unfortunately for the drought-stressed crops of France, southern parts of the United Kingdom and immediate neighboring areas, the scattered showers and thunderstorms anticipated as the heat abates will be much too erratic and light to change drought conditions leaving crops still at risk of greater production cuts,” he wrote.
- Keep in mind: Drought was already under way across France before the heatwave began and crop conditions that were rated favorably in late May and early June have deteriorated greatly, Lerner noted.
Snout count: USDA’s quarterly Hogs & Pigs Report released after the bell on Thursday showed the U.S. hog herd at 73.664 million head as of June 1, down 33,000 head, or 0.04%, from a year ago and 696,000 head less than the average pre-report guess.
- Market hog inventories rose 36,000 head, or 0.1%, while the breeding herd shrank 1.2% from a year ago.
- The spring pig crop was up 8,000 head, virtually flat, despite a 1% reduction in farrowings thanks to a 1% rise in pigs per litter to a record 11.87 head.
- Producers indicated they intend to farrow 2.2% fewer sows than a year ago. Fall farrowing intentions are down 0.6%. Slaughter is pegged to run marginally above year-ago through summer then decline around 0.5% in the fall.
Cold storage: USDA’s Cold Storage report showed that frozen beef and pork stocks saw a much smaller decline relative to their seasonal averages in May, implying reduced demand, particularly given lighter cattle and hog slaughter levels last month.
- Beef stocks at the end of May totaled 403.4 million pounds, down 2 million pounds from the previous month. The five-year seasonal average decline is 18 million pounds.
- Pork stocks totaled 451.9 million pounds, up 900,000 pounds from April. The five-year average shows a 7.9 million pound decline during the month.
SCOTUS backs Bayer in Roundup fight: The Supreme Court on Thursday issued a ruling blocking thousands of lawsuits against Bayer alleging that it failed to warn people that Roundup weed killer could cause cancer. In a 7-2 decision, the court said Bayer, which acquired Roundup’s original producer Monsanto in 2018, can’t be sued in state courts for failure to warn because federal regulators found a cancer link unlikely and don’t require a warning label. Federal law bars states from requiring additional label warnings, the ruling found. Bayer said the ruling should result in the dismissal of failure-to-warn lawsuits, but that it plans to proceed with a proposed $7.25 billion class-action settlement intended to resolve many of the remaining claims, the Associated Press reported.
Australia bird-flu testing: Australian authorities ramped up surveillance and testing of wildlife and livestock on Wednesday after a second state reported a case of the highly pathogenic H5N1 bird flu, Reuters reported. South Australia state Premier Peter Malinauskas said a migratory bird had tested positive for the virus, days after the country’s first two confirmed cases were reported near Esperance in Western Australia.