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BRIAN HOOPS

By Staff | Jul 8, 2016

Loss on biofuels

Nidera BV, a division of China’s largest food company, lost nearly $200 million over three years due to what it called “severe” irregularities by a single trader in biofuels.

The Dutch grain-trading firm reported for 2015 its first annual loss in five years because of the biofuels business, according to filings in the Netherlands.

Ton van der Laan, who until this month was chief executive officer, said last year that Nidera had suffered from the actions of a “rogue trader.” In the three years to the end of 2015, the company accumulated a net loss of $188 million in biofuel trading.

Before taxes, the losses totaled $238 million. The main reason for the loss were “irregularities discovered in our biofuel trade business in Rotterdam, which led to a considerable overstatement of our stocks and forward book and to a substantial bad debt position,” the company said in its annual filing to the Dutch Chamber of Commerce.

“The responsible trader was dismissed, and we stopped trading in the biofuels business,” Nidera said. “The matter was an isolated event in a non-core part of the business.”

Brazil commodity bust

Like many of Brazil’s soybean farmers, Nelson Vigolo is enduring the pain of a commodity boom gone bust. Over the past two decades, growers in the country’s agricultural heartland borrowed billions of dollars to turn vast savannas known as Cerrado into farmland, part of Brazil’s transformation into a crop-exporting juggernaut.

As prices rose, its shipments of soybeans for animal feed and cooking oil became the largest in the world.

In just a few years, Vigolo’s farm in Mato Grosso state had increased 15-fold to 150,000 hectares (370,000 acres), or almost twice the area of New York City.

Now, the industry is saddled with a mountain of debt, a global soybean surplus and Brazil’s longest recession in a century. Some growers don’t have enough cash to plant or are ditching plans to expand.

Vigolo’s company, Grupo Bom Jesus, filed for bankruptcy last month and said it owed about 2 billion reais ($590 million) it can’t pay. At least 10 major producers defaulted or sought to restructure debt in the past year, and more may falter.

Self-regulating

A top executive at Red Trading LLC reassured his co-founder about the future of the firm, even as federal regulators and two exchanges were investigating them for alleged market manipulation.

The government’s criticism of the exchanges is focused on the conflict at the heart of the markets’ role as self-regulators.

While the CFTC has previously offered mild criticism of the exchanges in periodic enforcement reviews, the court filing is the harshest rebuke to date of their competence.

Self-regulation began 157 years ago when the state of Illinois granted the newly formed Chicago Board of Trade the ability to police itself.

Starting in the early 2000s, the exchanges began converting to public companies, with shareholders and earnings targets. Profits came from the same customers they were tasked with regulating.

CORN ANALYSIS

Corn closed the week 27.75 cents lower.

Last week, private exporters reported sales of 120,400 metric tons of corn to Mexico.

Weekly export sales of corn showed a total of 39.5 mb (1.004 million mt) with 18.4 mb (468,500 mt) for the 2015-2016 marketing year. This put total old- crop sales at 1.846 billion bushels, 1 percent above USDA’s June demand projection of 1.825 bb.

The weekly crop progress report held a bearish surprise as corn ratings were left unchanged for the second consecutive week at 75 percent good-to-excellent. Last year, corn was rated 68 percent and the rating is also above 70 percent, the three-year average rating.

The report showed corn ratings the second best in the last 15 years. In the stocks and acreage report, June 1 corn stocks shocked the trade with 4.72 bb revealed by the government, well above estimates of 4.52 bb, up 269 mb from last year.

This is the largest June 1 quarterly stocks figure for corn since 1987. Corn acreage was bearish as it was increased to total 94.148 million acres, well above the average trade guess of 92.781 million acres and a surprisingly 547,000 acres larger than the March forecast.

This is the third largest corn planted acres since 1944.

Strategy and outlook: Producers should have made cash sales and used options to manage price risk and summer volatility.

SOYBEANS ANALYSIS

Soybeans closed the week 53.5 cents higher.

Last week, private exporters reported sales of 150,000 mt of soybeans to an unknown destination and 40,000 mt of bean oil to China.

Weekly export sales of soybeans showed a total of 56.1 mb (1.528 mmt) with 26.8 mb (730,000 mt) for the 2015-2016 marketing year.

This put total old-crop sales at 1.86 bb, 6 percent above USDA’s June demand projection of 1.76 bb.

The weekly crop progress report showed soybeans were rated at 72 percent g/e, a 1 percent decrease from last week, but well above last year’s 63 percent rating and the three-year average of 67 percent.

The quarterly stocks and acreage numbers showed June 1 soybean stocks forecast at 870 mb, slightly larger than estimates of 831 mb and up 243 million from last year.

This was the largest June 1 soybean stocks figure since 2006.

Soybean acres were also increased, to 83.688 million, slightly less than estimates of 83.947 million, but also the largest planted acreage figure in history.

This was an increase of 1.452 million acres from the March acreage report. The key growing timeframe is just ahead of the market, so soybeans remain a high risk market.

Strategy and outlook: Producers should have made cash sales and used options to manage price risk and summer volatility.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.

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