The opportunity set for global, integrated agribusiness processors has markedly improved with the shortfall in FSU grain production. Though global stocks-to-use for wheat is adequate at only 50 bps. below the historical average, the U.S. should gain a greater share of trade. As shown in Figures 1-2, the U.S. share of global wheat exports is expected to jump from 18.3% last crop year to 26.3% this crop year, as Russia, Kazakhstan, and the Ukraine reduce their contribution.

Corn exports are also benefiting as a replacement for wheat in livestock rations. This should also aid soybean meal demand, which provides the protein in the ration, when combined with corn. New crop corn exports have been strong, as customers wait for the better quality crop. At the same time, non-GMO corn is moving from Brazil to the EU. New crop corn from the U.S. should then fill the void in other markets that typically import Brazilian corn. We expect both Archer Daniels Midland and Bunge to benefit from these trends in three ways:

1. Dislocation in the supply and demand of feed grains should place more importance on the intermediary role;

2. There will be opportunities to blend poor quality, discounted old crop corn with new crop, higher-quality corn;

3. Storage revenues should move higher as new crop corn and soybeans come to harvest, given high supplies of U.S. wheat in storage;

While higher and more volatile grain prices are typically negative for protein processors, we view the current dynamic as positive for Smithfield. Specifically, prior commentary points to active hedging in grains, while the run-up in feed costs should deter hog producers from adding production. By contrast, the increase in chicken production is already visible, given the level of pullet placements since April.

Eoin Treacy's view Despite the doom and gloom that has pervaded bond and equity markets for much of the last month and arguably since April. Commodity markets and particularly agriculturals have rallied impressively. Rising basic commodity prices do not sit well with deflationary arguments and are more in line with stagflation which we believe remains a more realistic possibility than outright deflation in the West. Some high profile pundits have claimed that the bond markets are more intelligent than the equity markets but I wonder how this argument accounts for the relative strength of industrial and precious metals as well as a wide swath of food related goods?

Fertiliser companies have benefitted both from the surge in M&A activity and the rally in grain and bean prices. Also see Comment of the Day on August 17th. Processors have been a little slower to get out of the blocks but ADM is currently rallying towards the upper side of the 20-month range. Both Corn Products International and Smithfield Foods have found support at the upper side of their bases and are rallying. Tyson Foods has reverted to the mean in an orderly fashion following an accelerated advance. An upward dynamic is required to indicate demand has regained dominance. Hormel Foods, McDonalds, Yum Brands, Texas Roadhouse, Panera Bread and Chipotle Mexican Grill all remain in consistent medium-term uptrends and the progressions of higher reaction lows would need to be taken out to question upside potential.