Last Friday, price of corn surge the most in the recent three months.  The unexpected low inventory data is the main reason that causes big jump in corn price.  This is a strong signal that the demand of corn is maintain strong recently.  The corn price is likely to rise again in the short-term.  Before the report published, corn price retreat to 11 weeks lowest point.  There is no doubt, the market have already reacted with the drought in US mid-west.  However, an unexpected inventory level reported by USDA give a surprise to the analyst, again.

From supply aspect, the production plus the inventory brings from previous year is 11.872 billion bushels.  Compared with that, the demand is 12.33 billion in last year. Referring from the data from USDA and Bloomberg, only twice since 1960 has the supply failed to exceed the consumption from last year.

Besides that, according to the forecast of Bloomberg, the inventory of soybean will reach eight year lower to 130 million bushels from 215 million last year.  The consumption of soybean still maintains a strong position.  Unfortunately, the drought in South American and Mid West hit the supply hard this year.  The supply will be tight in the next 6 months.  Although soybean price is in a historically high point, I still expect the price of soybean was expected to bounce in the short term.

Thus, I go long on corn and soybean and expect the price of corn will continue growth in short term.

Reference:

http://www.bloomberg.com/news/2012-09-28/corn-surges-as-supply-unexpectedly-drops-commodities-at-close.html

http://www.bloomberg.com/news/2012-09-28/u-s-corn-stockpile-unexpectedly-drops-sparks-price-rebound-1-.html

USDA reporting the drought in Mid-West USA is continuing affects the yield of soybean. The yield of soybean may even lower than expected.  It is indicating the cost of producing soybean oil will increase and soybean oil market share are suffering the potential threaten of discounted palm oil in global export market. Thus, I choose to go short on soybean oil in CBOT.

From demand aspect, the palm oil is the main substitute of soybean oil. As inventories surged in Indonesia and Malaysia, the price of palm oil heads to a huge discount.  There is no doubt the low price palm oil will attract more customers in global market and soybean oil are facing more fierce competition in the market.  Although the report from Bloomberg, India, the biggest import oil country, have 44% surge cooking oil demand for this year. Palm oil imports reach 8.1 million ton in 2012~2013, compared with 7.5 million tons in the previous year.  Since, the discounted palm oil are increasing popular in India, the market share of soybean oil is highly likely replaced by it.

Moreover, The supply of soybean tighten compared to previous years. Brazil, another main export of soybean, is facing a server severe drought.  The global market supply for soybean hit hard by the unexpected drought, while the global demand are remaining the same.  This indicates the price of soybean will stay at a high price level for a relatively short-term.

In a conclusion, the price of soybean oil will decreased in the short term. Since, the competition of discounted palm oil in global market and increasing production cost.

Reference:

http://www.bloomberg.com/news/2012-09-22/india-s-cooking-oil-demand-to-climb-to-23-million-tons-by-2020.html

http://www.bloomberg.com/news/2012-09-23/palm-oil-set-for-biggest-drop-in-four-years-on-stockpiles.html

http://www.bloomberg.com/news/2012-09-20/soybean-meal-exports-from-india-to-climb-on-record-crop.html

Motivation behind gateway pipeline is one of the main reasons that lead the up surging price of Canadian crude oil.  For Enbridge Inc. pursuing “Asia Premium” is main motivation to launch this immune infrastructure project.  After Gateway pipeline fully utilized, in order to cover the cost and maximum profit, Enbridge Inc. will try they best to secure the price at a higher level.

The second reason is decrease domestic supply will eventually push up the Canadian Oil price.  As Canadian Oil Corporation would like to share the cake of “Asia Premium”, it is reasonable to believe oil companies are more willing to ship oil to East Asia.  Thus, decreasing domestic supply cannot meet to domestic oil demand.  Crude oil will eventually go up in the short run.

Unfortunately, referring to Robyn Allan’s study, even in the long run, Gateway pipeline will cause the crude price in Canada higher.  As decrease demand of oil and shrinking oil price, the Gateway pipeline turn into a burden for Enbridge Inc.

To sum up, Gateway pipeline will push up Canadian oil price and Canadian refineries will have to swallow the influence of increasing production cost.

Reference:

https://docs.google.com/viewer?a=v&q=cache:mixMV_J9Tw8J:www.afl.org/index.php/Download-document/566-2012-January-Allan-Northern-Gateway-Assessment.html+AN+ECONOMIC+ASSESSMENT+OF+NORTHERN+GATEWAY&hl=en&gl=ca&pid=bl&srcid=ADGEESjh1_DBw0hdmdWGWd0ISXPJqYlBsXDU_Jgnn_MJWNiUxTz-stxvIAWsFqGnjlfdwAo7JRZvS_L11Dyd_x48XCwOoglA3C7zXlDWnG3nYjKmoVJuv0ZbhoCEXmBpKdQyZfiBlk6-&sig=AHIEtbSYG6GYp4K0rd0y-gwaBGfPgOn8zA

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