Saturday, November 24, 2007

Iran Dips their Toes into the Iowa Caucus

The world constantly changes and while the management here at Flying Debris constantly struggles to keep up with those changes (Paris and her friends aside) sometimes those changes stick out so much that there is a sore thumb somewhere here in Chicago. Usually that is when one of my sharper buddies will call me up (say, on the morning after Thanksgiving) to ask a level headed "what the ...?"

Yesterday morning one of my buddies asked about the following (relatively dull) part of a USDA weekly grain sales and shipment report from the week of Nov. 9-15 that was released Friday: (the following paragraph contains some of grain trading's minutiae and the necessary part is noted below, but if you must read the paragraph, remember, you've been warned! By "Increases" the report means increases in net yearly sales, thus the amount contracted for sale that week and MT stands for Metric Tons.)

Corn: Net sales of 1,845,500 MT were 35 percent above the previous week and 46 percent over the prior 4-week average. Increases reported for Egypt (416,100 MT), Japan (332,400 MT), South Korea (252,300 MT, including 58,000 MT switched from unknown destinations), Taiwan (112,800 MT), Cuba (100,000 MT), Colombia (78,700 MT), unknown destinations (75,400 MT), and Iran (74,300 MT, including 71,000 MT switched from unknown destinations), were partially offset by decreases for Lebanon (24,000 MT). Exports of 1,376,600 MT were 9 percent below the previous week and 1 percent under the prior 4-week average. The primary destinations were Japan (268,400 MT), South Korea (262,000 MT), Mexico (130,300 MT), Colombia (90,800 MT), Taiwan (81,900 MT), Iran (74,300 MT), and Egypt (56,100 MT).

My friend's question was not a grain market question, his was a political question that involved the corn export sales report of "Iran (74,300 MT, including 71,000 MT switched from unknown destinations)" and the export shipments report of "Iran (74,300 MT) ". As you can see from this USDA marketing year report (ended Aug 31) for corn, Iran, which would be in the "Other Asia and Oceania" section, does not show up as a buyer of any American corn during the 2006/2007 marketing year, or in any sales carried over (contracted for in a previous year but not shipped until the noted marketing year) from before Aug. 31, 2006. Folks who deal with these issues are pretty jaded and we have long understood that America is shipping grain to countries like Iran, however Iran does not show up on our books either because the sales were listed as destination "unknown" or the grain was sold through a surrogate nation. In the case of Iran that surrogate nation was most often Egypt. Notice that the 2006/2007 marketing year report includes nearly 180,000 metric tons of corn that was sold to destinations "unknown."

Spurred on by my friend's inquiry I crossed the trading floor to ask a few of the guys who trade corn for exporters about the Iranian business and the general consensus was an extremely noncommittal, "well I guess that that the Iranians want to make a statement of some sort." That strikes me as a likely scenario. So something changed last week but as of today it doesn't seem perfectly clear what changed beyond the fact that Iran wants to be publicly known as a buyer of American agriculture products. Iran stated that they had bought food from the "Great Satan".

One reason that Iran decided to show up on the USDA corn export books could possibly involve some heretofore unknown negotiations in which the Iranians are making positive gestures towards the United States. Or it could involve the Iranians making positive gestures before the administration's upcoming Annapolis conference. However, I have a strong suspicion that the Iranian move towards more open agricultural transactions may be rooted in a move towards mimicking some of the Hugo Chavez political tactics that Venezuela uses in America.

Venezuela was a founding member of OPEC and thus far in fiscal 2007 they have sold an average of 1.1 million barrels of crude oil and about 250,000 barrels of refined petroleum per day to the 50 United States (likely limited to the lower 48). During the past few years Venezuelan nearly-dictator-for-life Hugo Chavez has been using Venezuelan oil as a political weapon against the Bush Administration here in the United States. Chavez once famously offered deeply discounted heating oil to homeowners in Philadelphia and even offered to sell subsidized oil to the Chicago Transit Authority, see this excellent Dennis Byrne column from last year. Just last week Mr. Chavez threatened to double the price of oil if the United States dares to take on the Iranian nuclear program.

Chavez has oil as a tool to make trouble in US political circles, and although Iran does export crude oil they are less able to afford to give it away and they do not have the refining capacity to even market petroleum products. However, Iran does import corn and although there is more than corn in Iowa, corn is the most important economic driver in the state. Any decent discussion of the politics of ethanol will hit on the fact that Iowa has both the first Presidential Caucus and more corn than they once knew what to do with. It seems likely that Iran is trying to soften their image by making a very simple switch in how their U.S. corn imports are purchased and accounted for. This switch was made less than forty days before the nation's first Presidential Caucus, in Iowa. I doubt that the timing is a coincidence.

Watch for Democratic rhetoric concerning the Bush Administration's "saber rattling and belligerence" toward Iran to increase in the coming weeks and if Iran starts to show up weekly on the export sales reports I would expect that fact to become more publicly known. Ironically this will matter more to urban Iowans than to farmers because the farmers know that they are already selling corn to Iran.

Hat Tip: Matt

Disclaimer: This post in no way advocates that any trading positions be taken in the corn markets. The writer currently holds no long or short position in the corn cash, futures or option markets.

Labels: , , , , , ,


Post a Comment

<< Home