\n\tBy Andrew Nelson<\/p>\n
\n\tLast week was the eye of the reporting season storm and with a writing team nearly worn out by stock focused commentary; we review some key commodity and macro research put out by brokers and economists. Australian wheat issues may well start adding to the global supply shortage, another broker is now concerned about an upcoming glut of domestic retail floor space, Olympic Dam is on indefinite hold and beware of Greeks, not bearing, but asking for gifts.<\/p>\n
\n\tThe Western Australian wheat harvest is nearing a precipice, with rainfall over the next few months becoming increasingly crucial. ANZ<\/span> Bank Senior Ag Economist Paul Deane<\/span> notes that the yield potential has already fallen below trend given a late planting and one of the dustiest Julys in recent memory.<\/p>\n \n\tStill, Deane<\/span> admits things aren’t as ugly as they were in recent drought years just yet and that an increase in rainfall in September could be just the thing the doctor ordered.<\/p>\n \n\tThis hope has ANZ<\/span> still not ready to call it quits on its forecasts for an 8mt<\/span> harvest, as a single downpour of just 25mm<\/span> or more would significantly reduce the short term risk to the WA crop. Temperatures will also need to remain favourable<\/span> in the latter half of September, however, or there could be the chance of crops not developing given the late planting.<\/p>\n \n\tWithout favourable<\/span> rain and climate over the next month or so, the bank estimates the crop could fall back to sub 6mt<\/span> levels, which puts us right back in-line with the drought years of 2006 and 2010. Still, ANZ<\/span> is expecting an export number of around 8.5m tonnes<\/span>, although even with such strong levels of exports, the broker estimates there should still be plenty of enough leftover stock to carry in to next season.<\/p>\n \n\tSo even if there is a production shortfall this season, the broker sees a sufficient buffer to maintain export levels even with a bad growing season this year.<\/p>\n \n\tAnalysts at National Australia Bank point out rising prices for drought-affected agricultural products is likely to provide the Australian economy with yet another boost as Australia was the third largest exporter of wheat in 2011\/12, while pointing out the country is also a very large exporter of a number of other food commodities. On NAB's calculations, Australia's terms of trade could well rise by an additional $6 billion as a result of the northern hemisphere droughts while the overall impact on Australian consumers is likely to be "only very marginal".<\/p>\n \n\tMeanwhile, analysts at Citi<\/span> are starting to see trouble with the amount of retail floorspace<\/span> in Australia, noting there is currently an abundance that has actually outstripped population growth. This trend is of increasing significance, notes the broker, as zoning laws may well be relaxed, increasing the scope for supermarket openings.<\/p>\n \n\tWhile a medium-term risk, the broker notes should the trend continue, there are negative risk implications for Metcash<\/span> ((MTS<\/span>)), Wesfarmers<\/span> ((WES)) and Woolworths’ ((WOW)) profit margins. <\/p>\n \n\tAlong with a bunch of sales, production, cost, grade, margin and earnings numbers, BHP<\/span> Billiton<\/span> ((BHP<\/span>)) also officially advised it will be pushing back its plans for the open-pit expansion of Olympic Dam. A cheaper (or should I say less capital intensive and more economic?) plan is being sought.<\/p>\n \n\tDeutsche points out that both United Group ((UGL<\/span>)) and Monadelphous<\/span> ((MND<\/span>)) are already contracted for work at Olympic Dam. However, they are both contracted for maintenance and shutdown services at the existing underground mine, so the broker sees no significant impact for either on the news. Transfield<\/span> ((TSE<\/span>)) also looks safe from losing too much on the news, although the broker notes there is a possible, if immeasurable impact on potential future drilling work.<\/p>\n \n\tThere is, however, an impact on WorleyParsons<\/span> ((WOR<\/span>)), as there will be an obvious delay to further engineering work directly associated with the expansion.<\/p>\n \n\tBHP<\/span> management also advised that there will be no new major projects undertaken this year, as the company is busy enough this year. The major Caval<\/span> Ridge production expansion has also been pushed back, though Deutsche Bank notes the company will still keep increasing output to a production rate of 5.5m. While Leighton ((LEI)) is doing work at Caval<\/span> Ridge, the broker notes it is to support the organic growth and not associated with the major expansion project, so no real impact is felt on the news.<\/p>\n \n\tUltimately, Deutsche was unsurprised by BHP’s<\/span> near term capex<\/span> plans and doesn’t see the sky falling in any meaningful way. The broker thinks engineering and construction companies have strong current order books for the most part and combined with expected future approvals on projects currently in the pipeline, there should be enough work to maintain revenues at the current levels for FY13<\/span> and most of FY14<\/span>. <\/p>\n \n\tThat’s not saying much for FY15<\/span>, but we’ll cross that bridge when we get to it.<\/p>\n \n\tAnalysts at Citi<\/span> sat down at the end of last week to prognosticate the outcome of the chats between Greek PM Antonis<\/span> Samaras and Eurogroup<\/span> President Jean-Claude Juncker<\/span> taking place over the weekend just past.<\/p>\n \n\tSamaras has already unofficially asked for more time via the German press, warning of the implications of a Greek exit (Grexit<\/span>) in German tabloid Bild<\/span> Zeitung<\/span>. Germany’s government has already cautioned that they have limited scope to help, but opposition leaders are on the record as wanting to give the Greeks what they need, given they agree a Grexit<\/span> would be end up being even more costly for Germans in the long run.<\/p>\n \n\tThe Greek finance ministry has recently calculated that savings in the tune of E13.5bn are now needed, given an expected an E2bn<\/span> shortfall from tax revenues and social security contributions. Citi<\/span> reckons that the savings measures will likely include a labour<\/span> reserve scheme and further cuts to pensions. The Greeks will also look to address the fact that a large number of businesses in popular tourist areas aren’t even paying taxes.<\/p>\n \n\tOn the other hand, a ruling coalition spokesman in Germany thinks the ECB<\/span> should take responsibility for defending the eurozone<\/span> area. However, this is at odds with the official party line, which calls for a limit to the exposure of the ECB<\/span> in dealing with the sovereign debt issues.<\/p>\n \n\tIn the meantime, Spain continues to tread water furiously, seemingly pulling out the stops to hit its 2012 deficit target of 1.5% of GDP. Citi<\/span> still thinks they’ll fall short. Especially with an increasing number of Spaniards getting sick of austerity. The Basques have brought forward local elections because of austerity, while the Spanish Government has virtually been forced to increase benefit payments for those with two or more dependants<\/span>.<\/p>\n \n\tThings aren’t looking much healthier in some of the other troubled economies. In Portugal, 2Q<\/span> new construction orders fell by over 50% on the same period last year. Irish banks are rejecting more business loans than euro area average. Belgian consumer sentiment fell in August. The Swedes are starting to see trouble with pension funds and weak revenue levels in the UK are really trouble broader fiscal data.<\/p>\n