American farmers are chilling on planting corn, or at least Monday’s USDA data points to a backlash against the overplanting of corn in 2007. So does this mean the ethanol promise is beginning to fade?

Soybean futures dropped their exchange-set maximum at the Chicago Board of Trade on Monday after the Department of Agriculture released its widely anticipated report on prospective plantings by U.S. farmers.

Corn and soybeans are planted in the same areas of the Midwest and Upper Midwest and farmers systematically rotate between the two crops. Corn is planted first but requires more fertilizer and energy intensive field work. Now soybeans appear to be the flavor of the year.

Farmers want to plant almost 75 million acres of soybeans, used in mainly animal feed, cooking oil and the renewable fuel biodiesel, up from 64 million last year. They are shifting land out of corn. After blanketing the Midwest with 94 million acres of corn in 2007 — the most since 1944 — 2008 will see a slightly-less-smothering 86 million acres. The plans should lift corn prices, a CME panel predicted.

On reuters.com, track corn futures prices here
Track soybean futures prices here

As I drive across northern Illinois and Iowa, the heart of the U.S. Corn Belt,  during the last week of March it’s hard to believe the planting season is just a few weeks away. Rivers are swollen, fields are flooded and there’s a dusting of snow. Undoubtedly, planting will be the focus of U.S. grain traders in the coming weeks with Monday’s USDA planting intentions report to kick off the season. The grain trade has been waiting for this report for months.

Gathered from USDA farmer surveys and other information like crop insurance applications, the annual seedings estimates are the first “hard” numbers on coming acreage the government provides and will give the trade the first official peek at what U.S. farmers intend to plant this spring.  

The buzz around commodity trading desks ahead of the report was that farmers will decrease their corn seedings by about 6.2 million acres from the massive 93.6 million planted in 2007 - the largest amount of  land planted to corn since World War II.  

In line with that reduction, soybean seedings were seen expanding to 71.7 million acres, up 8.1 million from last year. The jump in bean acres is being largely tied to the cost/returns calculation for soybeans compared to corn when many farmers were making their planting decisions this winter. New-crop CBOT beans for Nov 2008 delivery gained on new-crop CBOT Dec corn from October to March, the ratio rising to 2.51 from 2.39. Soaring prices for nitrogen fertilizer — a key for corn yields — also weighed on corn versus beans as farmers made back-of-the envelope comparisons. 

No matter what the USDA reports, weather will keep shifting final seedings. But more than any other plantings report in memory the 2008 intentions report on Monday will be a signal indicator for the grain trade. The markets have been obsessing over the “battle of acres” in the United States — the world’s top grain exporter — given record high grain prices over the past year fueled by world crop shortages, exploding biofuels production and soaring export demand, all driving food inflation. 

So Monday’s report will likely light some more fireworks, especially after the big sell-off in Chicago Board of Trade markets on Friday as traders seemed unwilling to hold long positions going into the report.  As if the grain market needs more fireworks given the unprecedented rallies and volatility seen in Q1 2008, the last day of the quarter should make sure the grain trade closes their March 31 books with a bang.

When the dust settles after the report, the grain market will settle into the more usual uncertainty offered by its traditional most influential player: Mother Nature. If the Midwest stays cool and wet in April, there’s always the possibility for some intended corn acres getting switched to soybeans, a later planted crop.  

Like leaders of several other developing nations, Joe Shirley, the president of the Navajos, wants to build coal-fired power generation as fast as possible.
 
Shirley has been fighting to build a 1,500 megawatt plant in Northwest New Mexico called Desert Rock with a company called Sithe Global, LLC. He says it and associated mining would provide up to 400 long-term jobs for his people and pay more than $50 million annually to the nation.
    
The jobs sound good to some of the nearly 200,000 citizens of the Navajo Nation spread across the desert of Arizona, New Mexico and Utah. An opening for a janitorial job at a Navajo college, for example, recently drew about 200 applicants. Many Navajo young men must travel to construction jobs in other states hundreds of miles away.
 
"It's all about putting food on the table, putting shoes on little feet," Shirley told reporters about the plant recently at his office in Window Rock, the capital of the Navajo Nation.
 
Unfortunately for Shirley, his nation, unlike other coal-rich nations like China or India, must get permitting for the plant from the United States. 
    
For years the U.S. Environmental Protection Administration has delayed granting the plant an air permit, saying it has not had enough time to review public comments on an environmental filing on the site.
 
As the permitting process drags on, the cost of the plant has risen -- to about $3 to $4 billion, depending on the strategy it uses to bury emissions of greenhouse gas carbon dioxide, if at all. 
    
And local opposition to Desert Rock has risen. Many Navajos who the plant would push out of their homes south of Farmington, New Mexico have fought it. They said the plant would send most of its power to rapidly-growing Arizona and Nevada while many Navajos would continue to go without power.
    
Opponents said the plant would add to air pollution from two other coal plants in the area, and while strip mining of the coal and unregulated dumping of coal ash would degrade the soil. 
    
One Navajo opponent, Sarah White helped lead a two-week blockade of the earthen roads leading to the proposed site when Sithe dug water wells for Desert Rock. She vows to keep blocking development of the site.
    
Meanwhile, throughout the United States, opposition has grown to plants fired by coal, which emits more CO2 than any other fuel. Plans for coal plants from Texas to Florida have been canceled, while coastal states like California and New York are beginning to regulate greenhouse emissions.
 
Shirley feels entitled to tap his coal, especially because the countries like the United States got rich on the stuff. 
 
But also because China is building several coal fired power plants -- every month. He said if the United States is serious about slowing output of greenhouse emissions, it should stop "picking on the poor Navajo Nation quagmired in impoverishment in its backyard" and talk more with China. "Is it because (China) is a nuclear nation?" he asks about the lack of progress.
        
This week the Navajo Nation announced that it plans to build a 500 MW new wind farm, which adds a new twist for their quest for energy development. 
    
What do you think? Should the U.S. speed up approval of Desert Rock? 

Retail fuel prices in the United States have smashed the records and show no signs of reversing course — bad news for drivers heading into the summer vacation season.

The explanation is fairly easy — crude oil prices have quintupled since 2002 because of rising global demand and constraints on supply, and fuel prices have risen in turn. But there are also some eyebrow-raising oddities of note.

Among them, gasoline prices are at a record even though supplies are brimming at levels not seen since 1993. Back in 1993, a you could get a gallon of gas for 99 cents if you put a little effort into it. In fact, supplies are so high right now that oil refiners like Valero are even slowing production because they’re having a hard time making money with the cost of crude eating away at the bottom line. While the swelling inventories are of little comfort to people paying up at the pumps, it could be worse. Lower supplies would almost certainly raise gasoline prices further.

Another oddity: diesel is WAY more expensive than gasoline. This is odd because diesel has traditionally been the cheaper of the two fuels in the United States as it has been easier to produce and there has been relatively less demand for it. But recent environmental regulations slashing sulfur content in diesel alongside rising consumption of the fuel in places like Europe and Asia have changed the dynamics, pushing up the cost of production and the level of exports to overseas markets. The surge in diesel prices is not just a headache for people with diesel Volkswagens. It is a huge problem for trucking companies, major courier services, and other industries. Also, because of the close relationship between diesel and jet fuel, airlines have been taking a severe hit.

Another outwardly bizarre situation in the energy markets is the fact that OPEC — which only a few years ago said it wanted to keep oil in a range between $22 and $28 per barrel — has declined repeatedly to raise production with crude in triple-digit territory. Part of the concern, they say, is the uncertainty of future demand with the U.S. economy slowing down. Probably a reasonable worry, after the cartel got burned a decade ago in similar circumstance, raising output to head off a looming recession only to see crude prices fall to historic lows a couple of years later.

Here are two outstanding examples of the ripple effects around the world when the dollar stumbles. Oil is at a record high at $110 and gold has topped $1,000 an ounce for the first time, while the dollar has fallen below 100 yen for the first time in more than a decade. Most commodities are priced in dollars, so the weaker the greenback, the cheaper it is for holders of other currencies to buy gold and oil. Gold is also generally seen as a hedge against oil-led inflation. Gold has jumped 19 percent this year on top of a 32 percent rise in 2007.

Every time it looks like relations between Argentine farmers and the government have hit rock bottom, they get worse.
Exasperated farmers have blocked ports, parked tractors across highways and refused to send their cattle to market in protest at a string of government measures.
They even held a mass prayer rally, hoping the nation’s patron saint might help them resolve the three-year-old row.
This time they have called a two-day strike in protest at an export tax hike that targets their most lucrative crops, soybeans and sunflowers.
Officials say everyone should benefit from the grains bonanza, not just the countryside, which has historically fought with the government in Buenos Aires over the spoils of the country’s farming riches.
They say there will still be an ample profit margin even with the new tax increases.
But farmers say the government has gone too far, and will end up shooting itself in the foot by discouraging the production of the very goods that are swelling state coffers.
Argentina has recovered some of its former fame as the bread basket of the world in recent years, but the rapid rise in export duties that has accompanied soaring global prices means few farmers are celebrating in the famous Pampas plains.

“The worst thing about all this despondency, is that we’re losing a culture.” one farmer told daily La Nacion. “I honestly don’t know if there’s any future in farming for my children.”

As one Chicago grain analyst Roy Huckabay said last week: “Big prices have big corrections.”
That pretty much summed up last week’s price moves in Chicago Board of Trade soybean markets. To some extent, easing Chinese vegoil cash prices spurred the CBOT sell-off, with soybeans and soyoil hit the hardest — falling 8 percent on the week. A large part of the CBOT soy rally since Jan. 1 was linked to strong Asian demand for soybeans and vegoils.
But most veteran traders said a bigger culprit behind the market dive was a fallout from the subprime debacle. Hedge funds were forced to liquidate positions in different financial arenas late last week to meet margin calls. That spilled over to the CBOT markets, traders said.
Chicago corn closed down the 20-cent limit in all the contracts from May 2008 through July 2009 on Friday, but was off only 1.6 percent on the week. (There are no limits in the March contract as its in delivery.) CBOT wheat also sank on Friday with the May contract sliding 20 cents. But wheat ended higher week-to-week after tanking the week of Feb. 25. The soft dollar, shrinking global grain inventories, and concerns about weather and climate changes impacting crop yields remain supportive factors.
Will we see more selling this coming week? Or does the 8 percent drop in CBOT soybeans and soybean oil spur fresh buying?
Sunday electronic trade should be interesting.

Market factors to watch the coming week:
Global market action. Tight money markets and tumbling stocks and the dollar were expected to heighten worries for investors.
Mounting evidence the economy has entered a recession. Will that lead to investors to fresh buying of CBOT grains as a hedge against inflation or will investors step back from all markets? The government will release the Consumer Price Index, an inflation gauge, on Friday.
USDA to release updated supply-and-demand figures on Tuesday. Analysts expect the government to shave several million bushels off their 2007/08 ending stocks estimates for corn, wheat and soybeans due to strong global demand for U.S. commodities amid a record low dollar and shrinking world grain inventories. A bigger impact on prices will be the March 31 planting intentions report that will give the base estimates for U.S. corn, soybean and spring wheat seedings.
South American harvest progress, especially soybeans. As more Brazilian and Argentine soybeans move into marketing channels, demand for U.S. soybeans should wane. CIF values at the U.S. Gulf were plummeting this past week as export demand eased with the world soy buyers turning to South America for fresh supplies.
National Oilseed Processors Association crush report on Friday. The data will give analysts and traders the first look at the U.S. crushing pace for soybeans during February.

Big mergers among security exchanges could send banks scrambling to make deals of their own.

Goldman Sachs might be the latest member to join a group of 12 companies looking to mount an electronic attack against the Chicago Mercantile Exchange.

Big banks such as Merrill Lynch, JP Morgan, Barclays, and Deutsche Bank have already banded together to create an electronic platform that could help crack the near monopoly that the CME holds over the U.S. futures market.

The development of a new electronic futures platform comes at a time when the CME Group is likely to merge with the New York Mercantile Exchange and its lucrative metals and energy business, creating an even more dominant marketplace.

Goldman is no stranger to electronic exchanges. The firm was a key player in the development of Archipelago, an electronic exchange created to compete with the NYSE and NASDAQ. The two rivals partnered up in 2006 when then NYSE Chairman - and former Goldman executive - John Thain merged the NYSE with the ailing electronic trading platform.

The new electronic platform, unofficially known as Four Seasons, could challenge the stranglehold that the CME Group currently enjoys on derivative trading. A new electronic competitor could drain volume - and commissions - away from the exchange. To make matters worse, many of the CME's largest clients are the same banks throwing capital at the Four Seasons project.

These banks that once drove volume to the CME may now steer trades to their own electronic system. By trading on the Four Seasons platform, banks would not only receive cheaper executions, but also pile volume onto a system they have a financial stake in.

Rising beef prices are a touchy subject for steak-loving Argentines, so President Cristina Fernandez de Kirchner must be none too pleased to see the issue making headlines just a few months since she took over from her husband.

Local newspapers have reported price rises of up to 15 percent in recent days, saying the subject has dominated meetings this week between the president and her economic team.

It is not yet clear which path she will opt for. What is clear, is that a welter of measures taken by the previous government – led by her husband — have failed to keep a lid on the cost of the nation’s favorite food.

She could impose a fresh cut to export quotas, or a subsidy scheme for meat-packers so they sell cheaper to butchers.

Any new caps on foreign beef sales will draw criticism from the country’s disgruntled ranchers, who had few kind words for the farming policy of Fernandez’s husband, and such policies further threaten the country’s historic status as a leading beef supplier.

Cattle ranchers are sending more and more young animals and breeding cows to slaughter to make way for more lucrative grains crops, raising fears the country’s herd could shrink just as demand surges.

Racing economic growth means Argentines are going back to beef, which became too expensive for some during the economic crisis of 2001-02.

But subsidizing local consumers is also controversial. “There’s no point in subsidizing filet mignon for the rich guy … who then goes to Europe and pays 50 euros for an Argentine steak,” Ulises Forte, vice president of the FAA farming association, was quoting as saying in daily La Nacion.

He said the cheap cuts should stay at home, with the finest beef reserved for the lucrative foreign market — a policy pursued more closely by neighboring Uruguay.

Even if prices have shot up in recent years, the customary weekend barbecue shows no sign of disappearing. Argentines are still the world’s biggest beef-eaters, consuming nearly 70 kg (154 pounds) per person last year. 

In a country where the barbecue is seen as a birth right, President Fernandez will want to do everything possible to keep it that way. 
    

    By nature Chicago Board of Trade grain traders love talking about the markets. These days it just doesn’t happen much. Between volatile price moves, exacerbated by electronic trading and huge participation by Wall Street funds, there’s hardly a minute for them to catch their breath. Markets move faster than ever, with most of it, or 85-90 percent done on the screen.

    This week took the cake. A trade by a clearing customer of MF Global, the world’s largest futures/options broker, cost the firm $141 million and caused one of the most wicked moves in CBOT wheat history. That prompted veteran grain traders to ask: What’s next? And doubt whether or not they’ll survive another such move.

    All this happened before the CBOT grain markets enter their traditional volatile period — spring planting followed by the crop growing season. This year promises to hold lots of surprises. The combination of volatile e-trade, big volume and a bullish fundamental outlook with the different commodities competing for acreage are sure to fuel the red-hot grain markets.

    CBOT analysts and traders have no idea how high grain and oilseed markets will go. But they agree that prices will be on an upward roll until USDA releases its March 31 planting intentions report.

    Private analysts are starting to release their U.S. acreage estimates. Most are forecasting that U.S. farmers will plant more soybeans than the 63.6 million acres seeded last spring,  at least 70 million. Corn plantings will still be big near 90 million acres. But nothing is written in stone. The price action over the next few months and spring planting weather will impact the actual planted acres that will be reported in USDA’s June plantings update.

    Equally important will be spring wheat seedings. Current U.S. wheat stocks are projected at a 60-year low and spring wheat, the highest protein variety, is in the shortest supply. There’s hope among world wheat buyers that the United States will be planting a lot more than last year.

    At the USDA outlook forum held more than a week ago, the government’s preliminary forecast was for farmers to seed 2 million more acres to spring wheat (including durum) than the 15.446 million acres planted in 2007. Private analysts aren’t as hopeful as bean profits are looking more attractive than new-crop spring wheat, they say. New-crop CBOT November soybeans are hovering around $14.25 a bushel while Minneapolis spring wheat for new-crop delivery is near $11.25.

    “We’d be surprised if the spring wheat went up more than 1.25 million acres which is less than USDA’s 2.0-million-acre gain,” Rich Feltes, senior vice president and director of MF Global Research.

    The other interesting phenomenon that’s occurring is that soybeans and soybean oil are taking over as the Chicago leaders from wheat.

    Both soybeans and soyoil prices soared to all-time highs, led by soyoil this week. The product value of soyoil as a percentage of the soybean crush is rising — over 50 percent in the December contracts this week vs. near 40 percent a year ago. In contrast, the wheat markets deflated with the start of the March futures delivery period despite a lack of deliveries in Minneapolis and Kansas City.