The weakest U.S. dollar in 15 months along with ample American wheat supplies should be spurring strong U.S. wheat exports this season. But the United States, typically the world’s largest wheat exporter every year, is seeing exports of that grain down 30 percent from a year ago as many big overseas buyers source wheat from cheaper suppliers, namely Russia, France and Germany. 
 
What’s more, nearby Chicago Board of Trade wheat futures prices have jumped nearly 25 percent since October 1, ignoring the weak exports, weak domestic cash basis and ample stocks of wheat on hand.

The economics of wheat supply and demand don’t seem to be adding up. What gives?
 
Some grain traders and analysts who study the CBOT wheat market think the latest price action in wheat may just be another symptom of the malaise grain traders have complained about with “convergence.” A chorus of protests by grain users like the National Grain and Feed Association for two years have blamed “Wall Street Index Funds” for buying grains — particularly, CBOT wheat — en masse and far beyond what is merited by basic grain market fundamentals.
 
The price inflation has caused a persistent disconnect, they say, between CBOT wheat and real-world prices and essentially ruined CBOT as a reliable hedging market for grain firms because the inflated CBOT wheat futures prices no longer “converge” with cash markets in delivery periods. Now, some traders wonder if the same fund-driven demand for CBOT wheat contracts is pricing U.S. wheat out of the world export market at a time fundamentals should be letting it compete.
 
Egypt’s main government wheat buyer, for example, has passed on U.S. wheat in its last six snap tenders. The most recent snub occurred this past week when it bought cheaper French, Russian and German supplies. Egypt has long been the single biggest buyer of U.S. soft red winter wheat, the CBOT par delivery grade. U.S. wheat shipped from the Gulf of Mexico this marketing season has been running roughly $25 to $35 per tonne higher than the wheat from the Black Sea region or France, exporters say. Freight is also more expensive.
 
“What worsened the situation in just in the last week or two is we’ve seen U.S. wheat futures escalate 60, 70, 80 cents despite a weak fundamental outlook, basically on fund buying,” said Mike Krueger, senior analyst for World Perspectives, who also runs a grain advisory service in Fargo, North Dakota. “Funds of all types, index and hedge funds whatever you want to call them, have simply been buying wheat and that drove markets sharply higher.”  

Weekly trader commitments data issued on Friday afternoon from the Commodity Futures Trading Commission confirmed the trend.

Index funds — funds which by their nature only hold a long position — were shown to be holding almost half (47 percent) of all the total long open interest in CBOT wheat as of Tuesday, Nov. 17. 
Managed funds — speculators which hold both long and short positions based on daily market trends — were also buyers, reducing their net short position in CBOT wheat by 10,300 contracts in the same period. But these big players remained net sellers in the wheat market as a group.
 
So it all adds up to what? For starters, probably a more critical eye once again from the CFTC, which has been holding public hearings since the summer under its reform-minded chairman Gary Gensler seeking a solution to the convergence issue as a way to restore the CBOT’s role as a hedging market. 
Few are happy with the “convergence” solutions proposed so far by the CME, including the most recent one — still under consideration — of tinkering further with wheat storage fees at elevators. CME — dependent on volume to remain the dominant market for world wheat speculators — continues to try to please all players, from Wall Street to Main Street. 
 
But it may be only a matter of time before U.S. wheat exporters as a group — all of whom are members of the influential NGFA — come to CFTC and blame Wall Street’s financial engineers for sabotaging the world’s top wheat exporter.

For more than four decades, OPEC occupied a grey building on the banks of the Danube Canal, a premises with which the press became wearily familiar during long nights of waiting for the ministers to agree to raise, lower or maintain oil output.
The old headquarters at Obere Donaustrasse 93 will be closed down from 1630 GMT on Nov. 25 and the organization is moving into its new Secretariat at Helferstorferstrasse 17 in Vienna’s first district.
OPEC hasn’t disclosed the cost of its new building, which is near the old stock exchange in a busy part of Vienna. Having acquired new members Angola and Ecuador and often inviting non-menbers to its meetings, the group needs more space.
The new and sparkly white building doesn’t have many windows and looks as if it could be short of parking space, but presumably OPEC has made arrangements that will avoid a line of black Mercs –- generally the oil ministers’ favoured mode of transport – backing up as they try to drop off their delegates.
Reporters got to know the old building, known among the local press pack as The Dump, when working around the logistical challenges it presented to newsgathering. One spot, right by the door, was coveted as it was the best place to catch a minister at the end of the meeting to confirm OPEC’s decision. The downside was having to stand there for hours, sustained only by coffee from the vending machine brought by a colleague.
For years, when entering the conference room for the pre-meeting news conference, indecorously known as the gang bang, they negotiated a tiny opening at the head of the horseshoe-shaped ministerial table. They then squeezed their way through, together with cameramen and photographers, to yell out questions at the ministers -– an experience closer to playing rugby than reporting.
To get to the conference room, they ran up four flights of stairs in a herd that sometimes resulted in reporters falling over or getting whacked by a camera.
Perhaps in the new premises, OPEC has made things even more of a challenge for the press, such as introducing Indiana Jones-style trapdoors and gigantic rolling rocks. Or maybe there will be a shorter flight of stairs and a wider gap, to facilitate news gathering?

If this week in Chicago Board of Trade grains is anything like the last couple, traders can expect plenty of volatility — lots of sound and fury — but with prices likely to stay in recent ranges. 
   
“This really isn’t a trending kind of market,” said senior analyst Anne Frick with Prudential Bache Commodities. 
   
Mother Nature and the dollar have had the biggest impact on grain prices this autumn. That looks set to continue. Analysts say those two uncertain and thus supportive price factors, countered by rising supplies of harvested grain, will tend to restrain “spikes” either way. Day-to-day moves on the other hand, are still seen as being more dictated by buy/sell trigger points on price charts and by speculative money flows. 
    
Despite a steady to lower close in CBOT corn and soybeans on Friday, both closed higher on the week as did wheat. So some bullish technical indicators remain in place, analysts said. Fundamentals — huge U.S. harvests now under way — should be weighing on corn and beans. But U.S. farmers are struggling to wrap up the harvest. A soggy October has put them about four weeks behind on corn and, traders say, sowed seeds of doubt in the markets’ mind about final crop yields and quality. 
    
Farmers finally saw some ideal harvest weather in November — warm, sunny days that allowed them to work all day and night to harvest and dry rain-soaked crops. But their luck may be running out. Rains are now forecast to return to the U.S. Corn Belt by Tuesday or Wednesday. 
    
That is especially bad news for corn, as only about half the projected 13-billion bushel crop is expected to be off the field by Sunday, traders said. By contrast, they estimate soy harvest will be reported 90 percent complete when weekly crop progress updates are issued by the U.S. Department of Agriculture on Monday afternoon. 
   
ARGENTINA DRYNESS STRIKES A NERVE 
“No doubt for corn: weather is at the top of the list. And weather in South America for beans,” analyst Brian Basting with brokerage Advance Trading said, referring to concerns starting to surface about dryness in Argentina’s fields. 
    
The world’s No. 3 soy producer is in the midst of planting its next soybean crop. Although it is too early in the season to get excited about the dryness and potential threat to yields, traders are hyper-sensitive to conditions in Argentina after a drought last season drastically reduced that important crop. The No. 1 concern now, traders noted, is in Cordoba, a top soy region in central Argentina. 
   
Underscoring the current range-bound market mentality in grains, however, traders said any rallies in Chicago soybeans would likely be met by South American sales to price their new crop. That action was already detected on Friday. 
   
“Once beans got above $10 in the March contract, we saw hedge sales out of South America,” said one CBOT floor broker with commercial grain clients. 
   
Also, USDA on Nov. 11, repeated its rosy outlook for South America’s coming soy crops. It boosted the estimate of Brazil’s crop by 1 million tonnes to a record 63 million and raised its Argentine soy estimate 500,000 tonnes to 53 million. The U.S. crop this year equates to 90.3 million tonnes. 
    
Aside from weather-related harvest news, the U.S. dollar will also remain a major influence on commodity prices. Generally, the two move inversely. A weak dollar lowers the price of U.S. grain exports for overseas buyers and attracts investors who buy commodities as a hedge against inflation.

In recent months on days when the U.S. dollar was weak, corn futures rose 72 percent of the time, David Hightower of the Hightower Report told a CME grains panel last week. 
   
Traders are also keeping a close eye on December corn options, which expire on Friday. Large open interest in the December $4 options is expected to act like a price magnet.  
Photo: Northern Illinois corn field  taken Nov. 8 by Christine Stebbins

Photo by Kris Krüg

Where does your burger come from? Journalist and food writer Michael Pollan has traced back the source of much of what we eat, and says that the ultimate answer is oil. Pollan, author of The Omnivore’s Dilemma, argues that it takes massive amounts of petroleum-derived fertilizers and pesticides to run industrial farms and feed lots, with dire consequences for human health and the Earth’s climate.

Check out Pollan’s multimedia presentation below, from the Poptech conference in Camden, Maine last month.

[Editor's note: After some Reuters fact-checking, Pollan withdrew his Poptech assertion that "A vegan in a Hummer has a smaller carbon footprint than a meat-eater in a Prius," and his statement has been edited out of the video. The erroneous meme has nevertheless continued to spread on Twitter]

Click here for Reuters Poptech coverage

Click here for more Poptech videos

More on the Future of Food:

Is Monsanto the answer or the problem?

The fight over the future of food

Is Africa selling out its farmers?

India’s food dilemma: high prices or shortages

More than a billion people go hungry each day — about the same number as did in the late 1950s. That’s both a “tragedy on a grand scale” and an “astounding success,” according to a new report called “Millions Fed,” produced by the International Food Policy Research Institute and the Bill and Melinda Gates Foundation.
    
While the absolute number of hungry people is the same as it was 40 years ago, the proportion is dramatically smaller — one in six today, compared to one in three then, the report said. It illustrates 20 successful case studies where progress has been made in the fight against hunger.

Some solutions come from science: new varieties of wheat, rice, beans, maize, cassava, millet and sorghum. Others deal with markets, government policies, or the environment.
    
Two farmers from the Sahel region of Africa, oft plagued by drought and famine, visited Washington last month to talk about solutions they found close to home — one of the success stories trumpeted in “Millions Fed.”
    
Almost 30 years ago, farmers in Burkina Faso experimented with a traditional technique called “zai,” digging pits in their plots and adding manure to improve soils before the rainy season, resulting in dramatically better yields.
    
“There was a long period of drought in my village,” Yacouba Sawadogo told reporters. “Many people left because their life was very, very difficult. But I decided to stay,” he said, explaining how he taught others the technique.
    
In Niger, farmers manage trees on their land to prevent erosion, improve yields, and provide livestock fodder. Before, women had to walk 6 miles to get firewood, but now they have enough for themselves and to sell to others, said Sakina Mati, who coordinates tree projects in six villages.
    
The projects have improved 13 million acres of farmland and fed 3 million people, said Oxfam America, a development group that works with the farmers.
    
It’s food for thought as rich nations ramp up efforts to help small farmers grow more food in poor countries. “In our approach toward solutions and programs, we really need to listen as well as talk,” said Gawain Kripke of Oxfam.
    
“Solutions don’t always come from us.”

PHOTO CREDIT: Yacouba Sawadogo on his farm in Burkina Faso /Courtesy of Oxfam America

China’s dominant position in the arena of rare earth metals used in new technology such as batteries for hybrid cars and magnetic motors could be eroded by an Australian listed company – Greenland Mineral and Energy. The company is planning to list in London next year, pending the resolution of a couple of issues.

Greenland Minerals and Energy thinks it probably has access to the world's largest depositis of rare earth metals and uranium -- used to make nuclear energy.

Global consumption of rare earths last year is estimated at 135,000 tonnes or $1.5-$2.0 billion in 2008. Demand is forecast to grow by 65 percent by 2012 from 2008 levels.

U.S. grain markets look headed for more seasonal harvest selling pressure on Monday after Midwest weather forecasts pointed to an active harvest weekend, but traders said the focus will quickly turn to the government’s next monthly crop report due a day later. 
   
A lot hinges on Tuesday’s numbers. Typically, the November report confirms the U.S. Agriculture Department’s previous estimates. But given the unusually slow 2009 harvest pace amid persistent autumn rains, this month’s report will play a bigger role than usual in trade attitudes going forward. 
   
“We’re going to get actual harvest data. So this report becomes more important for the industry and there is that element of surprise,” said Dan Basse, president of AgResource, a Chicago-based ag consultant. 
    
Analysts polled by Reuters last week said on average they expect USDA to make a modest upward revision to its 2009 U.S. soy output forecast — up about 12 million bushels to 3.262 billion, surpassing the current record of 3.197 billion. Soybean demand is strong, but the supply number will matter. 
   
“If those numbers get significantly larger, you’re going to see some pressure in beans,” said Dan Cekander, an analyst with Newedge USA in Chicago. 
    
For corn, most analysts expect to see a downward revision due to the delayed harvest — down 78 million bushels to 12.94 billion. However, there were also a handful of analysts who said USDA could boost its forecast to approach the all-time high of 13.038 billion bushels harvested in 2007.
   
DOLLAR BULLS VERSUS HARVEST BEARS 
While the weak dollar was key to the moves in commodities early last week, with grain prices rising as the dollar fell, it was all about harvest supplies the remainder of the week. 
    
The net effect was corn for December delivery <CZ9> closing basically unchanged for the week at $3.67 a bushel. November soybeans <SX9> fell 3 percent to $9.48, and December wheat <WZ9> was down just a fraction at $4.97-1/4. 
   
Traders said on Friday that unless U.S. economic fundamentals trigger a collapse in the dollar or crude oil rallies, breaking out of its $75-$80 a barrel range, a lower trend in grains was likely ahead of USDA report on Tuesday. 
   
U.S. cash grain markets weakened across the Midwest on Friday as farmers worked around the clock to harvest crops. There were reports of farmers waiting hours in truck lines to dump freshly harvested corn and soybeans, and many country elevators were only taking grain every other day, as the magnitude of the harvest logjam created logistical nightmares. 
    
That meant a pickup in harvest hedge sales on Friday, which will likely surface again when CBOT markets open Sunday night given the near-perfect weather forecast for the weekend.
    
USDA will issue its weekly crop progress data on Monday. As of late Friday, traders were expecting the government to report a huge advance with roughly 75 percent of the soy harvest complete, compared with 51 percent the previous week, and 40 percent of corn off the field, versus 25 percent a week ago. 
  
“We have made some very good progress this week and heavy grain movement. One good thing about this pattern is we are going to fill the pipeline quickly,” Basse said.
Photo: It was an active harvest weekend across the U.S. Midwest. Illinois corn field taken Nov 8 by Christine Stebbins.

If there is one thing OPEC Secretary General Abdullah al-Badri would really like to get rid of, it’s analysts forecasts of how much oil there is sitting in storage in the world’s biggest energy consumer the United States.
“The forecasts are always wrong,” he has told Reuters. “Why do you carry on running them?”
He might have taken this week as a particularly fine example of how difficult it is to get it right.
Analysts polled by Reuters thought crude oil stocks would rise by 1.4 million barrels in the latest week. Instead, according to reports from the American Petroleum Institute and the Energy Information Administration, inventories fell, sending oil prices back up towards $81 a barrel on Wednesday.
No-one was heard complaining on the oil market, however. Instead, everyone there was busy trading on the surprise — or in the view of the OPEC Secretary General driving the kind of speculation that needs to be kept firmly under control.