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.

If you head east to El Centro from San Diego, Interstate 8 takes you through arid scenery, climbing to 4,000 feet through barren mountains so fast that your ears pop. Then comes the oasis.

As you head down rapidly out of the mountains once more toward El Centro you hit a sign that tells you that you have reached sea level. Green fields and palm trees, stacks of hay drying in the fierce sun -- 90 degrees Fahrenheit even in November -- surrounded on all sides by rocky hills and the desert.

We knew before coming here that this was an agricultural region, but the lush greenery amid such a scorched landscape took us by surprise. This is where much of America's lettuce, spinach and other vegetables come from in the winter. There are also large cattle feed lots here too, which launch a frontal assault on your olfactory system long before you see them.

But you don't have to wander far from the fields to find the desert and its fine reddish, beige sand and realise just how incongruous the lush green fields are. Particularly when you feel the sun beating down on you when much of the northern hemisphere is already feeling the first cold of winter.

This is all made possible by water rights this area has from the Colorado River. As this part of the desert is below sea level in some parts, the water flows downhill and an irrigation system delivers it to 500,000 acres of farmland.

Without this water the fields would no doubt revert to desert in short order.

Some 97 percent of the water diverted to the area around El Centro goes toward farming and city manager Ruben Duran says the city is looking at ways to conserve water in a place where "mild dehydration is a natural state for most people."

But while people here talk in terms of conservation and wise use of water, they can also remind you that water rights in El Centro and Imperial County have been upheld twice by the Supreme Court and that no one can take them away.

"Water is always a concern," said Tim Kelley, head of the Imperial Valley Development Corporation, a public private partnership set up to diversify the local economy. "But those water rights belong to us. And if you don't like it, you can take us to court."

Photos by Lucy Nicholson

The physical oil market, where traders exchange barrels of oil or financial instruments derived from them, is transacted not on a trading floor or electronic exchange, but by phone, instant messaging and – although employers have clamped down on it — the long liquid lunch.
Exactly, in other words, where regulators tend not to be looking. Instead, guidelines and indexes drawn up by the two main oil pricing agencies, Platts and Argus Media, serve as the de-facto rulebook for oil trading.
Argus announced a coup against Platts this week. The state oil company of top world exporter Saudi Arabia, Aramco, is switching to a crude benchmark index published by Argus to price its crude oil sales to the United States, from another benchmark published by Platts.
With a due sense of the gravity of its task, Argus issued a description of its index in a document labelled a white paper — a term typically reserved for drafts laws issued by the British government.

Veteran traders say U.S. grains feel “toppy” after last week’s rally to multimonth highs, but many remained hesitant to pick a direction for the coming week given the outside storms rattling the markets. What they would agree on is that the two main factors which have directed the markets for the past month — U.S. harvest weather and the dollar — will remain center stage this week.
    
Typically, Chicago Board of Trade corn and soybean prices slump during October, the traditional prime time for harvesting U.S. grains, as more supplies flood into country elevators, grain processors and other marketing channels. But Mother Nature has not cooperated this autumn. Persistent rains and cool temperatures have put the 2009 harvest off to the slowest start in more than two decades. 
    
Corn, the biggest row crop, was only 17 percent harvested on Oct. 18, versus the usual 46 percent. Soybeans were 30 percent harvested, versus the usual 72 percent. The delays increase the chances of quality problems for both jumbo crops this year, and boost costs for drying and grain handling. It also makes it tough for U.S. exporters to meet their sales commitments, especially in soybeans given the record sales for the start of the 2009/2010 marketing season. 
    
“This spring you couldn’t get the crop in and now you can’t get it out. So you’re seeing a lot of premium built into the market,” said Dax Wedemeyer, an analyst at brokerage U.S. Commodities in Iowa. “Everybody knows it’s wet — eventually it will dry out and you will be able to harvest this crop.” 
    
The question is when, analysts say. Forecasters on Monday are calling for more rain this week across the Midwest but it will be warmer and slightly drier than last week. So the U.S. Department of Agriculture’s harvest progress report at 2 p.m. EDT (1800 GMT) on Monday will keep the attention of traders. 
   
CBOT traders are guessing USDA would report the soy harvest about half done. Corn harvest was seen at only 25 percent as farmers focus on soybeans, which are seen as more vulnerable to damage from rain and cold temps. 
   
EYES ALSO ON THE WEAK DOLLAR 
“There is definitely macro money coming into grains because of the dollar,” said analyst Charlie Sernatinger with brokerage Fortis Clearing Americas. 
    
A weak dollar is a buy signal for dollar-based commodities, making U.S. grains more attractive to overseas buyers. Last week was a classic example. The Reuters-Jefferies CRB index <.CRB> of 19 commodity futures hit a one-year peak of 285 as the dollar fell to a 14-month low against a basket of key currencies. The dollar has been under pressure as the global growth outlook improves more than that of the battered U.S. economy and with financial markets anticipating record low U.S. interest rates staying in place well into next year. 
   
“The money that is flowing in here is not flowing in based on any kind of expectation of return. It’s flowing into commodities because of fear the basement of the currency,” Sernatinger said. “That makes it awfully difficult to predict — what the next flow is going to be.” 
    
Weekly commitments of trader data issued late on Friday by the U.S. regulator, the Commodity Futures Trading Commission, confirmed a big flow of speculative money into CBOT grains last week, traders and analysts noted. The end result was a surprise buoyancy in grains last week. CBOT corn for December delivery <CZ9> rose 7 percent to $3.97-3/4 a bushel for the week. Chicago December wheat <WZ9> climbed 10 percent to $5.47-3/4 and November soybeans <SX9> rose 3 percent to $10.06.
Photo: Iowa corn field taken in late September by Christine Stebbins.

Two graphs (from Scott Barber) to remind that what you get from assets depends on the currency:

Investors smelling profits in commodities are using the sector as an early cycle play, alongside equities, because a lack of production capacity means higher prices sooner rather than later. 

Historically, prices of natural resources lag equities, which typically front run the economic cycle by between 18 to 24 months. The change is also partly due to the tumbling dollar, a major driver in recent weeks.

The natural resources sector is also one of the last to price in economic expansion. But not this time.

Global capacity utilisation rates in petroleum products and mining between 2002 and 2007 averaged more than 90 percent. Analysts estimate those levels fell to 80 percent -- still very high -- in July 2009.

In contrast, utilisation rates among manufacturing companies was estimated at around 65 percent last July from about 80 percent between 2002 and 2007. Equivalent numbers for the auto sector were 45 percent and 80 percent respectively.

The large output gap in manufacturing and the auto sector means production can ramp up easily without any bottlenecks when the global economy sees stronger growth, albeit from low levels.

Not so in commodities, where firms are running a tight ship.

The world needs to spend $83 billion a year to ensure it can produce enough food amid a changing climate for its growing population by 2050, the UN’s Food and Agriculture Organization estimates.
    
Rich countries have pledged more than $22 billion over three years to help small, impoverished farmers grow and sell more by investing in seeds, fertilizer, roads and marketing infrastructure.
    
Philanthropists have thrown their weight behind the goal. Bill Gates challenged research companies last week to make new technologies available to small farmers without charging them royalties. (Click on the link at the bottom to see his full speech to the World Food Prize forum.)

Corporations have said they see themselves as part of the fight too, particularly when it comes to research. But Robert Thompson, a former World Bank official, says he’s pessimistic the private sector will be able to contribute enough. “Their shareholders won’t stand for them solving all the problems of the developing countries, and giving it away,” he told Reuters.
    
“It’s going to take subsidies or at least a public sector contribution to engage their research horsepower,” said Thompson, now an agriculture professor with the University of Illinois, who has pushed for more spending on agricultural development for 40 years.
    
Agribusiness should be motivated to get involved in developing countries because they represent a future growth market for their products, Thompson said. “They should be willing to accept lower return on their own investments as an investment in the longer term, but we have to keep the short time horizon of the U.S. investment community in mind,” he said.
    
“Shareholders are brutal on companies that don’t meet their short-term profit expectations. In that sense, perhaps some of the European companies like Syngenta, BASF or Bayer … may have a little more license, if you will, to take a longer-term perspective than some of the U.S. publicly traded companies.”

Below: Bill Gates addresses World Food Prize forum in Des Moines, Iowa.

The energy world gathered this week in London for the 30th annual edition of Oil and Money, a major industry event.
Some would say it is high time the conference had a title more in keeping with the prevailing political mood and the conference’s official colour — green.
But, for all the rising tide of rhetoric ahead of talks in Copenhagen in December to try to ensure a low-carbon future, high-carbon oil is still where a great deal of the money is.
If big business is shifting, the process is gradual and many have voiced scepticism about the chances of agreement in Copenhagen on how to follow up the Kyoto Protocol that expires in 2012.
Representatives of the Organization of the Petroleum Exporting Countries were particularly clear that the not-too-distant future was more black than green.
“There’s no getting away from fossil fuels,” Nigerian Oil Minister Rilwanu Lukman said on the sidelines of the industry conference.
“Biofuels will not work. You can’t use your food to have energy,” said OPEC Secretary General Abdullah al-Badri. He also ruled out nuclear power, which many in the energy industry regard as a low-carbon option.
“Nuclear energy is just waiting for a catastrophe,” was Badri’s view.
The heads of oil majors were more circumspect, but the message was not so very different.
Gas, they said, was very viable as a proven technology for power generation that emits far less carbon than coal, but it cannot meet the world’s massive transportation needs.  BP’s CEO Tony Hayward said the company worked on the assumption 80 percent of the world’s energy needs would be provided by fossil fuel as far out as 2030.
By that measure, we could be set for another 30 editions of Oil and Money.

World Food Day is Friday, and on opposite sides of the developed world, two large groups of experts have gathered to talk about the risks of food insecurity and what should be done to reduce hunger. In Rome, the UN’s Food and Agriculture Organization is mulling how to feed the world in 2050, and in Des Moines, Iowa, the World Food Prize forum will focus on the role of food in national security.

Last year’s spike in food prices raised the political profile of food security. G8 nations and the United States have pledged money and action. I spoke with Per Pinstrup-Andersen, an agricultural economist at Cornell University and a Food Prize laureate, to get his take on what that means. Here are some excerpts. 
     
Q. What do you think is different now in terms of the political will to address this problem? 
A. I think there is an increase in the political will. However, past initatives or past rhetoric of that kind didn’t really result in much action. I’m very concerned that we’re going to see a lot of additional rhetoric and a lot of plans being designed and discussed during the next year or so, but probably not very much action. Insofar as developing country governments are concerned, I doubt if the political will has changed at all. There is a lot of talk. But unless the developing country governments decide to prioritize the eradication or at least the amelioration of poverty, hunger and malnutrition, not much is going to happen.

The best way of doing that in the long run is to invest in rural areas, in infrastructure, in agricultural research, in primary health care. Look, we know what needs to be done, it’s not a big secret, it’s just that the governments have other priorities. The World Bank can put in a lot of money, and so can the bilaterals, but for this to have a sustainable impact, the governments of these countries have to step up to the plate. 
 
Q. What can be done to encourage that to happen? 
A. I wish I knew. The governments of most developing countries — and it’s not all of them — are ignoring the Millenium Development Goals, they’re ignoring the World Food Summit goals. Their main concern is to maintain legitimacy so they can hold on to power, and the rural poor are not threatening them. 
     
Q. In the face of that, what can donor countries do to make the best of their investment? 
A. I think all we can really do from the outside is to try to make up for the deficiencies of the national governments by bringing some money and some technical assistance to bear on these problems and to try to convince governments to work with us on this so that over a period of time the government will gradually take over these things. 
     
Q. How do you think the new U.S. food security initiative will play into global efforts to address hunger? 
A. One of my concerns is that we once again are going to spend a lot of time and effort and money on developing plans. We’ve got so many plans developed for almost every country in the world. We now need to pick them up and put them into action.

I think (the U.S. initiative) is better than ignoring (food security), as we have tended to do in the past. Money may convince national governments to change their priorities, as long as the money keeps flowing. I think we should be prepared to stay in this kind of thing for at least 25 years, which of course is not the way things are usually done. If we are thinking in terms of a five-year time horizon for this food security initiative, it’s not going to be sustainable.

Photo credit: REUTERS/Roberto Schmidt (Hillary Clinton in Goma, Democratic Republic of Congo, August 11, 2009)

The great and good of the global metals industry gather for London Metal Exchange week — the flagship event for the industry.

With most base metal prices running way ahead of fundamentals, real and apparent demand unclear and leading economies at different stages of recovery or not, its a key time to take the temperature of banks, producers, consumers and funds involved in metals.

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