At this time of year there is generally a bearish sentiment in Chicago grain markets due to the onset of the U.S. harvest, a world bellwether for supply. That is particularly true this autumn as evidence mounts that U.S. farmers will harvest not only their largest soybean crop in history, as the government is currently forecasting, but perhaps a record-large corn crop as well. USDA’s next crop estimates will be issued on Friday. 
 
“It’s going to be a biggie — the big dominant feature. Where do you want to place your bets heading into those numbers?” said Dan Basse, president of AgResource, a Chicago-based ag markets consultant.
 
Last month, the U.S. Department of Agriculture forecast a 2009 U.S. corn crop at 12.954 billion bushels, with an average yield of 161.9 bushels per acre, and soybean production at 3.245 billion bushels, yielding 42.3 bpa. The record for the U.S. corn crop is 13.074 billion bushels in 2007, and for soybeans, the 3.197 billion bushels reaped in 2006. Two closely watched research firms updated their forecasts last week, with brokerage FC Stone of Des Moines, Iowa, and consultant Informa Economics in Memphis both expecting USDA to boost its crop estimates this Friday. 
 
“With the private survey guys all showing higher corn and bean production, you’ve got a negative yield psychology all week going into the report,” said Dan Cekander, a grains market analyst at brokerage Newedge USA in Chicago. 
   
That sentiment hit CBOT markets hard on Friday, especially soybeans, which fell below $9 a bushel to a 6-1/2-month low. Sobering U.S. jobs data issued by the U.S. Labor Department on Friday added to bearish sentiment and worries about a recovery in the economy. Employers cut 236,000 jobs in September, far more than the 180,000 that had been expected. 
   
MOTHER NATURE NOT HELPING 
It is an adage at the Chicago Board of Trade that “big crops get bigger” once the late stages of maturity are reached and corn kernels and soybean pods make a final “fill.” But if there is anything injecting caution to all the bears in the grain markets at the moment, it is the weather. That factor will remain in play as a possible brake on CBOT price weakness the coming week. The Midwest harvest is already running a couple of weeks behind given crop immaturity. But recent rains and forecasts are not likely to to give farmers a bigger harvest window in the coming week.
   
“It’s pretty much a supply watch,” Basse said. “When will Mother Nature allow for a combine to roll freely and for the cash markets to be resupplied?”
   
Most traders expect export announcements to be limited, notably for soybeans with top buyer China on vacation until late in the week. China markets reopen on Oct. 9,following National Day holidays. 
   
WHEAT STRUGGLES
Wheat continues to struggle with large U.S. and global stocks and slid to new life-of-contract lows on Friday. But the biggest shake-up in wheat came in the spreads, the price differences between futures of various contract months.
 
These differentials jumped and fell violently — and expensively — for speculators as the grain industry, the CBOT and its regulator the Commodity Futures Trading Commission traded ideas back and forth about the best way to improve the hedging performance of the troubled CBOT wheat market. The trigger to the violent moves were competing proposals on the timing of when to adjust storage fees for wheat at CBOT- approved grain elevators. Some shell-shocked spread traders were threatening to file lawsuits by the end of the week. 
 
For the week, the CBOT December wheat fell nearly 2 percent to $4.41-1/4. Benchmark November soybeans fell 4 percent to $8.85 a bushel. December corn was near unchanged at $3.33-1/2.

PHOTO: Soybean field near Ames, Iowa, taken Sept. 26 by Christine Stebbins. High pod counts have many expecting a huge U.S. harvest.

On the congressional scale of measurement, Blanche Lincoln got a plum of a birthday present — the gavel as Senate committee chairman. She is the first woman to head the Agriculture Committee. Amid the congratulatory banter on Sept 30, Lincoln’s 49th birthday, were reminders of the enduring power of its members, past and present.

As Lincoln noted, her committee includes the chairmen of four other committees — Budget, Judiciary, Finance and Health. It is a higher number of sitting chairmen than most Senate committees and allows a useful melding of interests.

Finance chairman Max Baucus and Budget chairman Kent Conrad used their jurisdictions to help write the 2008 farm law, for example, sometimes in seeming competition with Tom Harkin, who passed the gavel to Lincoln and is now Health chairman. Harkin holds a historical footnote for chairing Agriculture twice.

Senate Republican Leader Mitch McConnell is an Agriculture member as well. In years past, Republican Bob Dole and Democrat Tom Daschle served on Agriculture while also party leaders in the Senate.

Chairmen are thick on the ground in the Agriculture Committee by another gauge too. Five of its former chairmen sit at the head of the table with Lincoln — Democrats Harkin and Pat Leahy on her right and Republicans Saxby Chambliss, Richard Lugar and Thad Cochran on her left.

“Maybe we should have a special chairman’s pin (for) former chairmen,” remarked Leahy, now Judiciary chairman.

Further down the table are Republicans Pat Roberts of Kansas, a former House Agriculture Committee chairman, and Mike Johanns of Nebraska, who resigned as U.S. agriculture secretary two years ago to run for the Senate.

“Just don’t forget us Northerners,” appealed Republican John Thune of South Dakota. Southerners are in charge of the committee — Lincoln is an Arkansas Democrat and the Republican leader on the panel, Chambliss, is from Georgia.

Photo credit: handout

U.S. grain markets look to be headed for another week of sideways moves with a lower bias as world grain buyers watch harvest progress of a likely record large American soybean crop and second-largest corn crop. So barring any unusual harvest-time surprises, grain traders will be taking their cue from U.S. weather forecasts.
    
“Outside of that there isn’t much,” Randy Mittelstaedt, an analyst with  R.J. O’Brien, said. “We’re just keeping within ranges until there is more clarity. The new  production report next month will help.” 
    
The U.S. Department of Agriculture will update U.S. crop yield estimates, production and supply-demand outlooks Oct. 9. USDA already forecast record corn yields and record soybean output in its monthly report issued on Sept. 11. But meeting those lofty targets is still a question of weather over the next few weeks as crops finish maturing and combines roll. 
    
Delayed planting this year put crops behind from the start, and crop-watchers are not yet ready to bless the bin-busting forecasts on concerns about a possible sudden “killing” frost that could cut off final growth of corn and soybeans.
    
“The latest National Agricultural Statistics Service Crop Progress report released Sept. 21 showed that 60 percent of the U.S. soybean crop was still vulnerable to freeze damage and only 21 percent of the corn crop was mature,” Mike Woolverton, a Kansas State University economist, said in his weekly newsletter on Friday. “The greatest lags are in the states most likely to experience frost.” 
    
So frost fears will remain a daily factor. But for some traders the main weather story is shifting focus to harvest conditions, with rain clouds threatening speedy progress. Rains, especially in the far southern edge of the Midwestern Corn Belt where crops are the ripest, have stalled an aggressive early start to harvesting. Further north the crops are still behind. A balmy September has helped speed up maturation, but crops are still lagging.
   
For the coming week, agricultural meteorologist Mike Palmerino at DTN Meteorlogix, said on Friday that the first half looks dry, but storms may move in by the weekend.
    
“I’ll be looking to see if there is rain causing harvest delays, which I think is going to be important for the basis levels,” Anne Frick, an oilseed analyst with Prudential Bache Commodities said, referring to cash market bids by processors and exporters struggling with a 32-year low in U.S. soy stocks. “The question now is getting the crop into usage channels,” Frick said. “Rainfall is the key factor to watch for (this) week.” 
   
U.S. cash markets — always volatile before the harvest replenishes stockpiles — reacted violently to harvest delays  on Friday, as cash basis bids shot up as much as 55 cents at key Midwest soybean processing plants.
    
The corn market, which has nothing like the current supply tightness in soybeans, is still on a hair-trigger due to fears of a killing frost and weather delays or damage at harvest.   Last week, corn looked set for a test of contract lows near $3 a bushel as price charts appeared weak. But prices shot up on Tuesday with a frost threat and that nervousness remains. 
   
Also in the spotlight this week will be USDA’s quarterly grain stocks report and annual small-grains summary on Wednesday, which will include USDA’s 2009 wheat harvest data. On average, analysts expect the Sept. 1 stocks report to show bigger corn and wheat supplies than a year go amid a slowdown in demand while soy stocks remain extremely tight.
   
“Typically the stocks report isn’t a big mover or shaker,” said Don Roose, an analyst with U.S. Commodities in West Des Moines, Iowa. “More important is going to be that October report because we usually have an adjustment on acres for corn and beans.” 
 
Last week, the benchmark CBOT November soybean contract <SX9> fell 1.5 percent to $9.26 a bushel. December CBOT corn <CZ9> ended 5 percent higher at $3.34 while December CBOT wheat <WZ9> fell 1.5 percent to $4.49-3/4.
Photo: Northern Illinois soybean field taken Sept. 19 by Christine Stebbins

U.S. grain markets look poised for a week of consolidation with a bias toward moving lower in corn and wheat after a weak futures close last Friday and a decent crop weather forecast for the Midwest. 
   
Prices could get a bump if a near-term threat of a crop-killing frost materializes. 
    
“Despite the volatility in the weather forecast, the evidence seems to be building that we are going to get frost-free growing weather into early October,” said Rich Feltes, senior vice president of MF Global Research. 
   
That view fed selling on Friday in corn, the biggest U.S. grain crop, with confidence growing that corn yields could be unprecedented. The U.S. Department of Agriculture on Sept. 11, forecast U.S. corn yields would average a record 161.9 bushels per acre. That equates to a 12.954-billion-bushel corn crop, nearing the record high of 13.1 billion harvested in 2007. 
   
Since the USDA forecast, warm, sunny days have given late-maturing crops time to ripen and build yields. Based on the USDA’s last weekly crop update on Sept. 14, up to 20 percent of U.S. row crops were seen still at risk of being damaged by a freeze. Chicago grain prices surged after that update and when a freeze was also forecast for last week.
    
But by Friday, the markets had calmed as the weather forecasting models backed off the freeze threat and sentiment on the Chicago Board of Trade floor returned to ideas of an average U.S. corn yield as high as 165 bushels per acre. 
  
If some of the lagging states like Illinois, Indiana and North Dakota make it without a frost over the next two weeks, analysts said, yields could grow another two to three bushels an acre. That would relieve any remaining worries about shortages of corn for ethanol producers, livestock producers or exporters for the next year or so. 
   
CBOT corn futures for December delivery fell below a key chart support level of $3.20 late Friday, setting a bearish tone for the week ahead. 
   
“We really thought it was going to hold $3.20. The market has factored in absolutely zero freeze,” one CBOT broker said. 
   
Traders were now eyeing $3 as key support in December corn. The life-of-contract low is $3.02 and that level could be breached if the heartland has another week of warm weather. 
   
CORN, WHEAT MORE VULNERABLE THAN SOY 
“My mode is to still sell rallies in corn and wheat, whereas soybeans … the big unknown here is whether or not the U.S. farmer is going to give us the quantity of beans that we need to meet this record fall export demand program,” Feltes said.
    
A weak dollar, which hit the lowest level in a year versus the euro on Friday, kept export demand for U.S. soybeans strong. U.S. export bookings for the marketing year that began Sept. 1, reached 17.6 million tonnes as of Sept. 10 — almost double last year’s pace of 9.6 million. China, the top U.S. customer, has bought 10.8 million tonnes, more than double its total for the same period a year ago.   China remained active last week, booking another five cargoes of soybeans, or 303,000 tonnes.
    
As if to underscore China’s needs — and muscle — that interest came despite a trade dispute between China and the United States that erupted this month after U.S. President Barack Obama slapped a tariff on tire imports from China. 
   
Additionally, traders cited supply concerns with U.S. stockpiles at a 32-year low before harvest. There were rising concerns about delays to soy harvest in the Mississippi Delta area. Rains have been relentless over the past 10 days. Greenville, Mississippi, received nearly 7 inches of rain since Sept. 8, more than 5 inches more than normal for the period, said Mike Palmerino, an agricultural meteorologist with DTN Meteorlogix said Friday.
    
For the week, the benchmark CBOT November soybean contract <SX9> rose 4 percent to $9.41 a bushel. December corn was basically unchanged, ending at $3.18, while December wheat <WZ9> fell 2 percent to $4.57-1/4 per bushel.
PHOTO: Active U.S. harvest nears as soybeans turn golden. Illnois soybean field near the Wisconsin border taken Sept. 19 by Christine Stebbins

The trend in U.S. grain markets in coming days will be dominated by the advancing harvests of what the government estimated on Friday will be a record-large soybean crop and a near-record corn crop. Those billions of bushels will keep a restraining weight on any strong rallies for now, analysts say.
    
But prices have also already factored in a lot of the new supplies — grain that comes as a relief for world consumers — and markets may keep largely within recent ranges unless there is a big change in the weather for the Midwest crop belt. So far, September in the U.S. Corn Belt has featured warm, sunny days — perfect for ripening corn and soy. But both are still about two to three weeks behind normal due to a cool, wet spring and summer and remain vulnerable to a September freeze.
    
“Any indication that the longer-term maps are clear of any freezing temperatures or show a switch to freezing temperatures” will drive prices down or up this month, said Brian Basting with Advance Trading, a Bloomington, Illinois, brokerage and farm advisory service.
    
The latest forecasts look mostly clear for the belt through midweek with balmy temperatures with highs from the mid 70s to low 80s-degrees Fahrenheit — ideal “finishing” weather for row crops from Ohio to Nebraska.
    
“The threat of any damaging cold weather continues to be pushed further and further away. It looks less and less likely for any damaging freeze in September,” DTN Meteorlogix agricultural meteorologist Mike Palmerino said on Friday.
    
Good weather usually makes big crops bigger, traders say. In its latest crop report on Friday, the U.S. Department of Agriculture agreed. It raised its forecast for the American corn crop to 12.954 billion bushels, the second-largest in history, and with an average yield of 161.9 bu/acre — a record high. USDA also put the soybean crop at a record high 3.245 billion bushels, reflecting an average yield of 42.3 bu/acre. But after those numbers the grain trade is now thinking the yield could get even bigger — corn to 165 bu/acre and beans perhaps to 44 bu/acre — provided there is no early frost.
    
SPREADS TO ADJUST? As much as the bin-busting harvests in the offing weigh on prices, the market structure of the Chicago Board of Trade grains will also play into coming price moves. September futures contracts expire at midday on Monday, Sept. 14. Over the summer months, commodity funds built up a hefty net long position in soybeans given demand for U.S. soybeans by China that has shrunk supplies to the lowest level in 32 years. By contrast, funds sold wheat and corn during the summer on the outlook for ample U.S. and global supplies for both. 
    
On Friday, U.S. soybean futures fell nearly 3 percent and the benchmark November contract — the main harvest delivery — at the Chicago Board of Trade dipped below $9 a bushel for the first time since July as USDA confirmed the record crop. The benchmark November soybean contract settled down 23-1/2 cents at $9.03 per bushel.
    
“The crop size does look good. It’s a record high and we’re looking at an increasing carry-over,” said Anne Frick, an oilseed analyst with Prudential Bache Commodities. “I still think there are a few things around the edges though that are bullish in addition to the obviously very strong exports. USDA is pretty much estimating that South America will use up all of its soybeans … and they dropped their crop estimate for China.”
    
CBOT corn turned higher late Friday, rebounding from an oversold condition. A drop in USDA’s forecasts for China’s corn crop and end-season stocks next year spurred speculators. Corn for December delivery ended up 4-1/2 cents at $3.19-3/4.
    
Wheat prices bounced on Friday after the front CBOT wheat contract fell to its lowest level since April 2007 — pressured by a global supply glut. September wheat settled up 9 cents at $4.41-3/4 after touching a contract low at $4.25-1/4.

PHOTO: Iowa soybean field taken in late August by Christine Stebbins. Active soy harvest in the heart of the U.S. crop belt is still weeks away, crop specialists say.

Hog markets are depressed. Farmers struggle to put food on the table. Hard times are seeping into the rural economy, hurting owners of grocery and hardware stores.

Blame the media, said Agriculture Secretary Tom Vilsack, unleashing several lengthy rants about the evils of oversimplification during a 25-minute teleconference with reporters on Thursday.

Vilsack scolded the media for continuing to call the new strain of pandemic H1N1 flu by its more common name: swine flu.

“It is not swine flu,” Vilsack thundered. “Every time that is said, consumers get confused. Schools that are considering purchases for school lunch and school breakfast programs get confused, get worried.”

Vilsack implied that pork consumption is down because people worry they can catch swine flu — whoops, H1N1 — from eating pork. (You can’t.) Instead of stressing safety of pork, or sharing details about how the USDA plans to keep watch for the flu-that-shall-not-be-named in hogs, Vilsack dressed down reporters for harming farmers.

“I know this may seem difficult for people, or silly, unless you’re the pork producer, unless you’re out there trying to make a living and take care of your family,” said Vilsack, heading straight over the top.

“And you pick up the paper, you turn on the radio, you turn on the television, and you see this thing mischaracterized, and then you try to go to the market and sell your pork, and you get less than what you’re spending to produce it. And so you’ve got to tell your family you’ve got to do without.”

Now, we wouldn’t want to oversimplify the issue. Ripped from Reuters’ headlines, here are some facts about That Flu and hog markets.

* The virus is a mixture of two swine viruses, one of which also contains genetic material from birds and humans.
* Scientists believe the virus was circulating undetected for years, most likely in hogs, before it jumped to humans.
* The H1N1 virus has not yet been found in U.S. hogs.
* Swine flu viruses are not tracked like other livestock diseases because they are rarely fatal and because humans can’t catch them from eating pork.
* U.S. pork was banned in many overseas markets after the virus turned up in humans.
* All those markets have since reopened, except for China.
* U.S. hog producers have been losing money for almost two years because of high feed costs and the impact of the recession, which has hurt demand.
* Concerns about “swine flu” have not helped matters.
* Hog producers have urged the government to buy more pork for feeding programs than the USDA has thus far committed.

Photo credit: REUTERS/Thomas Mukoya (U.S. Secretary of Agriculture Tom Vilsack visits a corn plantation at Muguga in the outskirts of the Kenya’s capital Nairobi, August 4, 2009.)

The Muslim holy month of Ramadan has disrupted one of the wackier tasks for OPEC reporters: running around Vienna’s beautiful inner ring road with Saudi Arabia’s Oil Minister Ali al-Naimi, who likes to keep himself and the press corp fit. He often uses the 45 minute walk-cum-jog to give media a background briefing of his view on the oil market as he and the bizarre group of security, aides and reporters trot past the city’s stunning palaces and bemused Viennese on their way to work (or home from a night’s revelling).

(Photo: al-Naimi with journalists in Cairo, 28 Nov 2008/Amr Dalsh)

The daylight fast for Muslim delegates and ministers means that most meetings are taking place late at night, making an early morning run less practical. Naimi ran on Tuesday afternoon, accompanied only by security. He didn’t go at all on Wednesday morning, much to the chagrin of the reporters on the early shift. The run is sometimes the only chance for media to get Naimi’s insight. It is a blessing and a curse for reporters on the beat, who have to be up at the crack of dawn to take part but are often rewarded with the biggest oil story of the day. Maybe Naimi figures this time there’s no need for a background briefing. With the oil price where it is, he seems relaxed enough to put it all on the record.

As the oil price raced towards its all-time high of nearly $150 hit in July last year, OPEC ministers were fast to blame speculators and back calls for regulation.
But like all the best politicians, they have the pragmatic right to change their tune when circumstances change.
And now U.S. authorities are spearheading the campaign for stricter rules, they don’t seem quite so sure regulation would be a good thing.
Algeria’s Energy and Mines Minister Chakib Khelil didn’t say so in so many words, but his elegant comments on the oil market’s new-found ability to carry on rising in defiance of high inventory levels implied he’d rather the regulators did not bring an abrupt end to the trend.
“If it is a correlation that reflects the new paradigm in the market, then it’s not a major concern, unless you have more control of the financial investors that do speculation,” he told Reuters.
A certain amount of speculation, it would seem, is a good thing.

They keep telling us that the recession is over so maybe now's the time to start worrying about inflation. That's the view many wealthy investors are already taking, reasoning that a little bit of the yellow shiny stuff will provide some comfort as we start piling our cash into wheelbarrows to do the weekly groceries shop.

It is gold exchange traded commodities (ETCs) that have seen the biggest investor inflows this year so perhaps it's not surprising that the gold price broke through $1,000 an ounce this week.

"Investors are concerned about sovereign risk, quantitative easing, government deficits and the outlook for the US dollar," said Nicholas Brooks, head of research and investment strategy at ETF Securities, at a Dow Jones Indexes commodities briefing on Tuesday. "They are using gold as an insurance policy."

Physically-backed gold ETC holdings are now 8 million ounces, up 33 percent versus end-2008 levels, he said. Gold inflows have been relatively steady, even when the price has corrected, with the biggest flows coming not when Lehman went bust, but when the scale of US quantitative easing and the fiscal cost of the financial bailout became apparent. This supports the view that gold is being used as a hedge against sovereign and inflation risk, Brooks said.

Billionaire hedge fund manager John Paulson has been building up a large exposure to gold this year, seemingly as part of an inflation hedge.

John Reade, head of markets strategy at UBS Investment Bank, also confirmed that UBS clients were showing an interest in assets that would provide inflation protection. "You don't need high inflation for gold to perform well - you only need an increase in the number of people who expect inflation to rise."

Over the last 30 years the returns from gold have been reasonable but not great, with high volatility, he said. But in an environment where the US dollar is weakening, the Fed Funds rate is rising and inflation is rising, gold can be expected to perform, with returns of over 40 percent per annum if CPI increases. This suggests that an investor's tactical allocation to gold should rise in the coming months, Reade said.

He forecast an average gold price of $1,050 an ounce for 2010, pointing out that gold remains very lightly owned by most institutional investors. This was not consistent with inflationary or US dollar weakness scenarios, he said.

The big question ahead of the expected arrival in Vienna of the new Iranian oil minister is which door will he use?
Iran’s oil ministers have had a long history of sneaking into the city’s Intercontinental Hotel through the garage, theoretically to avoid the awaiting press.
In practice, journalists are always camped out in the basement, inhaling the fumes of limousines and honing questions to put to OPEC’s second biggest producer.
They also make their way up to the hotel’s executive floors, where the ministers tend to stay, as well as lurking in the lobby, where most officials make their entrance ahead of meetings of the Organization of the Petroleum Exporting Countries.
The new Iranian Oil Minister Massoud Mirkazemi, formerly the country’s commerce minister and regarded as close to the president, could of course decide to say nothing at all regardless of how he gets into his hotel and how many reporters greet him.