Commodity Corner

Views on commodities and energy

from Summit Notebook:

OPEC’s special relationship with the U.S.

The United States may fondly dream of independence from imported oil, but it would do well to remember that the traffic is not one way.
OPEC Secretary General Abdullah al-Badri told the Reuters Global Energy Summit he had been hearing for years that the world's biggest oil consumer was seeking ways to avoid importing OPEC oil, but he was confident it would carry on burning fossil fuel for years to come.
"I am of an age when I can tell you I have been hearing this for the last 40 years," Badri said. "We will see another president, with two terms, before we see any change."
He also warned the U.S. it should be careful what it wished for.
"We would like to tell them they buy most of the resources of our member countries. We are sending them back more than 50 percent of that income to OECD countries, and the U.S. is one of them, to buy medicine, equipment, aeroplanes, spare parts, clothes."
"Don't forget the medicine," he added.

Countdown for U.S. corn; How many will be switched to soy?

It’s crunch time for corn.

Grain traders are anxiously waiting USDA’s weekly crop progress report late Monday as it will tell the story of how U.S. corn was planted this season.

As of May 24, American farmers still had 15 million corn acres of a projected 85 million yet to plant as heavy spring rains in the eastern Corn Belt delayed planting by at least 10 days to two weeks in many areas. Midwest acres seeded after mid-May usually lose more than a bushel a day on yield.

Time … the great healer of oil over-supply

Oil is a multi-billion dollar, multi-million barrel serious business.
But OPEC ministers hounded by a ravening press pack can be masters of jocularity when the mood takes them.
The relaxed tenor of this week’s OPEC meeting, which could cheerfully roll over existing output targets given the market was intent on rising whatever, was reflected in a high quota of light-hearted brush-offs.
Libya’s Shokri Ghanem, renowned for his impishness, told one reporter he was going “to have a cup of coffee” when asked on the day of the meeting what his agenda was.
It wasn’t quite the “keep output steady” the reporter had been after.
Questioned about the oil price, Nigerian Oil Minister Rilwanu Lukman said: “Could be better, but I can’t complain.” He could just as easily have been talking about the weather or his state of health.
The most senior minister of them all Saudi Arabian Oil Minister Ali al-Naimi was in particularly sporting mood as he sped through Viennese hotel lobbies, jogged around the Vienna Ring and declared all was right with the world.
“The price is good, the market is in good shape, recovery is under way. What else could we want?”
As the oil price climbed above $65 a barrel, its highest for more than six months, sceptical reporters asked whether the rally could be sustainable when oil inventories were still very high. But Naimi was confident the great healer would take care of excess supply. “Time takes care of everything,” he said and no-one could disagree.

from Tom Bergin:

Exxon envy?

  A cynic might say they had seen it all before: New CEO of a big oil company, which is under pressure from shareholders, announces a wide-ranging restructuring that will make the company look like the much-admired industry leader.

 

Tony Hayward did it at BP in 2007 and Peter Voser, due to step up to the top job at Royal Dutch Shell Plc on July 1, did it on Wednesday.

Why did Angola join a club that would have it?

OPEC’s president Angola might well be asking himself why he is paying nearly 2 million euros to belong to the oil producers’ club when the World Bank has told the nation it would be better off without it.
The Angolan energy minister, who currently holds the group’s rotating presidency, has yet to arrive in Vienna for this Thursday’s meeting of the Organization of the Petroleum Exporting Countries, which is expected to keep existing output targets unchanged.
Member countries have already agreed to lower production by 4.2 million barrels per day since last September and have been delivering around 80 percent of the promised curbs.
Now the oil price has climbed back above $60 a barrel, almost double the lows of last December, members like Angola might well sigh with relief and pump even more above their OPEC output target than they are already doing.
Last week, the World Bank said Angola’s economy would perform far better this year if the country did not limit production, as OPEC has requested, and that wasn’t taking account of the OPEC membership fee, which is heard to be the same for all members, whether they are the smallest producer Ecuador or the biggest Saudi Arabia.
Oil ministers might have saved a night or two on hotel accommodation, however, as several were expected to arrive later than originally stated and also to disappear immediately after Thursday’s meeting.
Delegates predicted it would be short and to the point, provided Angola and others unhappy with output targets did not open a Pandora’s Box of a debate on production goals.
The controls are aimed at supporting oil prices as the market is already well-supplied, but some argue a better way to boost OPEC earnings would have been to call the meeting off.
It would not be good business for Vienna hotels or struggling airlines, but it would cut the expenses and carbon emissions of the OPEC delegations and the pursuing press pack, as one weary analyst observed.
“We are forced to mention that there is an OPEC meeting this Thursday in Vienna, although there is so little to expect out of it that OPEC could have made a gesture to save its and the media’s carbon footprint by calling it off,” said Olivier Jakob of Petromatrix.

Grain markets flashing warning signs

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Another food price spike could be on the horizon, analysts told Reuters. 
 
Consider these factors:
* Grain prices, led by soybeans, have been up since March. 
* South America’s crop is expected to be a disappointment. Crops in both Brazil and Argentina have a poor outlook. In fact, the U.S. Agriculture Department steadily lowered its forecast for Argentina’s soybean crop throughout the year.

argentinasoybeans3

* Many will be looking to the United States to come through with a big crop. But U.S. soybean stocks began the 2009/10 marketing year at a five year low. That means there’s not a lot of surplus to keep prices level if there’s any type of disruption in supply or weather calamity.

from MacroScope:

Gold to go

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Automatic teller machines (ATMs) -- 500 of them -- dispensing pieces of gold will be available around Germany, Switzerland and Austria by the end of this year.

That at least is the plan of German precious metals online trading company TG-Gold-Super-Markt.de. The ATMs, to be located at airports, railway stations and shopping malls, are intended to accustom ordinary people to the idea of investing in a physical asset such as gold, the thinking goes.
 
Thomas Geissler, the company's chief executive, said the gold ATMs might even improve relations between the sexes.
 
"I have yet to meet a woman who does not like a gift of gold. It's better than flowers. Flowers are more expensive. They wilt and you (as a man) don't get as many points at home as if you bring gold," he said.
 
A prototype ATM on display for a one-day marketing test at the main railway station in Frankfurt, Germany's financial capital, did indeed reward your correspondent with a 1-gramme (0.0353 ounce) piece of gold.
 
It cost the equivalent of $42.25 -- a 30 percent premium over the spot market price.

The Tale of Two Corn Belts

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illinois-field-may-2009The U.S. crop planting gap between states east and west of the Mississippi River grew last week, with the east far behind, plagued by cloudy skies, chilly temperatures and several inches of rain in some spots. 
     
The U.S. Agriculture Department reported late Monday that 48 percent of the corn crop was in the ground on Sunday, lagging the normal pace of 71 percent by the second week in May. Soybean planting was also slow — 14 percent seeded, versus the typical pace of 25 percent by now. 
     
But soybeans can be planted into June, with only limited yield drag. That is not the case with corn as farmers have just another two weeks to plant corn without suffering too greatly on yields. 
 
“This year is truly the year of the east versus the west,” said Don Roose, analyst with U.S. Commodities in West Des Moines, Iowa.  “Late planted years struggle with yield. Late planted years tend to have acreage switches” intended corn acres to soybeans. 
 
East of the Mississippi River, big producers like Illinois and Indiana have a mere 10 to 11 percent of their corn seeded while states west of the river were nearly done. Farmers in the top corn-soy state of Iowa have 81 percent of their corn planted. 
     
The three “I” states grow about 40 percent of the total U.S. corn crop. 
     
The weather forecast does not offer much consolation to farmers in Illinois, Indiana, Ohio and Missouri — all struggling with heavy rains. Off-and-on rains will move across the Corn Belt all week. 
     
“It is looking like a very wet week coming up — not enough periods of drier, warmer weather to allow farmers to get out there and plant this crop, especially in the eastern belt,” DTN Meteorlogix forecast Mike Palmerino said. 
 
The National Weather Service has issued flood warnings along the Mississippi, Ohio, Wabash and White Rivers.
Photo: Northern Illinois field taken May 10 by Chris Stebbins. Illinois corn and soybean planting is lagging historical averages due to a wet, cool spring.

Correlation Between Oil and Equities Markets

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oil-vs-stock-market

Oil prices have been trading in an unusually strong positive correlation with equities markets over the past few months on hopes that signs of an economic recovery could mean a boost for energy demand.

But with oil and product inventories swelling and little sign of demand improving in the United States and other big developed economies, analysts warn that the linkage may be hard to maintain, especially if U.S. motorists cut back on vacations this summer.

Market volatility seen heating up in Chicago grains

Chicago Board of Trade grain markets probably will run into more volatility this week as traders stay on edge about Chinese soy demand, U.S. Midwest weather and new capital flowing into commodities.
    
CBOT grains surged the past week as key chart points were breached, sparking an inflow of managed money that has been looking for a home into ag commodities. 
    
“We’ve had some fairly big trading ranges this week — and we are not really into the battle in terms of the growing season,” Rich Feltes, senior vice president at MF Global Research said on Friday. “I think it’s a precursor that we are going to have a very active and volatile trading summer this year.” 
    
Soybeans were the biggest gainer, rising to a seven-month peak of $11.03-1/2 a bushel in the May delivery <SK9> on Friday, and up 6 percent for the week. Corn rose nearly 8 percent from the previous week, ending at $4.06-1/4 in the May contract <CK9>. The biggest surprise was wheat — hitting a three-week top — closing 4.7 percent higher on the week at $5.57-1/4 in May <WK9> — despite poor demand for pricey U.S. wheat. 
   
China’s appetite for U.S. soybeans is drawing down stocks to a projected five-year low of 165 million bushels by the end of marketing season on Aug. 31. Any sign that China is an active soy buyer in the coming week could ignite the market. 
    
“They (exporters) only need to sell about 62,000 tonnes of beans a week to meet the U.S. export goal,” Feltes said, referring to the government’s current forecast of 32.9 million tonnes. 
    
By comparison, export sales over the past four weeks averaged about 673,000 tonnes per week. 
    
The talk among analysts is that USDA this month will trim its end-season stocks forecast to as low as 110 million bushels, to reflect the hot export demand. That speculation will step up this week ahead of USDA’s May 12 crop report. 
    
The shrinking supply drove the price of old-crop July soybeans <SN9> to $1.20 premium over new-crop November beans <SX9> by Friday’s close — snapping back that spread from 83 cents on Tuesday. 
   
Weather concerns also remain in the forefront. Corn planting in the United States, the world’s largest grain exporter, is running about a week behind normal as Midwest rains have saturated fields, delaying farmer progress. 
    
The U.S. Department of Agriculture will issue its crop progress report late Monday, with traders expecting the agency to report corn seedings about 35 percent complete, versus the 55 percent to 60 percent average by early May. 
   
“The dominant issue is going to be the weather. You have to bank that the weather clears out sometime (this) week,” said Don Roose, an analyst with U.S. Commodities. 
   
Friday’s forecasts looked drier for the upper Midwest for the next four to five days, but little relief was expected for the southern areas of Illinois, Indiana and Ohio. The northern Plains spring wheat is also turning drier — an area that has had much difficulty getting started planting. 
   
Farmers like to get spring wheat and corn seeded by mid-May so crops reach their maximum yield potential. After that farmers could switch their intended-corn or wheat acres to soybeans, a later planted crop. 
   
Aside from Midwest weather and soy export news, movements in the equities, dollar and crude oil will be monitored as a sign of the health of the global economy. 
   
The latest wild card is the global flu outbreak that may impact demand for commodities. Over the weekend H1N1 flu was found in a Canadian pig herd.
 
“If it intensifies, we’ll have to react … right now we are watching it but there’s not a panic attitude,” one CBOT trader said on Friday.