Commodity Corner

Views on commodities and energy

Rising Estimates of U.S. Shale Reserves May Cap Natural Gas Prices

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Locations of shale basins not geographically precise. E.g. Haynesville basin is located on the north Louisiana/east Texas border. Figures in trillion cubic feet. Source: The Federal Energy Regulatory Commission website, derived from the American Clean Skies Foundation.

Rising estimates of U.S. recoverable natural gas reserves from shale deposits could keep natural gas prices low over the next few years. The above map shows the sharp increase in recoverabe reserves from select shale basin in trillion cubic feet from 2006 to 2008.

Recent advances in horizonal drilling and rock fracturing techniques have made shale gas — traditionally quite costly to develop — more viable and help boost reserve estimates. — Joe Silha

from Global Investing:

Gold offers double-edged shine

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It was Goldman Sachs who famously predicted oil prices to reach $200 a barrel last year, but there are a school of bullish investors who forecast a substantial rally in gold.

Take Gold and Energy Advisor, which predicts gold will soon reach $2,500 an ounce (from today's $895) then to $5,000. The Florida-based firm argues that gold is the only asset class that’s not only private (as opposed to state-owned), but also liquid, portable, fungible, divisible, and valuable enough that a small amount can store a massive amount of wealth.

Weather clouds U.S. planting outlook

The heart of the U.S. grain belt is entering its prime planting time, but Mother Nature is casting a shadow that is making farmers and markets nervous.
    
Cool, wet conditions are limiting fieldwork and delaying seeding, raising potential for a switching of crops and for frost damage to yields before harvest. Both concerns will be key market drivers for grains in the coming week. 
    
“It’s the weather and how much or how little planting was completed — that’s going to be our focus short term,” said analyst Shawn McCambridge with Prudential Bache Commodities. 
    
Several spots across the Midwest got a break from rains late last week and over the weekend, giving farmers a window to plant. But weekend rains in the western Corn Belt, which could move eastward early this week, may stall planting again. 
    
Seeding of corn, the biggest U.S. crop, is running about five days behind normal, the U.S. Department of Agriculture  said last week. Corn is planted before soybeans and delays can cause switching during the spring, a closely watched supply factor. 
    
USDA updates seeding progress late each Monday afternoon, with grain traders expecting 15 percent to 20 percent of U.S. corn to be seeded as of Sunday. They also expect 3 percent of U.S. soybean acreage to have been seeded. 
    
Any big divergence from those expectations will likely rattle Chicago Board of Trade grain markets on Tuesday. 
    
The northern Plains spring wheat belt is also wet, a worry that underpinned U.S. wheat prices last week. Spring wheat, grown mostly in the Dakotas and western Minnesota and a key protein blend for flour millers, may be reported at only about 20 percent planted. That would lag the usual pace of 35 percent by late April. 
   
“It’s looking like May weather is going to dictate how much corn is going to get planted versus beans. If it stays wet there is the potential for the shifting of corn into beans,” said Mike Palmerino, a forecaster at DTN Meteorlogix. 
   
The ideal planting time for corn in the Midwest is now through mid-May. As a rule of thumb, corn yields can drop 1.5 bushels per acre, per day for every day fields are not planted by May 15. That is the incentive for switching corn acres into soybeans, which has a shorter growing season. But farmers, who have booked expensive corn fertilizers, do not like to switch. 

PRICE SPREAD TO TRACK EXPECTATIONS 
Still, farmer psychology will continue to be reflected in the play between Chicago Board of Trade November soybean futures <SX9> and December corn <CZ9>, the key current spread trade for the coming harvest supplies this fall. 
   
If it keeps raining, then December corn will gain on November soy; if it turns dry, corn will lose to beans. Last Friday’s market action illustrated the sensitivity to weather. 
   
CBOT December corn closed 4-3/4 cents lower at $4.06-3/4 a bushel, while November soy closed 9-3/4 higher at $9.33-1/4. The reason? Cropcast, a respected weather service, forecast below-normal rains and above-normal temperatures for May 8-23. 

Are Pop Rocks to blame for global warming

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poprocksJust how far is the U.S. government willing to go to cut carbon dioxide emissions and other greenhouse gases blamed for global warming.

Eric Wegner, whose company is the largest Internet distributor of the iconic Pop Rocks candy, hopes the government doesn’t have too much of a sweet tooth.

New transportation ethos overcoming city dwellers

4zipcarstoryNot interested in the humdrum appeal of driving the same car everyday, more city dwellers revel in the ability to be practical in a Honda Civic one day, conquer the road in a Ford Escape SUV the next and end the week sporting around in a Mini Cooper Convertible. How? Through car sharing. 
    
Gas price spikes and a shaky economy are driving more Americans in urban areas to forgo car ownership for car sharing, said the head of Zipcar.
    
Zipcar, the world’s largest provider of cars by the hour or day, saw it’s membership soar 50.3 percent in the past 12 months.
    
Scott Griffith, Zipcar’s chief executive, told Reuters that he’s seeing a significant change in people’s behavior when it comes to car use.
    
“In the past, about 40 percent of our membership base either sold a car or chose not to buy a car because of our service,” Griffith said. “More recently in the last 12 months that number has gone to over 60 percent.”
    
The economic downturn is adding to the popularity of car sharing as the credit crunch makes it more difficult to get car loans and some are forced to sell their car for the cash or to avoid defaulting on their payments. 

Griffith said Zipcar members are also looking to other modes of transportation.
    
He said people take 46 percent more public transit trips, 26 percent more walking trips and about 10 percent more bicycling trips after joining Zipcar.
    
“That significant increase in other ways of getting around town sort of combines with Zipcar to show an overall decrease in vehicle miles traveled,” Griffith said.
    
“They drive a lot less, more than 50 percent less in total miles annually,” he added.
    
Zipcar operates in the United States, Canada and London. A merger with Flexcar in 2007 made the company the largest car share company in the world.
    
But car rental company Hertz Inc plans to bring some competition as it opens Connect by Hertz, a car sharing unit available in London, Paris, New York and expanding to more locations in the United States.
    
photo_sm_zipcar_mini_1Zipcar maintains it sets itself apart from other car rental companies by offering “fun” cars like the Mini Cooper and convenient pickup locations and by trying to build a sense of community among its members, Griffith said.
    
“We want you to drive the car you would aspire to own. We want you to be proud of using car sharing,” he said.
    
Griffith said that 19 percent of car owners’ incomes go to transportation costs, while Zipcar could bring that figure down to 3 or 4 percent if they get rid of their car.
    
Griffith wants people to look at Zipcar as a replacement for car ownership.
    
People want the freedom to pick up and go whenever they like and car sharing offers them access to this freedom, he said, without needing to own a vehicle.

China’s soybean appetite key to CBOT grain prices

China’s seemingly unquenchable desire for soybeans coupled with a smaller South American soy crop than a year ago keeps traders focused on Chicago soy markets, asking: how high could they go? 
Chicago Board of Trade soybean futures rallied to a six-month top of $10.73 on Friday, surpassing its 200-day moving average, before profit-taking set in. Soy closed 7-1/2 cents lower at $10.51, but up 4 percent on the week. Corn declined 3.6 percent week-to-week to end at $3.76-1/4 and wheat was basically unchanged at $5.23. 
   
“The link pin on the bullish side of this grain market continues to be the soybeans. We are going to watch the demand underneath this market — as we have moved up in price, we have not rationed demand,” said Don Roose, analyst and president of U.S. Commodities in West Des Moines, Iowa. 
    
U.S. export sales are running nearly 8 percent ahead of last season, trumping USDA’s outlook this autumn that 2008/09 exports would lag the previous year. Chatter among U.S. grain traders last week was that China, the world’s top soy buyer, booked up to a million tonnes of soy from the U.S. and Brazil, the world’s top two exporters. 
    
Traders are wary of China “switching” U.S. soy bookings to Brazil, as more freshly harvested soybeans move into marketing channels, or even withdrawing its business. Any signs of that would undoubtedly weigh on prices. But U.S. soybean landed prices to China were the cheapest in the world last week, analysts said. Brazilian cash markets were red hot amid active Chinese buying. 
    
Argentina, the third-largest exporter, has been edged out of the equation for now. Recent unrest between farmers and the government over a soy export tax, halting trade at times, and a crop hurt by severe drought makes China a reluctant buyer of Argentine soy. 
    
China’s stockpiling, coupled with a short South American crop, is expected to draw down U.S. soy stocks by the end of marketing season on Aug. 31, to 165 million bushels — a mere 20-day supply and a five-year low. The tight stock outlook pushed old-crop July soybeans <SN9> to more than $1 above new-crop November soy <SX9> by Friday, up 80 cents from the prior week. 
   
“Beyond here, seasonally it starts to come apart,” one CBOT trader said, referring to the July/November spread. “We are not going to see the $2.50-$2.60 levels we saw back in 2004 when we had extremely tight stocks” of 112 million bushels. 
   
U.S. CORN PLANTING PACE TO PICK UP 
The sixth-consecutive weekly gain on Wall Street stocks, capping the longest weekly winning streak since 2007, aided sentiment. But the seasonal fundamentals of the U.S. planting season will likely be a bigger price driver this week. 
    
U.S. corn planting is off to a slow start due to a cool, wet spring, but the outlook was improving and viewed as bearish for CBOT corn prices. USDA will update is seeding figures late Monday. Traders expected the agency to report corn planting 5 percent to 7 percent complete. That is up from 2 percent a week ago, but behind the five-year average near 15 percent to 20 percent by April 19. 
   
Farmers were busy applying fertilizer and planting corn in the top crop state of Iowa on Friday, crop specialists said. Most of the activity was from Des Moines northward to the Iowa-Minnesota border. Rain was expected to move through the Midwest over the weekend but then it should turn clear.
    
“We are going to see how much rain we get Saturday and next week we are going to run 24/7,” said Palle Pedersen, extension agronomist at Iowa State University.

from Felix Salmon:

Toxic asset datapoint of the day, Lehman edition

We knew there was a lot of nuclear waste on Lehman's balance sheet. But we didn't know that was literally true:

Lehman Brothers Holdings Inc. is sitting on enough uranium cake to make a nuclear bomb as it waits for prices of the commodity to rebound, according to traders and nuclear experts.

U.S. weather moving into the spotlight for grains trade

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northern-iowa-field-20091A cool, wet spring across the heart of the U.S. crop belt is making Chicago Board of Trade grain traders nervous about the upcoming planting season, keeping them focused on the latest weather outlook.
    
Farmers are already behind on fieldwork after rains last autumn prevented them from applying fertilizer to intended corn fields, usually a favorite jump on the spring planting season. 
“The only thing on the radar right now is weather. In a three-day time period there is enough to flip weather models around considerably,” said Greg Wagner, senior commodity analyst for AgResource, a Chicago-based consultancy firm. 
    
CBOT will be closed for Good Friday for the Easter holiday break but reopen on Sunday night for screen trading. 
    
Trade could be active and volatile then, as usual on a 3-day weekend during planting or harvest in the United States, the biggest single world exporter of wheat, corn and soybeans. 
   
On Friday, CBOT grain were hit by profit-taking ahead of the long break. But front-month soybeans still posted their first weekly close above $10 a bushel since February 8. 
   
May soybeans <SK9> closed 1 percent higher on the week at $10.07 while May corn <CK9> fell 4 percent to $3.90-1/4 and May delivery wheat <WK9> dropped 7 percent to $5.22. 
    
The fifth consecutive weekly gain on Wall Street stocks aided sentiment. Optimism about the struggling banking sector came after Wells Fargo <WFC.N> forecast a record quarterly profit and fed ideas that the credit crunch — which has hit grains like all commodities — may ease a bit and feed demand. 
   
“The background factors of what the equity markets are doing, the psychology around the possibly of recovery — is having a big impact on our markets too,” said senior oilseed analyst Anne Frick. 
   
But the seasonal fundamentals of the U.S. planting season — how many acres will go to which crop — remain the key. 
   
CORN PLANTING COMES FIRST, THEN SOYBEANS 
More than half the U.S. wheat crop is “winter” wheat, seeded in the autumn and then reviving to be harvested by July. But the bulk of cash crops — the 160 million or so acres of corn and soybeans — start getting seeded in April. 
   
Roughly 5 to 7 percent of the U.S. corn crop is planted by mid-April in a normal year. Corn not in the ground by May 20 in Iowa and Illinois usually tends to lose yield potential from a shortened growing season always facing threat of early frost in September, when the crop is normally “finishing.” 
   
The U.S. Agriculture Department has yet to report any corn planting progress as too few acres have been seeded. USDA is also unlikely to report any in its weekly update on Monday
    
“We are focusing on weather. As we start to see the forecast going beyond the middle of April — we are going to concentrate very closely on much field progress we can get down by late April,” said one CBOT trader. 
   
The Midwest still has snow on the ground in spots from last week’s late season dustings. The region was expected to get another soaking rain over the weekend into early Monday. Some spots could get more than an inch of rain. The U.S. Crop Moisture Index already shows the Midwest as abnormally wet. The upper Midwest could start see some breaks, DTN Meteorlogix forecaster Mike Palmerino said on Thursday. 
   
But rain clouds seem stalled over the southern areas of Illinois, Indiana and Ohio, key areas where soil temperatures should soon be warm enough to plant corn. 
   
One other fundamental CBOT traders were watching: demand.   Last week was the third straight seeing U.S. corn export sales above 1.0 million tonnes. China also keeps buying U.S. soybeans, extending its buying out of the U.S. and reluctant to book Argentine soybeans given recent farm strikes there. 
    
“What seems to be driving market behavior is certainly the pace of Chinese soybean purchases out of the U.S.,” said Rich Feltes, senior vice president at MF Global Research. 
   
Soy exports are now flowing out of the United States at a pace that looks to shrink end-season stocks this September to their tightest level in five years, analysts said last week. 
   
Traders are studying a newcomer to the CBOT markets, grain swaps, which debuted quietly last week. But these exchange-cleared over-the-counter deals, which experts tie in part to burgeoning industrial use of corn and soybeans to produce biofuels, may grow if users see the advantages.

Photo: Northern Iowa crop field taken by Christine Stebbins.

Will Russia cut aluminum production after winter thaw?

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On Alcoa’s quarterly conference call this week, CEO Klaus Kleinfeld pointed out that there is currently a 1.4 million tonne aluminum surplus in the world outside of China, and therefore to expect more production to come off line in coming months above the already-announced 1.6 million tonnes of production that has yet to be implemented.

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Source: Alcoa

Both Alcoa, as the world’s largest aluminum producer, and China, producing more than 13 million tonnes in 2008, have idled substantial percentages of their output.

from MacroScope:

“Tinny” signs of recovery

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One of the most significant comments about the world economy this week may have come from Klaus Kleinfeld, the chief executive officier and president of Alcoa, America's largest aluminium producer. Amid the reporting of  pretty horrible earnings  -- a $497 million net loss versus a year-earlier gain of $303 million -- Kleinfeld said things may not get much worse.

"There are some signs in many of our end industries for a bottoming out," he said.