Commodity Corner

Views on commodities and energy

The Perpetual war of the Pampas

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tractor-protestIt all looks very familiar. Argentina’s rebellious farmers are threatening to go back to their highway protests, the government is refusing to cut export taxes on soybeans and another showdown in Congress is on the horizon.

If ruling party lawmakers’ continue to refuse to take their seats and allow a vote on an opposition-led bill to cut the taxes, farmers will have a good excuse to resume road protests and a freeze on grains sales to starve the state of revenue.

President Cristina Fernandez will be loath to see another showdown on soy taxes after last year’s crushing defeat when her own vice president cast the deciding vote against her in the Senate, forcing the government to roll back the sliding-scale system that set off months of political turmoil.

Rather than risk another spectacular defeat, especially as she tries to move up mid-term elections to June, Fernandez could try to take the steam out of the opposition drive by lowering the taxes herself — and local media speculated this week that she was mulling such a move.

Hey America, don’t forget about your renewable energy neighbor to the north. Not Canada. It’s Alaska!

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Alaska is known as a big oil producing state, but don’t forget about it when it comes to renewable energy. That was the message of the state’s senior senator, Lisa Murkowski, to U.S. Interior Secretary Ken Salazar. 
    
salazarAt a Senate Energy and Natural Resources Committee hearing this week, Salazar showed several large U.S. maps of potential wind, solar and geothermal energy resources. One problem, the country’s biggest state, Alaska, was nowhere to be found.
    
“There are few things that irritate me more than maps of the United States of America that do not include that great northern state,” Murkowski told Salazar, as the standing-room-only hearing room burst into laughter.
    
“Our renewable energy resources are wonderful and vast and we look forward to the time that you will come up to visit them,” she said. 
    
Murkowski even defended Hawaii, which was also left off Salazar’s maps.
    
“We do encourage the Department of the Interior to make sure that all 50 states are represented on your maps,” she said, raising more giggles from committee members and those sitting in audience, including the press table.
    
Salazar was just as amused.
    
“That’s a point well taken,” he said. “Alaska is so important that it merits a map all to itself.”
    
“You’re right,” Murkowski responded.
    
If Salazar follows through on his promise, the solar energy map for Alaska would be rather dark — at least during the winter, when the sun doesn’t shine in some parts of the state for several months and is out for only a few hours a day elsewhere.

–Tom Doggett

For more news on renewable energy, click here.

Photo credit: DOI (Interior Secretary Salazar testifies before Senate committee)

Ninety-five is the new 100 percent

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One reason oil prices are as high – or not lower than they are – depending on your perspective, is OPEC’s unusually high level of discipline. Output targets for the disparate group, whose members range from leading exporter Saudi Arabia to oil minnow Ecuador, have often born a tenuous relationship to reality. This time, they have been met by an estimated 80 percent — and rising. Algerian Energy and Mines Minister Chakib Khelil said OPEC’s discipline could reach 95 percent, but, for “technical reasons”, that would be as good as it would get. Asked about Algeria’s own production, Khelil said it would average 1.229 million barrels per day in March. — “‘So above Algeria’s OPEC target of 1.2?” Asked one of the posse of journalists in attendance. “Yes. It’s 95 percent,” said Khelil and laughed. Well he might. OPEC ministers are generally more relaxed than when they met in December when the oil price was heading towards $30. It has since risen to nearer $50. What might make them even more relaxed would be more output restraint from beyond OPEC. Leading non-OPEC producer Russia keeps turning up at OPEC meetings, but any cooperation with OPEC reductions has been limited to Russia’s involuntary decrease in output that has resulted from underinvestment and natural decline. “Of course we are disappointed,” Khelil said of Russia. “Wouldn’t you be disappointed if you cleaned in front of your house and your neighbours started pouring stuff in front of theirs?”

OPEC puts its best face forward

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The headline that emerged from nearly five hours of weekend talks by the producers’ club OPEC was that it that had decided to leave its output policy unchanged. But you shouldn’t believe everything you read in the press.
OPEC http://www.opec.org/home/cited the fragile state of the world economy and said it was doing its bit to try to nurse the economy back to health by avoiding any aggressive cuts in oil supply.
As far as the wider world could tell, the group, which supplies more than a third of the world’s oil, was united in its concern for its hard-pressed customers, especially the biggest one of all, the United States whose new leader is far more palatable as far as OPEC is concerned than his predecessor.
In reality, the closed-door debate inside OPEC’s scruffy Vienna secretariat on the banks of the Danube Canal, which feeds into the more romantic Danube River, was rather more heated than we were led to believe.
Languishing oil prices and ballooning oil stocks are more worrying for some members of OPEC than others and those most concerned about balancing their books were said to be holding out for radical action to try to drive up the oil market.
Delegates circulating in the lobbies of Vienna’s elegant hotels whispered that far from a straightforward consensus, some members had battled for a supply reduction of anything up to 1.5 million barrels per day.
Kuwait, whose government offered to resign en masse on Monday, and Iran, which faces expensive presidential elections in June, were among those keenest to prop up prices that have fallen by more than $100 from last year’s record high, the delegates said.
But intent on presenting a unified front, ministers chose not to tell the line of reporters waiting outside the meeting about any internal divisions.
The version for the media’s eyes and ears was that a new administration in the world’s biggest energy consumer made it so much easier to bury old enmities and agree with U.S. ally and leading oil exporter Saudi Arabia that for now the best output policy is one that doesn’t send oil prices soaring.

Eye on Wall Street, U.S. plantings

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woodstock-illinois-fieldU.S. grain markets are unlikely to shake the influence of Wall Street in the coming week with equities remaining a bellwether gauge for commodity demand, as they have all winter.
    
The Dow Jones industrial average <.DJI> ended Friday on an up note at 7,223, up 9 percent for the week and the best weekly performance since November. Weary investors were enthused after beleaguered banks Citigroup <C.N> and Bank of America <BAC.N> seemed to show a pulse. 
     
“We are definitely going to be influenced by the big-picture market. It is hard to see corn and beans breaking away while there is such a concern about global demand,” said analyst Gavin Maguire with Chicago brokerage EHedger. 
   
“If we suddenly see some extended upturn in investor sentiment then that would lend support to food markets as well,” he added.
   
Chicago Board of Trade grains — last year among the darlings of the global commodity boom — have plummeted since the credit crisis last summer morphed into the global recession, with prices falling 40 percent or more. 
   
Large speculators now hold huge net short positions in CBOT grains and oilseeds, especially in corn and wheat. 
   
Profit-taking and capital preservation have been key as these “longs” covered losses elsewhere and ran from the bear market. 
But as Wall Street steadied this week, grain speculators followed suit. Commodity Futures Trading Commission data issued on Friday showed that large speculators’ net short position in corn, for example, shrank by 36,000 contracts. 
   
Grain traders are thinking like all investors: higher markets will bring confidence, both to consumers and financial markets. That can, in turn, revive credit and bring buyers of all goods and services, including grains, back to the table. 
   
So next week, grain traders will be watching for more news that the financial sector is coming out of its hole. 
   
Undoubtedly, the Federal Reserve’s announcements Wednesday afternoon 1415 EDT (1815 GMT) on interest rates following the two-day Federal Open Market Committee (FOMC) meeting will be key. 
   
But while financial markets remain a bellwether for grain and oilseeds in the week ahead, traders will also keep a sharp eye on more traditional fundamentals, namely plantings. 
   
In particular, grain traders eye the price spread between corn and soybeans, which together account for about 160 million planted acres each year in the U.S. Midwest. 
   
“Corn and bean plantings will be the conversation now until June,” Maguire said. 
   
Speculators are sensitive ahead of next month’s seeding. On Friday Informa Economics, a widely watched consultant, rocked CBOT markets with a surprisingly low corn plantings forecast that fed a rally in corn over soybeans. 
   
It pegged corn seedings at 81.4 million acres, down 5 percent from last spring, and soybeans at an all-time high of 81.5 million acres, nearly 8 percent higher than a year ago. 
   
But many traders and analysts doubted the corn figure. Others will start issuing their estimates next week ahead of the government’s official plantings estimate on March 31. 
   
Farmers and traders closely watch the spread between the two CBOT new-crop harvest months. They gauge projected costs of production — seed, fertilizer, land, fuel — with those forward prices that they can lock in for returns. 
   
Over the last month, the bias has moved to corn acres. 
On Friday, the CBOT November soybean <SX9>/December corn <CZ9> ratio fell below 2-to-1 — a key signal to farmers to plant more corn, analysts noted. 
   
As a rule of thumb, a ratio of 2.2-to-1 is an indifference point — plantings could go either way. A ratio below 2.2-to-1 favors corn acres, while above that level encourages soybeans. 
The ratio peaked at 2.36-to-1 in mid-January when soybeans rallied amid market worries about Argentine drought losses. But it closed at 1.97-to-1 on Friday afternoon. 
   
“Corn has broken out,” Linn Group analyst Roy Huckabay said of Friday’s close in May corn at $3.88-1/2.
   
But old-crop soybean supplies remain tight, with nearby deliveries on CBOT at a healthy premium to new-crop November. 
   
Informa’s numbers tightened that old-crop/new crop spread on Friday. But uncertainty about Argentina’s political woes will keep nearbys firm. Any new conflicts between farmers and government there could push more importers back to U.S. soy. 
   
On wheat, the biggest focus is weather for U.S. Plains hard red wheat, about half the total U.S. wheat crop. The Southwest belt — southwestern Texas all the way to southwestern Kansas — is suffering from drought. 
   
Soil temperatures have now warmed up to 40 degrees Fahrenheit all the way to northern Kansas, which means the crop is breaking winter dormancy and will need more moisture. 
   
“Monday morning we’re going to look at how much rain the northern Panhandle of Texas received. This is the last big chance of rain for the next 10 days. That will be an important bearing on what wheat does,” Huckabay said.

PHOTO: Illnois field taken in late February by Christine Stebbins

Canadian Natural Gas Rigs Vs. Price

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The number of rigs drilling in Western Canada in March has fallen to the lowest level for this time of year in more than seven years. Drilling could fall further if storage fills this summer and Canada’s high cost natural gas producers are unable to find a buyer for their gas and shut in production.

– Scott Haggett in Calgary

U.S. Gasoline Demand

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U.S. gasoline demand has showed signs of picking up over the past month, edging up 1.6 percent over the past for weeks according to government data. Analysts say lower pump prices have led some Americans to drive more. U.S. demand fell last year for the first time since 1991 as gasoline and crude prices raced to record highs, with further pressure coming later in the year due to the economic crisis.

The above graph shows five years of gasoline consumption in the world’s top consumer, compared with the average price for a gallon of U.S. gasoline.

from Summit Notebook:

Investors hoarding gold?

This week we've brought you interviews with some of the world's best-known mining and steel companies. One thing that we've heard over and over again is: gold is king. Industry watchers say thinking of gold as an investment is not a bad idea. Check out Conway Gittens' story:

from Jasmin Melvin:

“Clean” coal not just a pipe dream to GE exec

As the debate over "clean coal" rages on, General Electric is keen on offering up ideas to help coal transition from yesterday's polluter to a greener source of energy.
    
John Krenicki, the head of GE's energy infrastructure unit, says governments should invest in a dozen large-scale clean-coal demonstration plants in the United States, Europe, China and India. The plants would generate between 600-900 megawatts of power each and capture and sequester climate-changing greenhouse gases underground.
    
"We can change the game in coal for the next 100 years," he told Reuters in an interview.
    
Some environmental groups consider clean coal nothing more than a fairy tale. The technology to capture and store carbon in an environmentally safe way is commercially untested and not yet cost competitive, they say.
    
But the U.S. stimulus package provided $3.4 billion for fossil energy research and development. Some of these funds could resurrect the FutureGen pilot clean coal project that was abandoned last year.
    
President Barack Obama, White House Chief of Staff Rahm Emanuel and Transportation Secretary Ray LaHood -- all former Illinois legislators who fought hard for Illinois-based FutureGen -- are now in positions to push clean coal forward.
    
The United States must show leadership in this area if it expects the rest of the world to do its part to combat climate change, according to Krenicki.
    
"We're pursuing (projects) in the European Union and we're pursuing them in China, but the answer from most countries is, 'We'd like to see the U.S. lead,'" Krenicki said.
    
A 600 MW clean coal plant would cost more than $2 billion to build, but it would also create thousands of jobs in states hit hard by the economic downturn, he said.
    
Krenicki said the United States seems "paralyzed" by trying to jump to strictly green and renewable electricity generation from its dependence on fossil fuels. Clean coal, he says, is a needed evolutionary step to get the country out of the current stalemate to a green future.
    
Krenicki noted that with technologies like a smart grid and wind turbines the results are quick and easy for voters to see. "You can put points on the board so I think it's politically acceptable," he said of such projects.
    
"Some of these other technologies, like cleaner coal, you're doing it for the next administration, even if you're two-term," he said.

For more green business news, click here.

Photo credit: Reuters/Brendan McDermid (GE's John Krenicki); Reuters (A miner working at a coal mine in China)

from Shop Talk:

No tug-of-war between grocers and food makers-Kroger CEO

krogerkidsCosts for ingredients like rice, wheat and oil are falling, so why are prices for breakfast cereals like Rice Krispies and Special K still rising?

If you want an answer to this question, you aren't the only one.

Food companies like Kellogg Co, which makes the products mentioned above, say the higher prices are justified because while commodity price inflation has eased amid a global economic downturn, commodity prices remain well above historical averages.