Commodity Corner

Views on commodities and energy

If only trade talks went this quick…

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KirkCall it the Congressional version of the lightning round.

Ron Kirk, the Obama administration’s choice for U.S. Trade Representative, had a rapid-fire confirmation hearing before the Senate Finance Committee on Monday that lasted no longer than 45 minutes.

“Exhilarating,” was how Kirk, a former Dallas mayor, described the quick experience, fittingly, in one word.

Senators had to compress the session to attend a vote on amendments to the omnibus spending bill.

Kirk started off by telling senators “It’s been a long and strange journey getting to this point,” but didn’t even make it through a shortened version of prepared remarks before he was urged by Finance Committee Chairman Max Baucus to wrap it up.

U.S. Midwest Spring Planting Approaches

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nillinois-field-spring-2009Northern Illinois saw the warmest days of the year last week after a long, cold winter. High temperatures climbed into the 60s Fahrenheit by Friday. Heavy rains into Sunday also helped melt remaining snow in the fields, add to summer soil moisture reserves and help remind the grain markets that corn planting in the heart of the Midwest will begin in less than a month.
    
The U.S. Agriculture Department is already surveying farmers on their planting intentions. Results will be issued in the government’s prospective plantings report on March 31, the annual benchmark for the markets to gauge supply. Traders generally use the March numbers against an average 5-year annual yield to pencil in expected U.S. grain output until the USDA’s August crop report, the next farmer surveys, gives more insight into actual yields and acreage after corn pollination has taken place in the Midwest.
    
So grain trade speculation in March, and CBOT prices, will gyrate with changing views among traders as to what plantings will be for the 160 or so million acres of U.S. land usually planted to corn and soybeans. Illinois and Iowa together count for about one-third of each crop.
    
At the moment, traders and analysts say that high-priced fertilizer combined with national crop insurance rates recently set at $8.80 a bushel for soybeans and $4.04 for corn will likely mean fewer corn acres and more soybeans than a year ago. The insurance targets are used as the base price to determine crop loss payouts, if necessary. As a reference point, CBOT November soybeans closed at $8.15 on Friday and December corn at $3.90-3/4.
    
“The producer has a safety net but it favors beans versus corn, bottom line,” said Don Roose, analyst and president of brokerage U.S. Commodities in West Des Moines, Iowa. 
    
Roose expects soybean acres to be up from the 75.7 million seeded last spring and less corn acreage than the 86 million planted in 2008, especially if the price of fertilizer — key to producing big corn yields  — does not come down soon.
    
“That’s the huge debate out here in the country right now,” he said, referring to the cost of fertilizers like DAP.  “The retail price is still around $850 to $900 a ton even though the wholesale price is $350 to $400.”
    
Retailers got stuck with exorbitantly high priced fertilizer last year, buying it last summer at its highs on supply fears. But farmers are not willing to pay $850 for corn fertilizer today. 
    
Movements in CBOT corn and soybean markets over the coming weeks will also help farmers finalize their planting decisions. The price ratio between new-crop November soybeans to December corn widened by mid-January to 2.36:1 — a level that made soybeans very attractive to plant –  as traders saw soy prices surge on worries that Argentina’s soy crop output would be cut due to drought.
    
The ratio has come back since then with Argentine rains and was down to 2.09:1 as of Friday’s close, a level which tends to favor corn over soybeans. The general rule of thumb is  that a ratio of 2.2 to 1 is the “indifference” point where plantings could go either way, says senior oilseed analyst Anne Frick with Prudential Bache Commodities in New York.
    
Regardless of the current CBOT price ratio, she too expects more soybean acres this year than 2008.
    
Private analysts will begin releasing their 2009 U.S. corn and soybean acreage forecasts this week.

Photo: Northern Illinois field taken by Christine Stebbins.

U.S. grain traders eye Wall Street for direction

Chicago Board of Trade grain markets will likely continue to track Wall Street stocks as a barometer of likely demand in 2009. The cratering Dow Jones Industrial Average as been the predominant factor for financial market confidence all winter.
    
So far this year the dollar has rallied, tight credit market indicators have loosened up a bit, Chinese grain buying has not dried up. But for grain traders, as for investors in general, the free fall in the Dow which slid to a 12-year low last week has been a negative that has been impossible to shake off.  
    
Commodities were able to diverge from the negativity of the financial markets on Friday. But it’s been rare for CBOT grains to move in the opposite direction of the Dow. 
 
Wall Street’s panic over financial time bombs has pulled hundreds of billions of dollars in cash out of all markets, including grains. The spectacle of iconic corporate titans from AIG to Citibank to General Motors on the brink of insolvency has shaken the business world to its roots. Even the rock solid edifice of General Electric — the very embodiment of American know-how and strength — is showing cracks.
 
This “waiting for the end” mood will continue to hang over all markets next week as investors eye the fate of General Motors and major banks. A focal point will be a meeting between the U.S. auto task force and GM, Chrysler and officials from the UAW in Detroit next week after an auditor report last week raised doubts about GM’s ability to remain “a going concern.” 
 
CBOT grain traders will also be watching: 
* USDA’s monthly supply and demand report to be issued on Wednesday. Initial estimates from analysts point toward the government raising its forecast of the amount of corn left at the end of the marketing year on Aug. 31. It could be up roughly 25 million bushels to 1.815 billion bushels, reflecting a slower-than-expected export pace. The U.S. soybean end stocks forecast could fall by 10 million bushels, given the continued strong export pace. Most analysts are not expecting USDA to make much of a change on its wheat estimate. 
 
* Last trading day and expiration for March grain and oilseed contracts is Friday, March 13. Traders will be watching for open interest to decline in all the contracts this week, which would limit potential volatility at Friday noon expiration. 
 
* New-crop November soybean to December corn ratio. It closed at 2.09:1 on Friday, a level that tends to favor corn plantings over soybeans. As a general rule of thumb, a ratio of 2.2:1 is an indifference point — plantings could go either way. The ratio peaked at 2.36:1 in mid-January when soybeans rallied amid Argentine soybean drought worries. 
 
U.S. southern Plains weather. With South American harvest getting under way, the next potential weather market centers around the U.S. hard red winter wheat crop. Soil moisture is very short in Texas, Oklahoma and southwestern Kansas. Wheat is breaking dormancy which means moisture needs will increase. Hot and dry weather continues, with not much relief in sight. The Texas state crop report to be issued Monday afternoon will update traders on wheat conditions and soil moisture. 
 
* Argentine farmer/government conflict. Worries that differing opinions between farmers and the government about export taxes and grain marketing buoys CBOT soy. Reports of China buying three to four cargoes of U.S. soybeans for April shipment and strong Brazilian basis levels are signs that the top world soy buyer is leery of sourcing Argentine soy.

from Global Investing:

Attention, girls: Diamonds may not be your best friend

Marilyn Monroe, who sang "Diamonds are a girl's best friend" in the 50s, might be shocked to find out that the value of dimonds has fallen rapidly in the past six months.

According to Nomura, the average best price for to quality 1-Carat diamonds has fallen below $7,000 from hitting a multi-year high near $9,000 in September 2008.

from Global Investing:

Deflation to jump the shark?

The recent spate of shark attacks on Australian beaches could mark a turning point in global deflation and signal a change in fortunes for some beleaguered emerging economies, if Nomura strategist Sean Darby is to be believed.

Speaking at a Nomura investors forum, Darby said a chance sighting of a shark on Sydney's famed Bondi Beach three weeks ago made him realise that prices of grain and other soft commodities -- punished of late by global recession fears -- could be due for a rebound.

NYMEX First to Second Month Crude Spread

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The spread between the front month and second month oil futures continues to narrow.

The deep spread seen in earlier this year, caused primarily by slumping fuel demand due to the economic crisis, was heightened by the monthly of passive investment funds, especially the giant United States Oil Fund. On Feb. 6, when the fund last rolled its positions from the first to second month futures conracts, it held movre than 20 percent of the front month.

Number of Rigs Drilling for Natural Gas in U.S. Drops to 5-Year Low

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The number of rigs drilling for natural gas in the United States fell below 1,000 last week for the first time in nearly five years, according to Baker Hughes Inc. The drop comes as prices for the fuel continue to fall.

The current gas rig total of 970 is the lowest number of gas rigs since March 19, 2004, when there  were 963 gas rigs operating.

from Jasmin Melvin:

Who needs stocks when you’ve got solar panels

While everyone's talking about recession and job cutbacks, the solar industry is growing and finding new customers, the head of a solar installation company told Reuters.
    
Jeffery Wolfe, founder and CEO of groSolar, said, "There's still a huge amount of people out there that can well afford solar and haven't done it yet."
    
GroSolar, the fourth largest residential solar panel installer in the United States, saw $60 million in sales last year and exceeded its sales targets for January.
    
Consumers can lease solar panels for their home or purchase a system upfront for around $20,000-$25,000 after figuring in tax incentives.
    
"While the economy is what it is, there are an awful lot of people out there who still have equity, have good jobs, have savings, have investments that are working," Wolfe said.
    
He maintained that people who are losing money in the stock market are beginning to look at solar as returns on solar panels on a home are guaranteed. 
    
"We are 0.1 percent of the marketplace today so our marketplace is growing rapidly, and we've got a lot of room to grow still --  even in this current economy," Wolfe said.
    
Wolfe noted that almost every state in the country has at least 30 percent more sun than Germany, the world's leader in solar energy.
    
Some homebuilders are even looking to solar to differentiate their developments from others while the housing market remains in disarray. Wolfe said he's seen developers market new solarized projects in hopes of attracting more interest and buyers.
    
Third party financing is just beginning to reach the solar market and will only add to the industry's growth potential, according to Wolfe.
    
He said after taking into account redbates and tax credits, and amortizing the rest over 18 years, the cost is about what a consumer would normally pay for power from the grid.

GroSolar isn't alone in its sector. Other solar companies are also seeing profits despite the economic slump.
    
Solar module maker First Solar saw its fourth quarter earnings and revenue more than double from a year ago to $132.8 million and $433.7 million, respectively, thanks to growing demand for its solar panels.

NYMEX Contango Narrows

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The contango in the NYMEX futures curve has begun to narrow as OPEC production cuts begin to bite and U.S. gasoline demand shows signs of rebounding.