Commodity Corner
Views on commodities and energy
from Jasmin Melvin:
Modern marvels boost food output, or would if countries used them
It may have been preaching to the converted but the world's largest agrochemicals company came to the 2009 Outlook Forum to hold forth on the benefits of technology for farmers, and not just on genetially modified technologies. Michael Mack, CEO of Zurich-based Syngenta International AG told attendees that advanced technologies and a little education will be necessary to feed the world, but maintained such innovations aren't years or even decades away -- they're already here. More than 850 million people face starvation each day under current conditions, according to the United Nations' Food and Agriculture Organization, yet many nations do not fully utilize existing technologies to maximize their harvests. "We can realize significant yield potential in the next 10 years by simply deploying existing technology across land that is currently under cultivation," Mack said. Mack noted that places such as Russia and Ukraine, once considered the breadbasket of Europe, farm only 10 percent of their land efficiently, while Asia could boost its productivity by 20 percent within seven to 10 years by adopting modern farming methods. Simply put, technology would allow us to do more with less, a phenomenon that will become even more significant as the world's population grows by an expected 2 billion people by 2030. "This means that there are not only more mouths to feed but they will all be demanding a bigger and better diet," Mack said, which will require a doubling of feed and food production. Technologies as simple as fertilizers and pesticides boost crop yields but costs and lack of education on their use often result in them being left out of farming in developing countries. The International Plant Nutrition Institute, a not-for-profit agronomic education and research group, says on its Web site that "somewhere between 30 to 50 percent of crop yield in the U.S. is attributable to nutrient inputs." And Mack noted, "It's a fact without current crop protection products there would be 40 percent less food available in the world." Syngenta has seen sales of its crop protection products increase in recent years. Selective herbicides, which target specific weeds and are Syngenta's most profitabe crop protection product, saw sales increase by 8 percent to $2 billion for the company in 2007. Mack also spoke about more controversial technologies, like genetically modified seeds, which are strongly opposed by some environmental groups. He praised American policy and regulations on GMO crops and expressed hope that other countries would follow.
"If we embrace science, we can have a future of bounty," Mack said.
For more Reuters coverage of the U.S. Agriculture Department's 2009 Outlook Forum, click here.
Photo credit: Reuters/Christian Hartmann (Syngenta CEO Michael Mack during an interview with Reuters at Syngenta's headquarters); Reuters/Beawiharta (A farmer sprays pesticide on a rice field in Indonesia)
Barrick’s El Dorado?
Despite their calm assurances, executives at the world’s biggest gold miner Barrick Gold must be at their wits’ end over their stalled Pascua Lama project.
For two years, Argentine and Chilean officials have been bickering over how to share the lucrative tax proceeds from the cross-border mine, which has been poised for construction to start since late 2006. One government official after another has suggested the green light is imminent. But after making some impatient noises last year, Barrick seems to be biting its lip — resolved for an even longer wait. When Barrick reported fourth-quarter results last week, new Chief Executive Aaron Regent put on a brave face about the delay, but his pledge to give an update on the progress in the second quarter suggested a solution is still some way off. It is ironic that a diplomatic spat over sharing the spoils of the mine has put the ambitious and controversial project on ice. Pascua Lama straddles a freezing, inhospitable spot high in the Andes and faced a storm of protest from Chilean environmentalists before President Michelle Bachelet finally gave it the go-ahead. Late last year, an Argentine law protecting Andean glaciers looked like it might be the nail in Pascua Lama’s coffin until a surprise presidential veto kept it off the statute books. But none of that matters while the tax row drags on, and the harsh Andean winters mean construction is unlikely to be able to start now until September 2009 at the earliest. Company officials have declined to say how much it is costing to maintain the site. Some industry analysts have even hinted Barrick might abandon it altogether. But it will take a lot more for the Canadians to lose interest in Pascua Lama. One of the world’s largest untapped gold fields, the site will become even more appealing as prices for the metal nudge up to above $1,000 per ounce again.
Discussion on how to share the tax millionaire mining project between the two countries is the last major point that remains to be resolved to start the works, according to schedule, should have party two years ago.
As at the beginning. So today the talks between Chile and Argentina on how to share the tax flagship project Pascua Lama gold mining, located on the border between both countries. The inability to resolve this issue prevents the start of construction, which already has a delay of two years.
In June, the Chilean government sent a proposal to Argentina that was presumed then, would be definitive and that would settle the debate. But until now there has been no response from the trans and the dialogue is cut off.
According to a source linked to the talks, the government of Cristina Fernandez would have found no satisfactory proposal. The lack of a response to concern those involved, because at least two years by the mining project, Canadian Barrick, should have initiated the work, according to the initial schedule.
From the beginning, the idea that Chile was the bulk of taxes for services are paid indivisible border here, considering that 80% of Pascua Lama is on this side of the range, while Argentina has proposed a plan “50 -50. The proposal submitted in June was relaxed that point, but apparently was insufficient for the aspirations of the neighboring country.
Added to this is that the political situation in Argentina is quite complicated after the arrest of farmers and their struggle with the government for precisely taxes. According to a source by “El Mercurio”, this is another factor that would explain the lack of dialogue in recent weeks.
The resolution of this issue is key to other bi-national projects can see the light, as it set the tone for what the criteria under which the taxes are distributed. Meanwhile, in the folder of the Binational Commission for the Mining Treaty rested other millionaires projects.
The consequences
Moreover, the delay in the definition is tax makes the cost of the project. At the beginning of the plan, the budget of the works amounted to U.S. $ 1.500 million. But the increase in the price of key inputs like steel, the outsourcing of engineering and energy made the company estimates its current cost between $ 2,300 and U.S. $ 2.400 million.
A few months ago, authorities in the Argentine province of San Juan-sharing project with the neighboring region of Atacama in Chile, Barrick said it estimated at U.S. $ 3,000 million investment to build the mine.
Canadian Barrick has said that the project has not been compromised by this situation, and furthermore, other points are still unresolved. Among them, several sectoral permits Argentina left pending.
U.S. grain traders look to Wall Street for direction
As the Dow Industrials ended Friday at 7,365 — its lowest close since October 2002 – amid mounting fears about the economy and speculation that the White House might nationalize banks — commodity markets were not immune to the downfall.
The Reuters-Jefferies index of 19 commodity futures slid to a 6-1/2 year low of 200 this week, led down by the energy sector. Chicago Board of Trade corn, soybeans and wheat are at two-month lows, with March corn closing at $3.50-1/4 a bushel, soy at $8.62-1/2 and wheat at $5.19-1/4. As one looks ahead, CBOT grain markets will likely follow the equities as grain traders try to gauge future commodity demand given the grim economic forecasts. Traders will wait for more news from the Obama administration as it tries to shore up the U.S. economy. Beyond the influence of the stock markets, grain traders will watch for several reports next week, including:
U.S. Agriculture Department’s annual outlook conference in Washington, DC on Thursday and Friday. The government will unveil its 2009 U.S. corn and planting guesstimates on Friday, Feb 27. It’s always questionable how much impact those numbers will have on CBOT prices. But they promise to provide lots of fodder for traders. This year, more than previous years, farmers are up in the air about how many corn and soybean acres they will plant given the high cost of fertilizer, a factor that can deter seeding of corn — a crop that needs more nutrients than beans to meet its maximum yield potential. Final decisions will be based on fertilizer costs and revenue guarantees crop insurance in March. The data traders are really waiting for is USDA’s planting intentions report on March 31. Those numbers are based on an actual survey of farmers’ planting intentions conducted during the first week of March. Crop weather in Argentina and southern U.S. Plains. Argentina crops, especially soybeans which are in their key growth phase, continue to benefit from February rains. More showers were expected through the weekend, a bearish input for CBOT soy. In contrast, areas of the southern U.S. plains hard red winter wheat belt — Texas and southwest Kansas — are dry. The southern Plains grows about half the total U.S. wheat crop. Last week the government rated 64 percent of Texas wheat poor to very poor. That remains a concern as the southwest is forecast to be hot and dry next week. Texas will issue its next crop update on Monday.
Delivery period for March CBOT grain and soy contracts starts Thursday. This will be the first delivery period under the CBOT’s new rule to limit cash grain delivery instruments held by hedge funds and other non-grain firms. The move is designed to cool criticism about the performance of CBOT grain contracts, wheat in particular, and stop a “cash-and-carry” strategy in which investors hold grain futures to capture higher interest rates reflected in CBOT spreads, versus today’s low interest rates. The new rule should have the biggest impact on soybean oil as 13,000 receipts are registered with the exchange. U.S. Census Bureau issues January crush data on Thursday, Feb. 26.
March corn options exercised over the weekend. Roughly 7,200 March $3.50 corn options — split pretty evenly between calls and puts — were exercised following expiration last Friday. As one corn options trader said late Friday: “There are a lot of nervous traders this weekend” after March futures closed at $3.50-1/4, basically at the $3.50 strike. As traders offset those positions it could play into corn price moves on Sunday night and again early Monday.
Economic Storm Clouds Shadow Outlook for CBOT Grains
U.S. financial markets take a breather on Monday Feb 16 for the Presidents Day national holiday. Most traders are likely thinking it’s just as well they can stay home. President Obama, two weeks into his tenure, is off to a fast start with a record-setting $787 billion stimulus package he could sign as early as Monday. Next, he plans aggressive measures to address the foreclosure crisis and credit crunch and get money moving again in the financial world. But an air of grim uncertainty still seems to hang over world financial markets — an air which looks set to restrain any enthusiasm for rallies next week, given the continuing fog in many quarters about counter-party risk and liquidity. Wall Street on Friday edged close to its November lows. Markets are awash with caution on worries about plummeting consumer confidence, soaring unemployment and slumping demand for goods and services, which may include basic food staples. So Chicago Board of Trade grain and soybeans are trading at the bottom end of their recent ranges, with volume, liquidity and volatility all off from a year ago. Worries about drought effects in Argentina were also pushed to the back burner. “Barring any recovery in the equities, we’ll keep some pressure on the commodities sector,” said one corn floor broker after the CBOT closed on Friday. The Dow industrials slipped below the 8,000 level on charts last week, down 82 points on Friday to 7,850. Still, it was notable that Chicago grains seemed to draw more psychological support than the Dow last week. Some of the world’s big grain importers stocked up, taking advantage of lower corn and soy prices to book positions especially after they saw ocean freight costs tick higher. The U.S. Agriculture Department reported weekly U.S. corn export sales at more than 1.5 million tonnes, the most since the marketing year began on September 1. That was also the fourth straight week of corn sales of over million tonnes, even though year-to-date exports are still running 45 percent behind last season. Chinese interest in U.S. soybeans also remains strong. But there were signs that the world’s top soy buyer is starting to book South American supplies, especially Brazilian beans and soy products. Cash basis values firmed there last week. Traders will continue to monitor demand, as it could be the one major fundamental that will underpin CBOT markets. South American crop worries — the catalyst to the CBOT grains rally in late January and early February — waned after Argentina received beneficial rains the past week. The moisture came just in time for Argentine soybeans, now in the midst of filling out pods for final yields. “There is a continued trend of improving weather, with the forecasting models underestimating the rains,” meteorologist Mike Palmerino with DTN Meteorlogix said. More showers are now expected through Tuesday in Argentina, the third largest soy exporter and No. 2 in corn exports. Seventy five percent of its major crop areas should benefit from the moisture, Palmerino said. Extended outlooks for the six to 10-day period were also calling for additional rains. As the rains came, March soybeans slid 4.5 percent last week to close at $9.55-1/2 a bushel on Friday. Corn and wheat followed, both ending more than 3 percent lower on the week — March corn at $3.63-1/4 and March wheat at $5.35-1/2. But beyond the usual basic variables that drive CBOT ag markets when trading resumes on electronic screens at 6 p.m. (2400 GMT) on Monday night, traders will keep a close eye on the Dow next week for signs of confidence about the economic rescues the Obama Administration is putting in place. Photo: Winter fields in northern Illinois. U.S. farmers are in the midst of making spring planting decisions with CBOT prices a key to final intentions.
U.S. soy planting record possible, corn out of reach
U.S. farmers could set a record for soybean plantings this year, topping 2008′s 75.7 million acres. The Agriculture Department will release its initial projection of seedings later this week. Some economists see plantings of 79 million acres (32.9 million ha) given that market prices and production costs currently favor soybeans.
Most expect corn plantings to lose ground as global recession takes the shine off demand from livestock and ethanol. But it would be daunting to break the U.S. corn plantings record even if the biofuels boom were re-ignited.
Corn seedings hit 93.5 million acres (37.8 million ha) in 2007 in a land rush to profit on ethanol. Although it was the largest total since 1943, it ranks 16th at USDA. The largest corn planting on record is a giant 113 million acres in 1932 — 21 percent larger than 2007. It may not give a full picture of corn-growing in America.
USDA began recording corn plantings in 1926. It has records of corn harvest area from 1866. From 1909-18, harvest area usually exceeded 100 million acres, so plantings had to be much larger, to allow for abandonment and other uses. In 1926, for instance, plantings were 99.7 million acres and harvest area was 83.3 million acres, a decline of 16 million acres. In recent years, the shrinkage from plantings to harvest area has been around 7.5 million acres, mostly for silage.
There are plenty of reasons for large corn plantings in the early 20th century. Corn was needed to feed the vast herds of horses and mules used as draft animals on the farm and in the city before gasoline power was adopted. Corn is easy to store. Livestock could glean cornfields after harvest. And, yields were a lot lower — 25.7 bushels an acre in 1926 for a crop of 2.14 billion bushels. In 2008, the corn crop was 12.1 billion bushels with a yield of 153.9 bushels an acre from 86 million acres.
Five largest soybean plantings (Records begin in 1924) 75.718 million acres, 2008 75.522 million acres, 2006 75.208 million acres, 2004 74.226 million acres, 2000 74.075 million acres, 2001
Open Interest in U.S. Crude Oil Futures
Open interest and trading volumes in commodity futures markets have shown some resilience at the start of 2009 despite the dramatic price slides triggered by the economic downturn.
In the fourth quarter of 2008, open interest in U.S. crude oil futures fell to levels not seen since mid-2006 as the global economic crisis hit fuel demand and sent prices tumbling, before rebounding.
this graph raises a question the number of contracts depends on the level of oil prices or on the level of economic activity ?
U.S. Crude Futures Contracts Held By United States Oil Fund in 2008
The United States Oil Fund LP exchange traded fund has built up a large position in crude oil over the past four months, accounting for nearly a quarter of the open interest in the March contract on the NYMEX last week.
Following is a list of the tentative 2009 oil futures contract roll dates for the fund, according to United States Oil Fund’s Website.
Gasoline catching up with diesel
The amount of money a U.S. refiner can make producing gasoline in the United States has improved in recent weeks relative to diesel thanks to gasoline production cuts and a heavy downturn in diesel demand from the U.S. trucking industry as the economic crisis deepens. Diesel has been the most profitable fuel a producer can make since July 2007 — an unusual occurrence for the less difficult-to-make fuel largely tied to high freight activity and demand from the under resourced global electricity sector.
The early evidence of a reversal in the profitability relationship is already having an impact on what consumers are paying at the pumps: diesel’s price premium to gasoline has dropped from 64 cents a gallon to 43 cents a gallon over the past four weeks, according to auto and travel group AAA.
In the above graph, the top line indicates the gross profit margin a U.S. refiner can achieve producing a barrel of distillate fuel, while the bottom line indicates the margin for producing gasoline.
With gas & crude prices dissociating, IMO the bet is on refiners who has no or very less crude oil inventory.
Oil and the dollar no longer linked
The correlation between oil prices and the dollar seen since the third quarter of 2007 has weakened. Investors had sold the dollar as U.S. economic prospects dimmed and bought oil as a hedge against inflation and uncertainties in the supply of raw materials. The relationship eased late last year as fundamental pressure from slumping demand and the slowdown of the overall economy pushed oil lower independent of the actions of the dollar, and analysts said the link might not return in the near term.
So long as oil is traded in dollars, and middle eastern currency is pegged to the dollar, the price of oil and the value of the dollar will remain linked, inversely or not.
