Commodity Corner

Views on commodities and energy

U.S. wheat industry “petitions” for biotech

 It’s been nearly five years since Monsanto Co. walked away from plans to commercialize wheat genetically altered to tolerate herbicide treatments.
    But leaders of the U.S. wheat industry continue to push for someone – anyone – to bring them new wheat techonology that can boost bushel counts.
    The National Association of Wheat Growers (NAWG) said Thursday it was sending out more than 21,000 “petitions” to wheat producers around the United States to measure and document the level of support for biotech trait commercialization. NAWG hopes to convince biotech companies there is enough support to back what has been a controversial idea – bringing biotech to bread.
    Grower responses are requested by Jan. 19. 
    “We’re convinced the support is there. This petition will either confirm or confront that belief,” said NAWG CEO Daren Coppock.
    “By reading the petition and responding with their support, growers can help our industry show biotech companies that they are smart to make the commitment of time and resources and bring this tool to growers,” Coppock added.
    U.S. wheat acres have been declining with many farmers converting acres to other crops.
    NAWG said it the industry needs wheat that is more tolerant of drought, heat and cold, more disease resistant, and wheat that uses nitrogen more efficiently.
    Monsanto shelved its biotech wheat project in May 2004 after an outpouring of opposition by environmentalists, farmers, consumers and religious groups, as well as foreign wheat buyers. Concerns include worries about possible human health hazards, increased weed resistance and fears Monsanto is gaining control over key world crops.

Environmental groups call “clean” coal a fairy tale

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USA-COAL/MONTANAWhat do Bigfoot, a mermaid, an alien from outer space, and clean coal all have in common?
    None of them exist, according to several environmental groups.
    Organizations such as the League of Conservation Voters, Natural Resources Defense Council and the National Wildlife Federation have launched a multi-million dollar media onslaught aimed at knocking down claims that power can be generated from coal now in an environmentally safe manner.                                                                                                                                                      The so called “reality” campaign features a television commercial with a man touting “clean coal technology” in a barren field and print ads with fictional creatures holding lumps of coal. The message of the ads is “In reality, there’s no such thing as clean coal.”
    How to handle America’s abundant coal supply is likely to remain a contentious issue as U.S. President-elect Barack Obama’s incoming administration tackles climate change and reducing greenhouse gas emissions.
    Coal-fired power plants generate about half of U.S. electricity supplies, and account for about 40 percent of U.S. greenhouse gas emissions — the biggest single industrial source.
    Obama has expressed support for the development of technology that would allow coal-burning power plants to trap and store carbon dioxide rather than releasing it into the atmosphere. Such technology is commercially untested and currently economically nonviable.
    Coal industry trade groups, such as the American Coalition for Clean Coal Electricity, say that they are committed to carbon reduction strategies and coal power is necessary to provide Americans with affordable electricity.
    Until the carbon capture and storage technology is developed, however, environmentalists behind the Reality Coalition say on their website “coal will remain a major contributor to the climate crisis.”

–Ayesha Rascoe

Green groups seek Obama largess

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Obama    Christmas is expected to come late for some green groups, or at least that’s what they’re hoping.
    With President-elect Barack Obama and Congress preparing to offer a collossal economic stimulus package in the new year, alternative energy lobbyists, think tanks, and conservation groups are all sending funding wish lists to Washington.
    Energy projects proposed for the stimulus bill range from the conventional (tax credits for renewable energy) to more  exotic ideas.
    Sapphire Energy, a renewable petrochemical company, is pushing for more government funding for the development of algae-based fuel production, including establishing national centers of excellence in algal research and mandating the U.S. Air Force test the use of algae-based jet fuel.
    A non-profit organization focused on reducing greenhouse gas emissions from the building sector, Architecture 2030, is encouraging the incoming administration to invest $167.3 billion over two years into a plan that links lowering mortgage interest rates with energy efficiency.
    Architecture 2030′s proposal would require people buying new homes or refinancing their mortgages to renovate their homes to meet energy reduction targets to get lower interest rates.
    Other suggestions for the economic stimulus are more symbolic. Leroy Miller of American University urges Obama to enact a 12-month plan to make the White House a zero energy building and to purchase a plug in electric vehicle.
    Not to be left out, many wildlife and conservation groups have weighed in with proposals for the economic recovery plan, which is expected to total between $500 billion to $700 billion or even more.
    The Senate Committee on Energy and Natural Resources has a compilation of these green stimulus ideas and more at: http://energy.senate.gov/public/index.cfm?FuseAction=IssueItems.View&IssueItem_ID=ce27babd-d579-40ce-91e9-7b41510d97d3.

– Ayesha Rascoe

U.S. Corn-Soybean Acreage Battle Starts

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dscf4090It’s the year-end holidays in the freezing Midwest and months away before this field or any other in the U.S. Midwest will be seeded. But now is the time farmers begin thinking about booking their seed and fertilizer for next spring — though they as a rule won’t pull the trigger on deals before January, the new tax year.
    The relationship between corn and soybean prices will be key to their decisions. The grain market knows this. So this guesswork may have a hand in shifting Chicago Board of Trade grain prices in coming weeks and through the winter.
    In fact, this guesswork is already hitting the floor.
    By the first week of December, CBOT corn prices had dipped to levels that were definitely deterring farmers from seeding corn next spring. The ratio between new-crop November soybeans <SX9> and December corn <CZ9> — the 2009 harvest hedge months — hit a point (2.28 to 1) that attracted spreaders to begin buying corn and selling soybeans.
    Since then, corn has continued to gain back ground against beans, with the latest push starting on Friday after analytical Informa Economics shocked grain traders with updated 2009 corn and soybean planting numbers.
    The widely watched consultant said that, based on a farmer survey it conducted in early December, U.S. corn seedings will drop to 82.3 million acres, down 4 percent from the 85.9 million seeded last spring. U.S. soy acres were pegged at 81.5 million, up more than 7 percent from 75.9 million last spring.
    Falling corn prices since the summer, as ethanol demand deflates, is just one factor. The high cost of planting corn, where yields are directly related to high-priced fertilizer applications, was also enticing the switch to soybeans. Soy, a legume, fixes nitrogen in its roots and costs less to plant.
    Soybean prices have also slipped since the summer as the global economic panic deflated all commodity prices. But the fall has been less severe than corn, underpinned by tight U.S. stockpiles and continuing strong Chinese demand for soy.
    Since early September, new-crop Chicago Board of Trade December corn 2009 futures slipped on Dec. 5 to a season low of $3.49-1/4 a bushel from about $6.15, or 43 percent.
    New-crop November 2009 soybean futures <SX9> have fallen 38 percent — to $7.96-1/2 last Friday from near $13 on Sept. 2.
    But on Monday morning corn was on a roll again, gaining on soybeans as traders took profits on earlier seeding bets. The soy/corn price ratio narrowed back to 2.05 to 1 in early going. That ratio is sure to stay in the spotlight. 
     
PHOTO: Corn field in northern Illinois near Woodstock taken Sunday, Dec. 14 by Christine Stebbins

First in, first out in the USDA hunt

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One of the great rules of inventory management — first in, first out — could apply to the process of deducing who will be agriculture secretary in the Obama administration with a wry renaming. In this iteration, it is “first named, first discarded.”

The list of potential nominees deemed as front-runners or consensus choices to run USDA has churned continuously since Barack Obama won the presidential election. And it is unclear when a nominee will be named. Most of the front-runners have faded from attention like flowers at the approach of winter.

Technical view-Comex copper below $1.50 a lb.

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Investors had their eyes keenly trained on New York copper’s $1.50 per lb. level before it broke down last week. On the COMEX exchange, copper teetered above the psychological $1.50 threshold before diving through on Thursday, triggering stop-loss sell orders on the way down. Then on Friday,  shockingly dismal U.S. jobs data shoved copper down to $1.3560 a lb, its lowest point since February 2005.
Copper had at that point lost two-thirds of its value off its record high set in July.
Investors saw March copper as oversold and sent it back above $1.50 on Monday. But some technical analysts caution against celebrating the upswing too soon. They viewed Monday’s advance as a bear market rally and a short-selling opportunity.  “It may be an opportunity to sell short, because the trend is down. It’s certainly overdone, but it had fallen to a significant downside target,” said technical analyst Hans Kashyap, president of Analytics Research Corp in California.
Some participants took advantage of the gains and grabbed short-term profits on Tuesday.
Looking at a monthly chart and using basic technical analysis, Kashyap projected copper’s downside objective in the $1.40 to $1.35 a lb area, precisely where it stopped on Friday.
To find that target, he took a measurement off the 2006 high at $3.99 a lb down to 2007′s low at $2.3980. He explained that for the last two years copper had made several attempts at the $4.0 level, actually flitting above it several times. But the $4.0 resistance level failed repeatedly to definitively give way, despite numerous forecasts earlier this year for $5 or $6 copper.
Though the $1.35 downside target has held since Friday, Kashyap said he would need to see a protracted period above that band to think a bottom had been established.
To think copper had turned a corner, Kashyap said he would need to see it hold above the $1.40 to $1.35 area for several weeks. Though a brief break beneath $1.35 would not be significant.
“To have any confidence in the upside, I would need to see at least a couple of weeks basing and holding that area and then pushing through the next step at the $1.77 area.”
If $1.35 support breaks, and if the current economic downturn persists that may well happen, Kashyap’s next projected downside target lies at $1.0660.
“We could get down to that swing low. But that would be a worst case scenario.”

Quiet CBOT trading period as holidays approach

Chicago Board of Trade markets are in their traditional holiday trading pattern — volume light and prices range-bound amid a lack of market enthusiasm. No one wants to get too aggressive, especially under the gloomy economic outlook. Traders who’ve made money this year are happy to sit tight and see what the new year brings.
    Given last week’s big sell-off in CBOT markets, with spot corn falling below $3 a bushel for the first time in two years, soybeans slipping under $8, their lowest price since May of 2007, and Chicago wheat hitting a 20-month low, it’s safe to say the grains are oversold.
    In fact all commodities took a big hit last week. The Reuters-Jefferies CRB index <.CRB> of 19 commodities saw a record weekly fall of 14 percent amid the deepening recession fears and U.S. monthly data that showed 533,000 jobs were axed in November — the most in 34 years.
    “If crude oil bounces, we’ll bounce. At some point in time we’ll start to talk about the optimism of change with Obama,” said Don Roose, analyst with U.S. Commodities in West Des Moines, Iowa. “Week by week we’re getting closer to that kind of a set-up.”
    Maybe the drop in CBOT prices will bring in some fresh export tenders, analysts say. Many traders are hoping that at the very least Egypt will step in for some U.S. wheat, breaking the recent trend of Russia and France nabbing the sales.
    Corn export sales remain disappointing, losing market share to cheap feed wheat. So far, U.S. corn export sales are off 47 percent from a year ago. That kind of a number has some analysts expecting USDA to trim its export forecast in this week’s monthly crop report on Thursday.
    In contrast, soybean sales have been stronger than expected this season due to China’s voracious appetite for soy. But there is some doubt about future Chinese demand as it is building a plentiful stockpile for its state reserves, analysts say.
    On the supply side, the U.S. harvest is done for all intensive purposes — even if the western Corn Belt is still struggling to get the last, or 5 percent, of its corn crop in. The biggest problem appears to be the high moisture content of the corn, which takes time to dry down. Many farmers may just leave the crop in the field until spring. Any state crop reports issued Monday night will give traders a better insight.
    South America weather is improving for the planting and early growth of its corn and soybean crops. Southern Brazil could use more rain but is expected to see showers late this week.
    “That’s going to be an important rain event to maintain favorable conditions,” said DTN Meteorlogix forecaster Mike Palmerino.

Obama energy secretary pick still a puzzle

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   With the list of candidates narrowing, speculation abounds about who U.S. President-Elect Barack Obama will tap to be energy secretary in his new administration.
    Two of the top candidates mentioned have taken themselves out of the running for the cabinet spot.
    Pennsylvania Governor Ed Rendell, told reporters Monday he had no interest in taking the position as head of the energy department. “I’m a candidate for nothing,” he said.
    Rendell’s lieutenant governor, Catherine Baker Knoll, died earlier this month after a battle with cancer. Knoll’s replacement and Rendell’s successor, if he were to leave his post, is Republican Joe Scarnati.  Rendell said he could not leave Pennsylvania in Scarnati’s hands.
    Senator Jeff Bingaman, the Democratic Chairman of the Senate Committee on Energy and Natural Resources, has also ruled himself out as energy secretary.
    Bingaman recently met with members of Obama’s transition team to discuss the qualifications needed, and mostly likely possible candidates, for the next energy secretary. Bingaman’s committee would have to approve Obama’s nominee.
    Obama has already named about half of his cabinet. He is set to nominate on Wednesday New Mexico governor Bill Richardson, the former energy secretary in the Bill Clinton administration, as commerce secretary.
    With oil prices falling to below $50 this week, the energy secretary post may take on a lower profile. Obama, however, has said he remains committed to revamping energy policy and creating millions of green jobs.
    Some contenders still being floated for the energy position include:
    *Ray Mabus, former Democratic Governor of Mississippi and U.S. ambassador to Saudi Arabia, the world’s biggest oil producer.
    *Kansas Gov. Kathleen Sebelius, a Democrat who fought efforts to allow a coal-fired power plant to expand in her state, saying it would spew more greenhouse gas emissions.
    *John Rowe, chairman and chief executive officer of Exelon Corporation, one of the nation’s largest electric utilities.
    *Dan Reicher, director of climate change and energy initiatives at Google.org.
    *Democratic Representative Jay Inslee, of Washington, who serves on the House Committee on Energy and Commerce. He supports developing a federal program to aggressively invest in alternative energy.

– Ayesha Rascoe

U.S. grain traders turn focus to South America

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Now that the U.S. harvest is over Chicago grain traders have turned their attention to South America where farmers are busy planting corn and soybeans.
    Argentina and Brazil toppled the United States a few years ago as the top exporters of soybeans, representing 49 percent of the world’s soy trade this past season versus the United States at 40 percent. But Brazilian plantings are expected to be down this year as credit pressures are deterring farmers from planting more.
    The world grain trade is counting on South America to produce big soybean crops this season — taking up some of the slack from the United States where soy stocks have slipped to historically low levels given strong demand and a short crop in 2007.
    Dryness in Argentina raised crop concerns and underpinned Chicago Board of Trade grain and oilseed prices early last week. But as the No. 3 soy exporter saw scattered rains, worries eased and the focus turned to southern Brazil.
    Parana and Rio Grande do Sul, the second and third largest Brazilian soy states, are the driest. Both are expected to see light, scattered showers by Tuesday.
    “That rain next week is going to be an important event,” said Mike Palmerino, DTN Meteorlogix forecaster.
    While South America needs rain, Australia is for once struggling with too much. Farmers are trying to put away this year’s wheat crop but constant rains have stalled their efforts and likely reducing the quality of the crop.
    More poor quality wheat will only add to already big global supplies of feed wheat, which is cutting into demand for U.S. corn. Export sales of corn have been under 500,000 tonnes for the past five weeks and off to their slowest pace since 2002. U.S. corn exports last season totaled nearly 62 million tonnes, or 65 percent of the global corn exports.
    The final U.S. government supply-and-demand report of the year will be issued on Dec. 11, with many analysts expecting USDA to shave its 2008/09 U.S. corn export figure to reflect the slowed pace. But traders will have to wait until USDA’s Jan. 12 crop report for final 2008 production numbers.
    While the supply outlook is having a little more play on CBOT prices, the global economic slowdown is hurting employment and food spending and will undoubtedly continue to loom over the markets.
    Grains and oilseeds have traded sideways for weeks as investors moved to the sidelines, unwilling to take on fresh  positions. Cash grain traders are also still finding it tough to finance purchases from farmers amid continued tight or frozen credit markets.
    “We are in the de-leveraging process,” one CBOT cash-connected trader said this week. “No reason to think that will change before year’s end, especially as the markets move into their annual slow holiday period.”
    But grain traders in the coming week will still keep an eye on Wall Street for economic signs.
    Weekend retail sales following the U.S. Thanksgiving holiday, typically the biggest shopping period of the year will be one key economic indicator. More critical will be the government’s November jobs report, issued on Friday, which will likely provide more evidence of a deep economic downturn and possible additional interest rate cuts, which grain traders always welcome.

PHOTO: U.S. corn harvest wrapped up for 2008. Corn field in southern Wisconsin taken Nov. 29 by Chris Stebbins.

Untangling the spider web of U.S. foreign aid

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The United States could feed more hungry people around the world by reforming its convoluted foreign aid system, a coalition of aid groups said on Monday.
The groups called on President-Elect Barack Obama to create an agency to take charge and accountability for aid, and handed out this convoluted chart from Brookings Institute to make their point.

The chart links the departments, agencies and government offices that have a role in aid policy and programs — the grey and blue boxes on the right — with 50 foreign aid objectives (in green) and the laws and initiatives behind them (in yellow and red.)
(Click on this link if you really want to connect the dots. )
Aid organizations also want freer trade, fewer subsidies, and more flexibility to buy food aid closer to where it’s needed, rather than being required to ship U.S. crops overseas, said David Beckmann, president of Bread for the World. And they have friends in high places who may spur reforms, he said.
Obama, Vice-President-Elect Joe Biden, and Secretary of State-in-waiting Hillary Clinton all have strong foreign aid creds, as do Timothy Geithner, Obama’s choice for treasury secretary, and Lawrence Summers, new head of the National Economic Council, Beckmann said.
Several members of the Modernizing Foreign Assistance Network are advising the president-elect, Beckmann noted, including Gayle Smith, Larry Nowels, and Brookings’ Lael Brainard, who created the spider web chart shown here.
Brainard has been touted as a possible candidate for U.S. Trade Representative.