Commodity Corner

Views on commodities and energy

CBOT traders eye U.S. corn harvest delays

By the U.S. Thanksgiving holiday the American corn and soy harvest is usually wrapped. But as of last week, farmers still had more than  two billion bushels of corn sitting in the field, or more than 15 percent of this year’s projected output of 12 billion bushels. 
    The U.S. Department of Agriculture will release its next crop progress report of the year on Monday afternoon after the close of trading. That will give the U.S. grain industry a better idea of how much corn is left to harvest at the onset of winter. 
    Corn is usually left to harvest after soybeans, so the mature crop can dry in the winds and bring kernel moisture down to the 15.5 percent levels that commercial elevators demand. This way farmers avoid “docking” charges and don’t have to pay to dry the grain themselves. 
    But due to late planting and other weather events this season like record flooding in the Midwest, many farmers have had to wait for maturity — too late, in some places like the Dakotas which are already seeing corn covered in snow. Those fields won’t be harvested until spring and the farmers are facing potential “lodging,” or downed corn, and other yield losses from the exposure.
    “To think losses are not going to be there to some degree would be naive,”  analyst Don Roose at U.S. Commodities in West Des Moines, Iowa, said this week. 
    The grain trade will not know the final output numbers until mid-January when USDA issues its annual final assessment . But most traders are anticipating the government to trim its corn production number at that time, and possibly later. 
    Despite this supportive uncertainty about final yields, corn prices slipped to one-year lows this week as demand questions outweighed supply.  Curtailment in demand amid the deepening global recession and fears of counter-party risk kept cash sales limited.  
    Corn exporters are also feeling the effects a huge supply of global feed wheat for sale and the ailing ethanol industry is limiting its purchases of corn, CBOT traders noted. 
    On Friday, the largest publicly traded U.S. ethanol prouder, VeraSun, said it had stopped receiving and processing corn at “certain” of its plants while it seeks additional financing.
    Wheat and soybeans were also under pressure last week. But there is still a sense on the trading floor that the grain markets may be bottoming. But for that to happen the stock markets need to start stabilizing, traders said. 
    The sharp reaction rally on Wall Street late on Friday to news from the Obama campaign that New York Fed President Tim Geithner will become Treasury Secretary was a positive. Obama is due to introduce his economic team on Monday. On Saturday in a radio address Obama laid out plans for a massive two-year economic stimulus package.
    So if confidence begins to be rekindled on Wall Street from even just high expectations for the next administration, the positive vibes could easily carry over into other credit-dependent commerce like grains.
    So while the direction of the Dow and crude oil will be watched, grain traders will be focused on the dollar and on cash demand in the CIF barge and FOB export markets in the coming week, which will be shortened by the U.S. Thanksgiving holiday market closure on Thursday. The week of Thanksgiving tends to be lighter volume which could at times lead to more market volatility. 
     
    Reports to watch: 
    * The CBOT options report issued over the weekend listing the number of wheat and corn options exercised over the weekend. 
    On Friday, selling in corn escalated when the December contract <CZ8> fell below $3.50, forcing traders holding Dec puts in the $3.30 to $3.40 strike range to cover on the last day and expiration of Dec options. 
    Preliminary trade data from Friday posted on CME web site  http://www.cmegroup.com/tools-information/build-a-report.html?report=dailybulletin on Sunday morning showed tens of thousands of put options were exercised this weekend. That may impact Sunday night or Monday morning trade. 
    * USDA’s crop progress report on Monday. 
    * U.S. Census Bureau October crush data on Wednesday.

The Devil is in the details

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Numbers, or rather the lack of them, are the latest gripe of Argentina’s disgruntled farm sector.

Statistics published by the government for years have been disappearing since the Agriculture Secretariat ceded control of the country’s multibillion-dollar grains and beef trade to another state agency, the ONCCA, earlier this year.

Time to top up strategic oil reserve?

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The Bush administration could take advantage of falling oil prices and plummeting fuel demand to replenish millions of barrels of crude into the U.S. emergency petroleum stockpile.
The Energy Department is sitting on a hefty $584 million it raised from selling 11 million barrels of crude to refiners from the Strategic Petroleum Reserve in 2005 after Hurricane Katrina laid waste to the country’s energy infrastructure.  The department wanted to replace the sold barrels, but balked at the cost as the oil price marched relentlessly higher, hitting a record above $147 a barrel in July.
But with a weak economy, crude costs have fallen by more than half to $55 a barrel this week. That is close to the same price the Energy Department sold those 11 million barrels of oil three years ago.
If the department doesn’t use the cash in its piggybank before the Bush administration comes to an end on Jan. 20 some lawmakers want the new Obama administration to use the money to promote alternative energy.
The Energy Department said it is “examining and analyzing” the idea of buying oil for the stockpile now that prices have fallen, but no decision has been made.
Guy Caruso, the former head of the department’s Energy Information Administration who now works at the Center for Strategic and International Studies, said buying the oil back  at a delivery rate of 100,000 barrels a day for three and half months would have little market impact and not raise prices.
“With demand being down now, there’s a lot more excess  production capacity. I think producers would love to have a new customer,” Caruso told Reuters. “I think now is an excellent time to do it, unless you’re thinking wait a couple of months and it might be lower,” he added.
The U.S. emergency oil reserve, created by Congress in 1975 after the Arab oil embargo, holds 702 million barrels of crude, but has room for 727 million barrels. The department plans to add 7.7 million barrels of oil to the stockpile from January through May of next year, which would return barrels loaned to refiners this summer when Hurricanes Gustav and Ike disrupted supplies. 

– Tom Doggett

Harvest Mostly Made, U.S. Grain Traders Look for Demand

With the U.S. Agriculture Department’s last production report of the year now out of the way and the North American harvest nearing completion, grain traders are turning their attention to the demand for grains and oilseeds as the key driver for Chicago Board of Trade prices.
    Given the still uncertain scope of the global credit meltdown and with bullish news in short supply, CBOT grains will likely feel the weight of limited demand, traders say. The inconclusive G20 “summit” over the weekend which featured promises but few specifics typifies the uncertain mood.
    Money — specifically, credit — makes the world go round for grain traders, as with all other market makers. But the giant credit freeze seems nowhere close to thawing out.
    A long-time CBOT grain broker told a reporter on Friday that one of his clients sold a couple of barges of grain late in the week. But he added that while there was more interest for U.S. grains, the seller was hesitant to extend additional credit until he had been paid for the other barges.
    “There is just the underlying concern about counter-party risk,” he said, “and it’s happening everywhere.”
    However, there was also a sense as the CBOT grain markets closed on Friday that they were finally beginning to “de-link” themselves a bit from roiling, outside financial markets.
    Soybean futures ended lower for the week but both corn and wheat ended higher even as Wall Street street stocks posted another week of losses, with the Dow falling 5 percent.
    The week ahead could be another struggle for the stock market as hopes for bailout of the auto industry fade before President George W. Bush leaves office.
    The low expectations for the G20 world leaders meeting in Washington this weekend were also confirmed amid the worst financial crisis in 80 years.
    So CBOT grain traders will look for some carry-over effects for at least corn and wheat starting on Sunday night and into day trading on Monday to see if fundamental grain demand will start showing its hand and underpinning the board.
    One thing for certain: Chicago Board of Trade corn options trade will be interesting in the coming week and potentially volatile given the huge open interest in December options.
    “There are over 1.2 million Dec options open that are going to expire on November 21,” Patrick Quaid, a corn options floor trader, noted on Friday.
    USDA will issue its weekly crop progress after Monday’s close, with traders expecting corn harvest at least 80 percent done, trailing the average pace of 90 percent by mid-November.
    Time is running out for harvest with the week ahead one of the last clear windows to wrap it up. North Dakota’s crop report last week said some farmers do not expect to get back into fields to harvest until spring as recent snows pretty much put an end to their efforts.
    Sunday saw some scattered light snow in the Chicago area.
    The lateness of harvest continues to feed some talk that USDA will cut its final 2008 U.S. corn production total in January. This past week, USDA trimmed both its U.S. corn and soybean output estimates to reflect smaller expected yields.
    A sidelines event last week in Chicago also gave traders another wild card to worry about in the coming year.
    At the annual Futures Industry Association meeting, the tone of the discussions was more sobering than in past years as “derivatives” has become a term of derision during the world financial crisis — even if OTC and other unregulated private markets rather than exchanged-cleared contracts have been in the cross-hairs of critics.
    But one fact FIA attendees agreed on: more regulation and oversight is coming, a message underscored by comments from the outgoing CFTC chairman at the start of the FIA’s meeting:
    “The United States should scrap the current outdated … framework,” said Walter Lukken, acting chairman of the Commodity Futures Trading Commission.
    “If any opportunity and time would allow us to do this, this is the time,” Lukken said. “We should think boldly.”

USDA crop report first on the agenda for CBOT grains

This week begins with a fresh crop report from the U.S. government. USDA on Monday will update its latest U.S. and global supply-and-demand figures, featuring new 2008 American corn and soybean output numbers.
    The report comes on the heels of the agency’s unprecedented correction of its Oct. 10 crop report nearly two weeks ago when it found in error its acreage forecasts — cutting one million harvested acres off of both corn and soy.
    The general feeling is that USDA will raise its corn production and ending stocks projections to reflect strong harvest yields. In contrast, soy output and supply estimates will likely be lowered due to disappointing crop yields.
    World and U.S. wheat supply forecasts were seen dropping because of dry growing conditions in Argentina and Australia and a better-than-expected export pace for U.S. wheat.
    “After the report we’ll watch the outside markets, especially the energies which have a large influence over the grains,” one cash-connected CBOT trader said.
    The outside markets dominated the moves in CBOT grains and oilseeds last week. All slipped on signs of a deepening global recession. The Dow industrials fell 4 percent to end below the 9,000-mark. Crude oil sank $6 on the week, closing Friday at $61 a barrel after hitting a 19-month low the day before of $60.16 due to easing demand.
    It was a week with plenty of news, including the election of a new U.S. president and the worst jobless rate in more than 14 years.
    That brought added volatility to the Dow industrials, with CBOT markets tagging along. The Dow saw its biggest Election Day rally in history on Tuesday as investors savored the end of uncertainty surrounding the presidential election, followed by stocks having their worst two-day slide since October 1987.
    Within CBOT markets, soybeans held up the best, falling just 1 percent compared to corn which was down more than 6 percent and wheat 3 percent lower.
    China’s voracious appetite for U.S. soybeans and a lack of farmer sales supported CBOT soy markets. Corn, on the other hand, is seeing mediocre demand given the ailing ethanol industry and stymied export sales.
    Undoubtedly, CBOT markets will be driven by the economic landscape in the week ahead while waiting with bated breath for President-elect Barack Obama’s pick for U.S. Treasury secretary.

Behind Brazil’s hydroelectric dams, a fisherman’s dream

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    Environmentalists have long disparaged the evils of hydroelectric dams in Brazil: they flood large swaths of forest, displace indigenous groups and wildlife, increase water evaporation and salination, as well as emit methane from decaying submerged forests — a particularly bad greenhouse gas.
    But, while it hardly deserves consideration in the more important environmental debate, hydroelectric reservoirs are a fantastic resource for the sports fisherman and the beautiful and aggressive tucunare, more widely known as the peacock bass.
    Seven varieties of the colorful fish, which is really a cichlid and not a bass, inhabit the waterways of Latin America’s tropical and subtropical zones. Several large-scale sport fishing outfitters cater to American, Japanese and European fishermen, bringing them to remote tributaries on the Amazon. But these trips are logistically difficult, often involving a complex combination of planes, taxis and boats. They also often run several thousand dollars for a week.
    But fishing on the reservoirs along several of waterways outside of the Amazon region and only a few hours drive from Sao Paulo or Rio de Janeiro are much cheaper and less complicated, while still offering many exciting hits.
    The fish, also known in Portuguese as pavao – peacock because of the big eye-like dot on its tail to confuse predators, thrives in the warm fresh waters of the reservoirs, which are fecund with surrounding plant and animal life. The tucunare grow to more than 20 lbs (10kg) in some cases, feeding on young piranha and other fish. They are super aggressive and an superb sport fish. If you don’t enjoy fishing peacock bass, you probably aren’t made out for the sport.

from The Great Debate:

Commodities and the Great Conundrum

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John Kemp-- John Kemp is a Reuters columnist.  The views expressed are his own --


By John Kemp

LONDON (Reuters) - By driving up long-term real interest rates, the forthcoming flood of U.S Treasury borrowing threatens to crowd out the amount of capital for investing in other asset classes, creating a much tougher environment for commodity prices over the next two to three years.

Like many other asset classes, commodity prices have benefited from an influx of funds in recent years driven by three related factors:

Grain Market Movers: U.S. Presidential Election; Recession Views

Once again moves in Chicago Board of Trade grain markets last week were affected by global economic factors, strengthening as moves by central banks and governments to ease credit strains by cutting interest rates began to bear fruit as volatility subsided a little. 
    Financial markets rebounded some. The Dow industrials up 7 percent for the week — exactly the same rise seen in CBOT corn and soybeans. Chicago wheat was up 4 percent.
    CBOT grains markets will undoubtedly mimic the moves in the financials again during the coming week, with both commodity and stock markets driven by macro economic forces and recession views.
    The number 1 event and market mover will be the U.S. presidential election on Tuesday. I haven’t talked to anyone on the trading floor, anywhere for that matter, that is not welcoming Tuesday. After more than two years of political speeches, bantering and heated discussions, it’s time for a decision.
    Key domestic government data released next week includes unemployment figures out on Friday. Reports are expected to show that U.S. nonfarm payrolls shed some 200,000 jobs in October, according to a Reuters poll, while the unemployment rate is forecast to rise 6.3 percent. After the Fed last week cut interest rates by a half point, as expected, further evidence of economic weakness will fuel sentiment for more cuts to buoy the economy. Cheaper money is always supportive for commodity traders.
    Specific to the grain markets will be harvest progress and early analysts’ estimates of what they think the U.S. government on Nov. 10 will project the size of the 2008 American corn and soy crops. Those numbers should be especially interesting given USDA’s latest blunder in crop reporting.
    USDA on Tuesday issued its “oops” update to the Oct. 10 corn and soybean acreage numbers — cutting both by 1.0 million acres after the agency discovered an error due to a suspected computer glitch.
    “I do not know of another time we have corrected a crop report” in mid-month, said Carol House, head of the Agricultural Statistics Board.
    As far as yields, the general sentiment is that soybeans continue to be disappointing while corn is coming in at or above expectations. Currently, USDA is forecasting the soy yields to average 39.5 bushels per acre nationally and corn just under 154 bpa.
    Weekend weather across the Midwest has been nearly perfect for harvest. That was just what farmers ordered as they were running about two weeks behind in getting crops tucked away for winter.
    Traders expect USDA late Monday to report a big jump in harvest progress from last week when only 39 percent of the corn crop was harvested. By early November, typically 80 percent of the corn harvest is complete. Most of the soybean crop should be off the field.

The reshaping of commodity markets: John Kemp

Only the brave or the foolish would make predictions about the future amid the biggest market upheaval in three generations. But it is already clear the crisis is profoundly reshaping the commodity trading industry. 
 
Our commodities and energy columnist John Kemp, formerly an economist for RBS Sempra in London, lays out his thoughts on how the industry will be remade over the next few years. Click here to read. 

Clueless about copper … in Chile?

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Nearly 20 foreign correspondents showed up this week to a meeting at the Chilean Copper Commission (Cochilco) to hear the world’s top authority on copper give guidance on where prices were headed.

Maybe copper has not been the sexiest story.  But as a mining correspondent based in Santiago, it must be the first time I’ve attended a news conference where most of the reporters had absolutely no clue about the metal.