Commodity Corner

Views on commodities and energy

U.S. Midwest Greenhouse Conditions: Bigger Crop Yields

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corn2.jpgChicago Board of Trade corn, wheat and soybean markets fell to their lowest levels in months last week as 2008 U.S. crop prospects keep improving.

Corn was the hardest hit, falling to a four-month low, as greenhouse like conditions across the U.S. Midwest during July are raising ideas that crop yields are improving from earlier expectations. July is the most critical month for determining corn yields as it pollinates this month. Basically the crop is in the midst of pollination with little to no stress.

“When it rains in July it means bigger crops,” said Roy Huckabay, analyst with The Linn Group in Chicago. “Corn acts tired.”

Other analysts and traders said they too are hearing more talk of bigger corn yields, up from USDA’s current forecast of 148.4 bushels per acre, compared to last year’s national average of 151.1 bushels an acre.

U.S. Midwest Greenhouse Conditions: Bigger Crop Yields

Chicago Board of Trade corn, wheat and soybean markets fell to their lowest levels in months last week as 2008 U.S. crop prospects keep improving. 
    Corn was the hardest hit, falling to a four-month low, as greenhouse like conditions across the U.S. Midwest during July are raising ideas that crop yields are improving from earlier expectations. July is the most critical month for determining corn yields as it pollinates this month. Basically the crop is in the midst of pollination with little to no stress.
    “When it rains in July it means bigger crops,” said Roy Huckabay, analyst with The Linn Group in Chicago. “Corn acts tired.”
    Other analysts and traders said they too are hearing more talk of bigger corn yields, up from USDA’s current forecast of 148.4 bushels per acre, compared to last year’s national average of 151.1 bushels an acre.
    USDA’s August 12 crop report will be the first of the season to project corn yields based on actual field surveys. It will also include data from a special survey of Midwest crop fields hardest hit during the June floods to get a more accurate read on total U.S. corn and soybean acreage.
    Given the mild weather over the past week, traders expect the government to report in its weekly crop progress update late Monday that U.S. corn and soybean ratings improved the past week. Last week USDA rated 65 percent of the corn crop and 61 percent of the soybeans good to excellent.
    The weekly data should also show that the U.S. winter wheat harvest is nearly complete, with the northern region the last to finish up.
    Soft red winter wheat basis levels continue to sink as big supplies flow into Midwest terminals. The spot basis at the Gulf was $1.60 under September futures late Friday, traders said, as grain dealers are discouraging more deliveries  wanting to keep enough storage open for corn and soybeans to be harvest this fall.
    The week ahead for CBOT markets promises to provide lots of volatility. Key factors traders will be watching include:
. Weather forecasts. Any switch from the current benign weather pattern could help corn and soybeans to recover, bringing wheat along. August corn failed to end the week about $6 a bushel, despite the rally on Friday when corn benefited from spillover buying in wheat.
. CFTC meeting. The Commodity Futures Trading Commission is meeting on July 29 in Washington with representatives from U.S. grain industry and the CME Group, parent of the CBOT, to discuss the contract performance of CBOT contracts. CME met with Chicago traders and grain officials last week in Chicago to come up with suggestions that will be among the ideas presented at Tuesday’s meeting. 

Photo: Pollinating Illinois corn of variable growths due to late planting or flooded soils early in the season. Photo taken near Bolingbrook, located 30 miles west of Chicago, on July 27 by Peter Bohan. 

Pawnbroker, massage clinic, Hooters, among SemGroup creditors

Massage clinics, McDonald’s restaurants, Hooters, funeral homes and a Canadian pawnbroker specializing in gold jewelry are among the hundreds of companies listed as creditors by failed U.S. energy trader SemGroup.
SemGroup filed for bankruptcy on July 22 after suffering $3.2 billion in losses on energy futures and derivatives trades.

If you’d like to have a look at some of their other creditors, check out this document.

Crunch Time for U.S. Corn — So Far, So Good

  There is nothing like nice weather during July to take some risk premium out of Chicago Board of Trade grain markets. The weather in July for corn pollination, the critical yield-determining period for U.S. corn, has been just what the doctor ordered. Corn likes hot days and cool nights, and the Midwest crop has had both this month. With some timely rains mixed in to reduce plant stress, the late-planted Corn Belt crop is coming back nicely — making good pollination now look like a “cinch” this summer, as one CBOT grain trader said this week. 
     As a result, corn prices have deflated nearly 20 percent since making their record top above $8 a bushel in June amid flood worries. 
    Soybeans have followed along with corn’s slide, with growth also benefiting from the prime conditions in the Midwest. But soy prices have retained more of a risk premium, down 12 percent after notching all-time highs above $16 a bushel two weeks ago. 
    Traders remain more concerned about soybeans, which may have been harder hit by the June flooding — soybeans don’t like their feet wet and are always later-planted than corn anyway, causing their root development to lag corn. The critical flowering and pod-filling stages for beans also trails corn, so continuation of July’s excellent crop weather through August will be key for this year’s yields.
    The very tight end-stocks outlook for both corn and soybeans also provide a daily reminder to traders of the razor’s edge that grain supply-demand will be on in the coming year. Even before the June floods, U.S. corn stocks a year from now were already projected at 13-year lows. Soybean stocks are even tighter. Grain traders and analysts were stunned by the July supply-demand report from the U.S. Agriculture Department which showed a revision to the 2007-08 soybean balance sheet putting “residuals” at a -35 million bushel deficit.
    “That’s never happened before,” said Mike Woolverton, agricultural economist at Kansas State University. “We simply have to have a good harvest this year or we’ll be in trouble.”
    News that Argentina repealed its controversial soy export tax hike on Thursday was really the big pressure point for beans, soymeal  and soyoil as well. Argentine farm protests about the tax over the past four months in effect paralyzed  exports from the world’s third largest soy exporter and  its top meal and oil supplier. 
    U.S. farmers benefited from the situation as world buyers extended their buying out of the United States. There was talk on the CBOT grain trading floor by Friday that Argentina was  back open for business and buyers were booking supplies. 
    Besides the weather  and export factors, traders are also eyeing another wild card for futures — rising concerns that U.S. politicians, due to consumer pain over soaring food and fuel prices, will impose greater oversight of domestic commodity markets. The brokerage industry argues such moves will send business offshore. The talk seemed to be shaking some longs out of many commodities  last week. 
    “There is this sentiment that Big Brother is watching. It just feels like funds are paring back on positions,” one veteran trader said.
    The most heavily traded grain contract, corn, has seen open interest fall nearly 10,000 contracts in the past two weeks. 
    There was a big sell-off in crude oil as well. Crude saw its biggest one day drop since 1991, falling below $130 a barrel this week, the lowest level in five weeks. 
     The threat that Big Brother could be watching may also help grain traders get more traction from CBOT and CFTC on the thorny issue of convergence  — or lack thereof — between cash grain prices and CBOT prices.  
     The Commodity Futures Trading Commission has called a second public hearing on the issue for July 29 (the first was April 22), when the grain industry will air their arguments that CBOT’s hedging process is broken. Record weakness in the cash basis for soft red wheat after this summer’s harvest is driving the latest protests to regulators. Fears that corn and soybeans will face another such debacle with this Fall’s harvest, especially if weather turns damaging and futures spike higher, are also red flags grain users are waving.
     The grain industry blames Wall Street hot money inflating futures prices above real supply-demand and CBOT recalcitrance is reining in such hot money, especially “long-only” index funds. The  July 29 meeting is open to the public and could provide more fireworks. 
    For next week the same factors will influence CBOT markets: weather, politicians bantering about oversight of commodities, value of the dollar,  and the direction of crude oil. 
    USDA will issue its weekly crop progress report on Monday. The weather has been ideal so look for conditions to be steady or possibly improve a little, especially soybeans.

July: The Month of Corn

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The next several weeks promise to keep traders nervous and prices volatile as the corn crop goes through its most critical yield-determining development stage, pollination. 
    Any changes in the weather outlook will send shivers through the market. Monday was a case in point. A forecast for scattered, beneficial showers across 80 percent of the U.S. Corn Belt sent Chicago Board of Trade corn prices sliding the 30-cent trading limit.
    This year corn will pollinate about two weeks behind its usual pace, agronomists say, due to cool spring weather and growth-retarding heavy June rains in many areas.
    That means most corn plants will pollinate in late July — typically the hottest and driest period of the summer. A deep, mature root structure to tap groundwater is the key to good pollination and a question mark over lots of corn this year.
    “Then on the backside of the season it tends to push maturity a little closer to a killing fall frost,” said Bob Nielsen, extension agronomist at Purdue University in Indiana.
    The U.S. Agriculture Department reported late Monday that only 6 percent of the corn crop was silking, behind its typical pace of 19 percent by early July. Silks, the female part of the plant, extend from each ear of corn and catch the pollen from the male part, the tassel, to produce each kernel of corn.
    Traders will also increasingly focus on growing degree days, or GDD, a measure of heat accumulation and a barometer of yield potential. Corn likes hot days and cool nights. But heat makes corn, as long as the roots provide enough moisture. 
    Given the cool start to the season, the crop is running well behind in growing degree days. State crop reports will typically will list growing degree days updated each week and compared to seasonal averages. 
    “Many corn hybrids require 2,600-2,700 growing degree days from planting until the crop is mature,” Nielsen said.  
    So corn traders are fastening their seat belts. With USDA already projecting September 2009 US corn stocks to fall to a 13-year low, any heat-related losses in the maturing U.S. crop — even with the question of flood-related losses still up in the air — will no doubt drive expectations for sharper cuts in the market’s thin cushion of supplies. Market prices will tend to rise as those expectations fall. 
     
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“Knee-high by the Fourth of July” 
    Photo of a corn field in northern Illinois taken over the July 4th weekend. An old benchmark used for years to gauge corn development. Typically, corn planted mid to late May will easily be knee-high by July 4th. But corn seeded in late April should be chest to head high by now. June-planted corn will be below the knee. Corn planting ran easily one to two weeks behind normal this year.

How Much Corn Did U.S. Farmers Really Plant This Year?

Of the many years I have reported on Chicago Board of Trade corn prices, 2008 seems like a dream: when was the last time corn was front-page news in U.S. and foreign newspapers, Wall Street cable channels like CNBC, or at the Fed? 
    But we’re not dreaming. If oil is the fuel of the world economy, corn is the fuel of the food economy — the basic feed for meat animals, the basis of the starch and sweetener industries, a food and cooking oil. Add in the hundreds of industrial uses that start with corn, from ethanol to bioplastics to paints, adhesives and other products. Add in the rising middle classes of booming Asia who are demanding meatier diets  — and U.S. corn for their herds. 
    So the historic highs in corn prices — unthinkably high prices, like $140 crude oil, before this year — are perhaps no surprise after all. Corn prices soared above $8 to all-time highs a week ago — more than double the 40-year average price range of $2-4 a bushel. The question is: how high can prices go? 
    Demand seems more of a domestic question mark than a foreign one. If the Democrats win in November, will they roll back the 2007 energy bill’s mandate for ethanol production to soar?
    But more immediately, the market’s focus is on supply, not demand. The US corn crop — responsible for 50 percent of world exports — is now in its key month of growth, its key period for determining yields.
    Corn users have plenty to be edgy about after the worst flooding in 15 years in the U.S. Midwest — the heart of corn production for not just the U.S. but the world. Estimates that as many as 5 million acres of U.S. corn and soybeans may have been lost or needed replanting sent both corn and soybean prices to records last month.
    But last week, USDA calmed some fears when it forecast that farmers planted more corn than most analysts had expected. If the government is right, American farmers will harvest 78.9 million corn acres, the second highest since 1944, just behind last year. The unexpectedly high corn plantings reflected a 1.3 million acre increase from USDA’s March planting intentions report. What of the flooding losses? USDA said it calculated harvested acreage using 90.4 percent of planted acres versus the typical 92.4 percent to reflect the effects of the flooding. 
     There remains much skepticism in the trade about the numbers. USDA said it only had time to do a quick phone survey of some 1,200 Midwest farmers during June 23-25 — ahead of the June 30 acreage report — to a get a handle on farmers’ harvest intentions due to the flooding that occurred during the entire month of June. 
     But an Illinois-based data analysis firm, Lanworth, which uses satellite imagery to project corn and soybean acreage, was not surprised by the government’s latest projections. Lanworth studied satellite pictures from the area between the major rivers in Iowa, the state hardest hit by the floods, to assess how fast fields were drying out and when farmers started to replant, said Nick Kouchoukos, director of information services for Lanworth. 
    The company is currently estimating up to 2.7 million acres, corn and soybeans combined, were lost by flooding, versus the 3.0 million reflected in a USDA state reports compiled by its National Agricultural Statistics Service.
    “We were and still are slightly more optimistic about the extent of the damage than NASS,” Kouchoukos said. 
    USDA plans a second survey of 9,000 farmers later this month to further fine-tune its acreage numbers, which will be first reflected in its Aug. 12 crop report.

from Global Investing:

European industry feels the heat of high oil prices

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Castle Cement furnace

European industry is suffering under soaring energy costs. Profit warnings are becoming more common and industry leaders predict plant closures and job losses may follow.

Companies say they are doing all they can to improve their game but want government help.

from Environment Forum:

Coal growth forecast to reign for decades

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eia.jpgRenewable power sources like wind and solar are some of the fastest growing sectors in the energy business.

But this graph forecasts that coal, the dirtiest power source in terms of carbon dioxide and other pollutants, will still dominate global power generation growth for decades into the future.

from Global Investing:

Nerves of steel as regulators probe iron ore

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iron-ore-graphic.gifAre steel companies really hurting from huge rises in the price of raw materials like iron ore? The biggest miner BHP Billiton reckons they aren't and hopes to sway anti-trust regulators who are reviewing its takeover bid for rival Rio Tinto.

Steel firms from China to Japan to Europe have cited rising raw material costs as they ramp up prices, with Germany's Salzgitter the latest to push the blame upstream.

Bush’s offshore drilling proposal

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President George W. Bush urged Congress this week to end a ban on offshore oil drilling, responding to consumer anxiety over soaring gasoline prices. Bush said opening federal lands off the U.S. coast — where oil drilling has been banned by both a presidential executive order and a congressional moratorium — could yield about 18 billion barrels of oil. That would meet current U.S. consumption for about 2 1/2 years, but it would likely take a decade or more to find the oil and produce it.

The following is a map showing the offshore areas at issue. Click here for a more detailed, high-resolution version from the U.S. Minerals Management Service, which manages the nation’s natural gas, oil and other mineral resources on the outer continental shelf.