Commodity Corner

Views on commodities and energy

from Global News Journal:

Trying to deconstruct Chinese oil policy

china-fuel.jpgChina's surprise decision late on Thursday to slash subsidies on fuel prices has been welcomed as a sign that Beijing is intent on reducing the pace of oil demand growth in the world's second biggest energy consumer.

That, in theory, should help contain the upward spiral in world oil prices that took crude to a high of nearly $140 a barrel last week. Nine out of 10 analysts polled by Reuters immediately after the news took that line. But there is a contrarian view.

Previously unprofitable refining companies, obliged to sell at prices set by the state, will now be turning enough profit to fully meet transport fuel demand for the first time in weeks. Rationing and queues will be alleviated. Chinese refiners would then need to buy more crude, not less, from world crude markets.

The timing of the decision was a surprise. While other Asian countries had been easing subsidies, Beijing wasn't expected to move until after the Olympics was safely out of the way, for fear higher prices might cause unrest.

How Many U.S. Acres Will Be Lost To Floods?

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iowapix.jpg    Agronomists, government officials, insurance adjusters, grain analysts, traders … the list goes on and on … are asking: How do we get a handle on how many crop acres are underwater in the U.S. Midwest after the extensive flooding.
    The truth is nobody knows and no one is going to know the extent of the damage for a long time.
    “The key word is uncertainty. We’re getting close to the end of time to replant crops but that leaves a lot of unknowns — how severe is the crop damage in those areas that survived, how stunted are they going to be, what’s the true effect going to be on yield and that depends on the rest of the summer,” said Bob Nielsen, extension agronomist with Purdue University in Lafayette, Indiana. 
    “It’s a very confusing mess.”
    Iowa, the No. 1 row crop state, was the hardest hit as many rivers swelled beyond their banks. Cedar River at Cedar Rapids rose to record levels over the weekend. In the state’s capital city of Des Moines, which is surrounded by corn and soybean fields, a levee holding back rising flood waters broke and swamped the city. It is the worst flooding the city has seen in 15 years.
    Now all the attention is on the Mississippi River, the main shipping artery for grains to Gulf export terminals, waiting to see how many levees break and the resulting damage.
    The swollen Mississippi River has flowed over 23 levees in Missouri, Iowa and Illinois with more at risk with another 25 at risk — an area protecting hundreds of thousands of crop acres, the U.S. Army Corps of Engineers said.
    USDA’s Iowa state crop report issued late Monday gave the world a hint on the damage so far — reporting that 9 percent of Iowa’s corn acres were flooded and 8 percent of the soybean crop was flooded.
    That equates to 1.19 million corn acres and 784,000 soybean acres based on USDA’s March planting intentions report.
    That’s just for Iowa. Illinois, Minnesota and Indiana, three other top five corn states, have also had floods, along with Wisconsin, Michigan, Missouri and Kansas.
    Many hope that the June 30 planted acreage report will give a better clue of the damage. But the bottom line: those farmer surveys were conducted during the first two weeks of June before much of the flooding and levee breaks this week.
    The director for USDA’s Illinois Agricultural Statistics Service (NASS) office told Reuters this week that said the government is planning a special acreage survey taking into account of the flooding, with results likely published in July.
    The details of the survey are sketchy right now but more details are expected this week.

Broken levees wash corn hopes away

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floodpix.jpgOnly two months ago, Americans imagined bumper corn and soybean crops in 2008 would ease the pain of rising food costs and provide a plentiful, if controversial source, of ethanol to dilute record gasoline prices. Those ideas are now washed away …

Today, millions of acres of prime U.S. farmland are under water only weeks after being planted. So far 19 levees have failed on the swollen Mississippi (see a government map of the flood area here,) as a hump of floodwater moved downriver. Most were agricultural levees protecting corn and soy fields. The Army Corp of Engineers, which operates river locks and dams, said seven more levees may overtop in the coming days. Among the most fertile farms in Iowa and Illinois, the two biggest corn producers, have land that lies in the Mississippi River’s expansive floodplain.

U.S. Corn Belt Under Siege By Flooding

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It is hard to believe how many storms have moved through the Midwest in the past week, spawning tornadoes, flooding farm fields from Nebraska to southwestern Ohio.
    Iowa, the top crop state, seems the hardest hit with the Cedar River at Cedar Rapids at record levels.
    In the state’s capital city of Des Moines, which is surrounded by corn and soybean fields, a levee holding back rising flood waters broke this weekend and swamped the city. It is the worst flooding the city has seen in 15 years.
    Much of the state got a break from the torrential rains on Saturday but more storms from Nebraska were headed eastward on Sunday.
    Along the Mississippi River in Quincy, Illinois, Democratic presidential candidate Barack Obama over the weekend joined volunteers and filled sandbags to hold back the river, the main artery used to ship grain to Gulf export terminals.
    However, officials have closed 300 miles of the upper-Mississippi River to barge traffic due to rising water levels. It is expected to remain shutdown for weeks.
    Everyone is trying to figure out how many acres have been damaged, a factor that spurred Chicago Board of Trade corn futures to set record highs every day last week.
    An Iowa State University state agronomist Palle Pedersen estimated on Friday about one-quarter of Iowa’s soybean acres and at least 8 percent of the state’s corn either have not been seeded or will need replanting due to flooding.
    But the saturated conditions will make it tough for farmers to move equipment through fields even if it stops raining. Late planted crops can yield 50 percent less than those planted before early July and all the rains have washed out previously applied nitrogen fertilizer, a much-needed input for corn to reach good yields.
    Many hope that the U.S. Agriculture Department weekly crop progress report released Monday afternoon will give some insight into the country’s crop damage and planting status.
    Last week USDA reported that only 77 percent of the soybean crop was planted, compared to 89 percent for the seasonal average.
    USDA rated 60 percent of the corn crop as good to excellent, down from 77 percent a year ago.
    That was before last week’s powerful storms that dumped several inches of rain on crops across the entire Corn Belt.
    Forecasters on Sunday were calling for drier, cooler weather this week for the Midwest.

Desperate times. NJ employees steal gasoline from state

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Just as the U.S. Department of Energy was telling the American public to brace for gasoline prices up to $4.15 cents this summer, 13 people were indicted in New Jersey on charges of stealing the increasingly pricey fuel  from the state, according to a press release on the NJ Attorney General’s website.

Twelve of the people charged with gasoline theft were New Jersey government employees, who allegedly filled up their personal vehicles at state-owned gas pumps. The degrees of theft varied wildly, from stealing 12 gallons to more than $1,000 worth gasoline, the press release said.

The Rain Keeps Coming: No End in Sight This Week

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indiana-flooded-field.JPGThis spring is definitely a classic case of Rain Doesn’t Always Make Grain.
    Powerful storms pummeled the U.S. heartland over the weekend — an area that’s already soaked after a week of heavy rains — increasing the likelihood that this year’s corn and soybeans will not reach their maximum yield potential.
    “There are Noah’s Ark-like conditions in the Midwest through next week,” said Vic Lespinasse, analyst for grainanalyst.com.
    All week the western belt was the hardest hit. Day after day there were reports that areas received a couple inches of rain. Young corn and soybean seedlings were standing in flooded fields, not only limiting the development of their root systems but actually suffocating plants.
    Then this weekend violent storms ripped through the Midwest again, spawning tornadoes in Iowa, Wisconsin, Illinois and Indiana on Friday and Saturday.
    In Indiana, for instance, travelers saw miles and miles of corn fields with plants 4-5 inches of growth standing in water that resembled Vietnam rice paddies NOT Midwestern row-crops.
    This is especially worrisome this year as farmers hoped for ideal growing conditions given the huge world demand for grains and oilseeds for food and feedstocks to produce biofuels.
    All the rain means many corn and soybean fields will need to be replanted and heightens the possibility of fungal diseases in the maturing Midwest soft red winter wheat crop.
    Already, many U.S. grain analysts are expecting the U.S. Agriculture Department, in a rare move, to shave its production estimates in Tuesday’s monthly crop report. Typically, USDA does not make any adjustments to yields or acreage this early in the season, but many analysts feel there’s reason to do it this spring.
    The closest comparison to this season’s weather is 1993, meteorologist Mike Palmerino with DTN Meteorlogix said this week.
    That summer U.S. crops suffered from weeks and weeks of rain which eventually caused the Mississippi River to flood — washing out surrounding corn and soybean fields in the heart of the crop belt.
    “What’s different this year is the rain has started earlier than in ’93,” Palmerino said.
    So, a combination of record high crude oil prices and the current unfriendly weather for crops does not spell a return to cheap food any time soon, analysts say.

Photo: Washed out corn field near Goodland, Indiana, about 100 miles southeast of Chicago, following torrential storms and high winds that hit the area on June 7.  Photo taken by Julia Bohan on June 8.

from Global Investing:

Growth in oil futures outpaces oil consumption

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Here's a look at the average daily volume of oil futures on the NYMEX expressed in terms of global consumption of oil. As the chart makes clear, the number of paper barrels traded every day on the NYMEX is now over three times the number of actual barrels consumed every day worldwide. On Friday, as oil surged to a record $139 a barrel, the volume on the NYMEX was over 5.2 times average daily consumption. The chart gives some indication of the boom in oil and commodity futures in general.

from Global Investing:

Consumer sentiment: Men are more pessimistic (and that’s rare)

 

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As a rule, women are more pessimistic than men. The pattern has been among the most consistent across years of tracking U.S. consumer sentiment in the Reuters/University of Michigan survey. Since the survey began tracking gender differences in outlook in January 1978, women have shown a higher sentiment reading just twice.

Things changed this month.

The long-term trend continued in May as overall consumer sentiment dropped to a 28-year low. Yet the mood among women improved slightly whereas sentiment for men soured for a fourth consecutive month, dropping to the lowest since 1980 (second graphic above). Moods darkened for men by the biggest margin in nearly three years, since the aftermath of Hurricane Katrina.

More rain for the U.S. Midwest as farmers try to finish planting

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 ”Rain makes grain” is the old saying on LaSalle Street. But rains are the last thing struggling farmers need right now as they try to get their corn and soybean acreage planted in the U.S. Corn Belt from Nebraska through Ohio, Minnesota through Missouri. Tornadoes, thunderstorms, hail and flash floods continued to rake the region over the 3-day Memorial Day weekend. So weather and planting progress will remain front of mind in the coming week.
    Temperatures have also been well below normal this spring, hampering emergence of corn. At this rate, it will take a long warm dry spell to get the Midwestern corn crop “knee high by the Fourth of July” in many parts of the belt. That will have implications for yields especially if weather during pollination in July and August turns hot and dry.
    The wet spring has generally kept corn and soybean planting one to two weeks behind normal. But over the past week the attention of traders seemed to turn more toward the cool temperatures that have slowed emergence.  
     A turn to warmer weather in the Midwest last week was viewed as bearish, traders said, since it promoted better emergence. Weekend temperatures in the Midwest also warmed up.
    USDA will issue its next weekly crop progress on Tuesday afternoon, the day after the U.S. Memorial Day market closure on Monday.
    On Friday, traders said they expect the government to report U.S. corn planting at 85 to 90 percent complete, compared to the five-year average near 95 percent. Soybean planting should be about half way done, versus the seasonal average near 77 percent.
    Aside from Corn Belt weather, the usual outside market drivers for speculators — crude oil prices and the dollar — can be expected to factor into fund buying or profit-taking in grains this week. The conflict between Argentine farmers and the government there will also continue to spur some buying and selling.
    The Argentine situation is keeping the soy markets nervous. One day it appears the two groups will resolve their differences over a soy export tax; the next day they are at odds. Argentina is a top soybean exporter in the height of its shipping season; it is also the world’s largest exporter of soymeal.
    CBOT pit traders said the ups and downs of the Argentine negotiations has raised the volatility in the CBOT July/November soybean spread. That old crop/new crop spread moved from an inversion to a normal carry on Wednesday as the outlook for an Argentine agreement appeared close, then back to a slight inverse on Thursday that jumped back up to a 14-1/2 cent inverse by Friday as the Argentine export outlook stayed uncertain.
     But when the spread turned to carry on Wednesday, traders said, many grain merchandisers took the opportunity to roll their spot basis bids to the CBOT November contract from the more volatile old-crop July. 
     A final trading situation to spotlight: traders noted some concerns about June $6 corn options being exercised over the weekend after July futures settled at $5.99-3/4 a bushel on Friday, which was the last trading day for June options. Since traders basically “pinned” the strike, firms could decide to exercise June $6 options into July futures.  
    That could add a little extra volatility to prices on Monday night or Tuesday morning. But the first session after the markets open after a long holiday weekend is usually a little more active anyway. 

from Global Investing:

Pickens sees oil at $150… here’s a look at his track record

T. Boone Pickens told broadcaster CNBC he expected crude oil prices to keeping going up. "I think we'll get to $150 this year," he said. Analysts at Birinyi Associates, Inc. today put his projections over the past two years against the movement in the price of oil. They concluded the oil investor's views shouldn't be ignored.

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1 Was surprised oil went down this much (19 month low) still thinks oil will average $70 in 2007
2 Could exceed $70 in 2007
3 Oil will reach $75 before $55
4 Oil will likely reach $78 this year
5 Says $4.50 gasoline will be possible this summer
6 Oil will average $70 for rest of 2007pickens_image.jpg
7 "No way you can be short oil"
8 Oil may surpass $100 on a geopolitical event and will rise to $80 within 6 months
9 $80 oil could push US into recession
1 0 Oil to retreat before hitting $100
1 1 Oil to hit $100 within a year
1 2 Oil to hit $100 within 6 months
1 3 $100 oil will be routine
1 4 Oil to decline by $10 to $15 in 2nd quarter, which would be to $83
1 5 Oil to stay above $100 in 2nd quarter
1 6 Reversed bet on oil and thinks it will now rise. Covered his short and is now long
1 7 Thinks oil wil rise to $150 by end of 2008
1 8 Thinks oil will go to $150 in 2008