Commodity Corner

Views on commodities and energy

The Corn Conundrum

Corn is really caught in a conundrum these days — evident by the price moves on the Chicago Board of Trade futures market the past week. One day corn is the darling of the trade, rising to a high of $6.41-1/4 per bushel for delivery in December, the first contract representing the 2008 harvest.
     The next day it struggles amid the bashing of corn-based ethanol production that seems to be gaining hold in Washington. Several senators including Kay Bailey Hutchison (R-Texas) said this week it’s time to take a serious look at the U.S. corn ethanol mandate calling for 15 billion gallons by 2015 and 36 billion gallons by 2022. The federal mandate for this year is 9 billion gallons.
    “It seems like all the politicians are ganging up on ethanol,” said Vic Lespinasse, with grainanalyst.com in Chicago.
    Even the USDA’s chief economist Joseph Glauber in his testimony to Congress on May 1 included ethanol among the reasons for the rising price of food:
    “In 2007, the Consumer Price Index for food in the U.S. increased by 4 percent. This was the largest annual increase in retail food prices since 1990. In 2008, the Department of Agriculture’s Economic Research Service projects retail food prices will increase by 4 to 5 percent.
    “Several key factors are shaping the current situation, including domestic and global economic growth; global weather; rising input costs for energy; international export restrictions; and new product markets, particularly biofuels.”
    But so far nothing has changed officially on the demand side for corn. Ethanol producers are projected to use 3.1 billion bushels of corn this year, or 24 percent of the 2007 crop.
    So a policy change slowing ethanol demand would spark waves of spec profit-taking — and a tidal wave of grain hedge selling to lock in $5-6 corn on the board.
    On the other side of equation you have a wet, cold spring that’s raising concerns about how much corn farmers will be able to plant before May 15 — farmer’s target to plant corn so the crop reaches its maximum yield potential.
    Soil temperatures need to be roughly 50 degrees to plant corn and fields are saturated with standing pools of water in many.
    Traditionally, the last week of April and the first week of May are the biggest corn planting weeks in the Midwest. Not this year. Planters have been scarce and basic prep like discing or fertilizer application also are weeks behind.
    So far, U.S. farmers are off to their slowest start since 1999. The U.S. Department of Agriculture will issue its next crop progress on Monday afternoon. One would have to guess that depending on how much corn is planted –  it will drive CBOT prices Monday night and Tuesday. Preliminary guesses is for USDA to report 25-30 percent of the crop seeded, versus the seasonal average of 63 percent.
    Granted U.S. farmers can plant corn quickly given today’s 24-row planters. But it’s got to stop raining and warm up.
    “There is no sign of a major change in the pattern which means no wide window for planting for the next week to 10 days,” said Mike Palmerino, forecaster with DTN Meteorlogix.
    “There will be occasional planting when there’s a break in the rains … the stronger sun will work to their advantage.”
    It rained again on LaSalle Street on Saturday though the sun finally came out again on Sunday with temps in the 60s F.

Plotlines: Gold falls vs oil, a murky inflation signal

Photo

080430_oil_in_gold.gif

Gold’s oil-buying power is at its lowest in three years. (The chart shows the price of oil rising relative to the price of gold.) Hedge funds and other traders who play the gold/oil spread could be taking profits. Otherwise, this is hard to explain, since gold is considered a leading indicator of inflation.

In the past two weeks, crude oil prices rose to a record near $120 a barrel, while the spot price of gold fell from around $950 to $870 an ounce. Today an ounce of gold buys 7.65 barrels of oil. When gold was near $1,000 an ounce earlier this year, an ounce bought more than 10 barrels of oil. Gold’s weakest point relative to oil was in 2005 around 6 barrels.

A Tsunami of Food Inflation Stirs Shortage Fears

It is a tsunami — a wave of food inflation moving across the world. With it has come a tsunami of news stories on the subject as if the shortage of food is a surprise.A rising population, a larger middle class in Asia demanding a better diet, and a biofuel craze that uses food for fuel all pointed to higher prices for easily the past 18 months.

 ”Everywhere you see, there is some story about food shortages and hoarding and tightness of supplies,” said Neauman Coleman, an analyst and rice broker in Brinkley, Arkansas.

U.S. weather key driver for Chicago grain prices

Outside market factors like the value of the dollar, the U.S. credit crunch, the price of gold and crude oil will continue to be big contributors to price direction for Chicago Board of Trade commodities this spring. But fundamental inputs — export demand, shrinking grain supplies, weather — are getting more play — with the biggest influence being weather in the United States, the world’s largest food producer and exporter. 

    We saw what happened to CBOT rice prices last week when fears about tight world rice supplies led governments to hoard and ignited food riots in places like Haiti.  CBOT rice made a series of all-time highs, four straight days during the week ended April 18, climbing to over $24 a hundredweight by Friday. That was more than double its value a year ago.  

Copper conference… like speed dating

Photo

twist_small_7.jpgThe lobby of the Hotel Hyatt in Santiago is abuzz. Look at the bar area, poolside, or anywhere where else and you’ll see people deep in conversation, in pairs, threes or fours. Take another snapshot a half hour later and the same spaces will be occupied by different faces.If it weren’t for the relative lack of women, you’d think this was speed-dating – quick meetings and quick decisions about whether or not to continue with a relationship.twist_small_4.jpg

In fact, these are high-powered executives from some of the world’s largest copper companies, producers, buyers and sellers, and they are in Chile to do business.twist_small_6.jpg

Women drivers better than men in the mining monster trucks

Photo

One of the unexpected findings from executives and analysts attending the monstertruck02.jpgCESCO and CRU copper conferences in Santiago, Chile: Women are better drivers than men in those house-sized trucks roaming surface mines around the world. They’re said to be more cautious and that reduces wear and tear on the 13 feet-high tires they rumble around on.

Watch this video uploaded to YouTube to see the monster-of-monster trucks in action.

Santiago, the city that copper built, takes flight

Photo

rtr1z84m.jpgSpeeding from the airport to the Grand Hyatt Hotel in Santiago, you get the impression that tunnelling comes naturally in Chile. It should. The country is the kingdom of copper and home to many of the world’s largest mines. There’s Escondida (right), an enormous open-pit mine that can be seen from space. At El Teniente (pictured below left in a company Web site photo), thousands of mineworkers commute every day several kilometres deep undEl Tenienteer the Andes.Hundreds of copper industry executives landed here this week for the annual CESCO and CRU copper conferences. With copper prices near record highs, Chile is rolling in money from its mines, which produce about a third of the world’s copper. The wealth isn’t showy in conservative Chile. But you see it everywhere. Santiago is clean and orderly (and spectacularly located at the foot of the Andes.) You feel safe jogging or strolling in its many parks. There is little overt poverty, unlike elsewhere in South America.

The trip downtown from the airport now takes about 25 minutes. Four years ago, before the sleek Costanera Norte freeway tunnel opened, travelers had to endure a bumpy, meandering hour-long cab ride through endless neighbourhoods. The city is sprouting new highways like Nororiente to its suburbs. Americans can feel at home, a shopping mall boasting the highest tower in Latin America, Costanera Center, is going up in the heart of Santiago’s new financial district – locals call it “Sanhattan.”

Too Much of a Good Thing: Rain

Photo

field_1.jpg   It’s an old saying on LaSalle Street that “rain makes grain.” But too much of a good thing this spring could end up to be a real drag on U.S. crop yields if Midwest farmers can’t get their corn planted by the middle of May.

    That was the worry among CBOT grain traders late this week as the heart of the U.S. Corn Belt can’t seem to break into spring.

from From Reuters.com:

Plotlines: “Early-cycle” stocks outperforming so far this year

080402_plotlines.gif

A basket of stocks meant to send the first smoke signals of broader recovery is on a tear. Will the broader market follow?

The Merrill Lynch early cycle index, made up of auto makers, home builders, retailers and building materials companies, is up 6.8 percent this week and 7.25 percent so far this year. To compare, the benchmark S&P 500 is off 6.5 percent in 2008. (All of the XE components are in the S&P 500). Within the XE, there have have been big comebacks in home builders - Pulte Homes

No more ‘beans in the teens’? U.S. farmers plan more soy, less corn

Photo

intended-plantings-graphic.jpg

American farmers are chilling on planting corn, or at least Monday’s USDA data points to a backlash against the overplanting of corn in 2007. So does this mean the ethanol promise is beginning to fade?

Soybean futures dropped their exchange-set maximum at the Chicago Board of Trade on Monday after the Department of Agriculture released its widely anticipated report on prospective plantings by U.S. farmers.