Commodity Corner

Views on commodities and energy

USDA’s March 31 planting report: Monday’s annual CBOT fireworks

As I drive across northern Illinois and Iowa, the heart of the U.S. Corn Belt,  during the last week of March it’s hard to believe the planting season is just a few weeks away. Rivers are swollen, fields are flooded and there’s a dusting of snow. Undoubtedly, planting will be the focus of U.S. grain traders in the coming weeks with Monday’s USDA planting intentions report to kick off the season. The grain trade has been waiting for this report for months.

Gathered from USDA farmer surveys and other information like crop insurance applications, the annual seedings estimates are the first “hard” numbers on coming acreage the government provides and will give the trade the first official peek at what U.S. farmers intend to plant this spring.  

The buzz around commodity trading desks ahead of the report was that farmers will decrease their corn seedings by about 6.2 million acres from the massive 93.6 million planted in 2007 – the largest amount of  land planted to corn since World War II.  

In line with that reduction, soybean seedings were seen expanding to 71.7 million acres, up 8.1 million from last year. The jump in bean acres is being largely tied to the cost/returns calculation for soybeans compared to corn when many farmers were making their planting decisions this winter. New-crop CBOT beans for Nov 2008 delivery gained on new-crop CBOT Dec corn from October to March, the ratio rising to 2.51 from 2.39. Soaring prices for nitrogen fertilizer — a key for corn yields — also weighed on corn versus beans as farmers made back-of-the envelope comparisons. 

from Environment Forum:

Navajo Nation struggles to build coal plant

Navajo Nation President Joe ShirleyLike leaders of several other developing nations, Joe Shirley, the president of the Navajos, wants to build coal-fired power generation as fast as possible.
 
Shirley has been fighting to build a 1,500 megawatt plant in Northwest New Mexico called Desert Rock with a company called Sithe Global, LLC. He says it and associated mining would provide up to 400 long-term jobs for his people and pay more than $50 million annually to the nation.
    
The jobs sound good to some of the nearly 200,000 citizens of the Navajo Nation spread across the desert of Arizona, New Mexico and Utah. An opening for a janitorial job at a Navajo college, for example, recently drew about 200 applicants. Many Navajo young men must travel to construction jobs in other states hundreds of miles away.
 
"It's all about putting food on the table, putting shoes on little feet," Shirley told reporters about the plant recently at his office in Window Rock, the capital of the Navajo Nation.
 
Unfortunately for Shirley, his nation, unlike other coal-rich nations like China or India, must get permitting for the plant from the United States. 
    
For years the U.S. Environmental Protection Administration has delayed granting the plant an air permit, saying it has not had enough time to review public comments on an environmental filing on the site.
 
As the permitting process drags on, the cost of the plant has risen -- to about $3 to $4 billion, depending on the strategy it uses to bury emissions of greenhouse gas carbon dioxide, if at all. 
    
And local opposition to Desert Rock has risen. Many Navajos who the plant would push out of their homes south of Farmington, New Mexico have fought it. They said the plant would send most of its power to rapidly-growing Arizona and Nevada while many Navajos would continue to go without power.
    
Opponents said the plant would add to air pollution from two other coal plants in the area, and while strip mining of the coal and unregulated dumping of coal ash would degrade the soil. 
    
One Navajo opponent, Sarah White helped lead a two-week blockade of the earthen roads leading to the proposed site when Sithe dug water wells for Desert Rock. She vows to keep blocking development of the site.
    
Meanwhile, throughout the United States, opposition has grown to plants fired by coal, which emits more CO2 than any other fuel. Plans for coal plants from Texas to Florida have been canceled, while coastal states like California and New York are beginning to regulate greenhouse emissions.
 
Shirley feels entitled to tap his coal, especially because the countries like the United States got rich on the stuff. 
 
But also because China is building several coal fired power plants -- every month. He said if the United States is serious about slowing output of greenhouse emissions, it should stop "picking on the poor Navajo Nation quagmired in impoverishment in its backyard" and talk more with China. "Is it because (China) is a nuclear nation?" he asks about the lack of progress.
        
This week the Navajo Nation announced that it plans to build a 500 MW new wind farm, which adds a new twist for their quest for energy development. 
    
What do you think? Should the U.S. speed up approval of Desert Rock? 

Oil price spike raising fuel prices, eyebrows

Retail fuel prices in the United States have smashed the records and show no signs of reversing course — bad news for drivers heading into the summer vacation season.

The explanation is fairly easy — crude oil prices have quintupled since 2002 because of rising global demand and constraints on supply, and fuel prices have risen in turn. But there are also some eyebrow-raising oddities of note.

Gold, oil fortunes tied to dollar misfortune

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Here are two outstanding examples of the ripple effects around the world when the dollar stumbles. Oil is at a record high at $110 and gold has topped $1,000 an ounce for the first time, while the dollar has fallen below 100 yen for the first time in more than a decade. Most commodities are priced in dollars, so the weaker the greenback, the cheaper it is for holders of other currencies to buy gold and oil. Gold is also generally seen as a hedge against oil-led inflation. Gold has jumped 19 percent this year on top of a 32 percent rise in 2007.

Argentine farmers say government has gone too far

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Every time it looks like relations between Argentine farmers and the governmepampas_plains.jpgnt have hit rock bottom, they get worse.
Exasperated farmers have blocked ports, parked tractors across highways and refused to send their cattle to market in protest at a string of government measures.
They even held a mass prayer rally, hoping the nation’s patron saint might help them resolve the three-year-old row.
This time they have called a two-day strike in protest at an export tax hike that targets their most lucrative crops, soybeans and sunflowers.
Officials say everyone should benefit from the grains bonanza, not just the countryside, which has historically fought with the government in Buenos Aires over the spoils of the country’s farming riches.
They say there will still be an ample profit margin even with the new tax increases.
But farmers say the government has gone too far, and will end up shooting itself in the foot by discouraging the production of the very goods that are swelling state coffers.
Argentina has recovered some of its former fame as the bread basket of the world in recent years, but the rapid rise in export duties that has accompanied soaring global prices means few farmers are celebrating in the famous Pampas plains.

“The worst thing about all this despondency, is that we’re losing a culture.” one farmer told daily La Nacion. “I honestly don’t know if there’s any future in farming for my children.”

Subprime margin calls chip away at grains; USDA, dollar still point to bullish fundamentals

As one Chicago grain analyst Roy Huckabay said last week: “Big prices have big corrections.”
That pretty much summed up last week’s price moves in Chicago Board of Trade soybean markets. To some extent, easing Chinese vegoil cash prices spurred the CBOT sell-off, with soybeans and soyoil hit the hardest — falling 8 percent on the week. A large part of the CBOT soy rally since Jan. 1 was linked to strong Asian demand for soybeans and vegoils.
But most veteran traders said a bigger culprit behind the market dive was a fallout from the subprime debacle. Hedge funds were forced to liquidate positions in different financial arenas late last week to meet margin calls. That spilled over to the CBOT markets, traders said.
Chicago corn closed down the 20-cent limit in all the contracts from May 2008 through July 2009 on Friday, but was off only 1.6 percent on the week. (There are no limits in the March contract as its in delivery.) CBOT wheat also sank on Friday with the May contract sliding 20 cents. But wheat ended higher week-to-week after tanking the week of Feb. 25. The soft dollar, shrinking global grain inventories, and concerns about weather and climate changes impacting crop yields remain supportive factors.
Will we see more selling this coming week? Or does the 8 percent drop in CBOT soybeans and soybean oil spur fresh buying?
Sunday electronic trade should be interesting.

Market factors to watch the coming week:
Global market action. Tight money markets and tumbling stocks and the dollar were expected to heighten worries for investors.
Mounting evidence the economy has entered a recession. Will that lead to investors to fresh buying of CBOT grains as a hedge against inflation or will investors step back from all markets? The government will release the Consumer Price Index, an inflation gauge, on Friday.
USDA to release updated supply-and-demand figures on Tuesday. Analysts expect the government to shave several million bushels off their 2007/08 ending stocks estimates for corn, wheat and soybeans due to strong global demand for U.S. commodities amid a record low dollar and shrinking world grain inventories. A bigger impact on prices will be the March 31 planting intentions report that will give the base estimates for U.S. corn, soybean and spring wheat seedings.
South American harvest progress, especially soybeans. As more Brazilian and Argentine soybeans move into marketing channels, demand for U.S. soybeans should wane. CIF values at the U.S. Gulf were plummeting this past week as export demand eased with the world soy buyers turning to South America for fresh supplies.
National Oilseed Processors Association crush report on Friday. The data will give analysts and traders the first look at the U.S. crushing pace for soybeans during February.

from DealZone:

Goldman to join the electronic attack on CME?

Big mergers among security exchanges could send banks scrambling to make deals of their own.

Goldman Sachs might be the latest member to join a group of 12 companies looking to mount an electronic attack against the Chicago Mercantile Exchange.

Steak prices prove big beef in Argentina

Rising beef prices are a touchy subject for steak-loving Argentines, so President Cristina Fernandez de Kirchner must be none too pleased to see the issue making headlines just a few months since she took over from her husband.

Local newspapers have reported price rises of up to 15 percent in recent days, saying the subject has dominated meetings this week between the president and her economic team.

CBOT wheat passing baton to soybean/oil as market leaders?

    By nature Chicago Board of Trade grain traders love talking about the markets. These days it just doesn’t happen much. Between volatile price moves, exacerbated by electronic trading and huge participation by Wall Street funds, there’s hardly a minute for them to catch their breath. Markets move faster than ever, with most of it, or 85-90 percent done on the screen.

    This week took the cake. A trade by a clearing customer of MF Global, the world’s largest futures/options broker, cost the firm $141 million and caused one of the most wicked moves in CBOT wheat history. That prompted veteran grain traders to ask: What’s next? And doubt whether or not they’ll survive another such move.

U.S. Acreage Battle Commences

The buzz among traders on the floor of Chicago Board of Trade this week was the pending battle for U.S. acres — poised to be one of the messiest in history. It will be a price fight as global demand targets the country’s three top crops — corn, soybeans, wheat.

    One flash point was USDA’s preliminary U.S. acreage estimates released during its annual outlook conference held this week, Feb 21-22, in Washington, DC. The other is the start of the planting season which is just six weeks away in the heart of the Corn Belt.