Views on commodities and energy
Relations between the U.S. Agriculture Department and the Humane Society of the United States are a little strained right now.
In January, the Humane Society released the shocking videos of workers at a California meat plant workers using all manner of abusive tactics to get unfit cattle into the slaughterhouse.
This week at the USDA’s annual outlook conference, Agriculture Secretary Ed Schafer complained that that the animal rights group held on to the video for four months before making it public. Could this be sour grapes that the USDA itself did not expose the grusome conditions at the plant?
“They had a big, huge impact on this issue because they were not forthcoming with the information,” said Schafer, who was concerned about the department’s relationship with the animal-rights group.
“I’m looking forward to visiting with them because we should be partners in our common mission of the humane treatment of animals.”
Schafer said that by holding on to the video, the Humane Society of the United States failed to prevent four months of meat production from entering the marketplace that was later recalled. It’s failure to release the video also was surprising for a body that claims to promote the safe treatment of animals, he said.
Humane Society President Wayne Pacelle fired back that it took time to conduct the investigation, analyze the information, check laws and work with authorities conducting a criminal investigation.
“They are attempting to divert attention from their own shortcomings,” said Pacelle. “He keeps misrepresenting the timeline on this.”
The shocking undercover video (beware!) showed Hallmark/Westland Meat Packing Co workers using a variety of abusive techniques to force sick and injured cattle into the slaughterhouse so they could be processed into food for human consumption.
This week, Hallmark/Westland announced it was recalling 143 million lbs of meat, mostly beef, from the plant where the abuse occurred. It was by far the largest meat recall ever and some of the meat from the plant ended up in school lunch programs, which the USDA oversees.
– Christopher Doering, Washington
The world’s biggest oil company and the world’s No. 7 crude exporter are trading blows in a dispute that is further eroding the U.S.-Venezuelan relationship and putting energy supply on the line.
Exxon, which was pushed out of a huge Venezuelan heavy oil project last year as part of a nationalization drive, has taken the country to court in an effort to secure compensation, winning orders freezing $12 billion in Venezuela’s assets around the world.
There’s only one thing Chicago Board of Trade traders will be watching when the U.S. grain markets open on Sunday night for Asian trade — wheat prices, in particular Minneapolis spring wheat. All three U.S. wheat exchanges in an emergency action late Friday decided to raise daily trading limits to 60 cents per bushel from 30 cents trying to break a deadlock in the runaway wheat markets.
For five consecutive days last week U.S. wheat futures markets rose the allowable 30-cent limit, with buyers overwhelming sellers and freezing trade until the following business day. CBOT traders said on Friday at one point there were 100,000 unfilled buy orders waiting to get into CBOT wheat, the busiest futures market of the three.
Once the wheat market hits the limit, exchange rules prohibit trading until the next day. The only way traders have been able to trade these locked-up markets is through options. And options trade late Friday indicated that MGE March wheat was being valued at $20 to $21 a bushel versus its Friday close at $15.53 — a record high and three times the price of a year ago. Options traders using these “synthetic” values also valued CBOT March wheat at 72 cents higher than Friday’s close and KCBT March wheat about $1.20 higher.
So the stage seems set to have the buyers continue to overwhelm sellers on Sunday night. But one wild card will be the sharp increases in margins all exchanges have made. At Monday’s close, initial spec margins on each CBOT wheat contract will rise to $4,050 — up 100 percent from Friday — and KCBT wheat margins will also rise to $4,050 – up 116 percent. MGE on Thursday already raised its wheat spec margin 54 percent to $3,510 per contract. More to come?
How many players will be forced out of this poker game because they can’t ante up?
In any case, for prices all eyes will remain on Minneapolis. The cash market is red-hot as exporters and millers scramble to find high-protein wheat. Grain firms holding short positions to hedge their cash positions are getting hammered by escalating margin calls.
As the week progresses the exchanges will systematically expand the trading limits by 50 percent, to 90 cents, on the next business day and another 50 percent on each subsequent day when two or more contracts in the same crop year close limit-up.
Chicago traders late Friday were most concerned what was going to happen to the futures spreads come Sunday night and Monday morning as the locked limit-up move was making it impossible for index funds to roll their long futures position. Funds like Goldman Sachs begin rolling their long position on the fifth business day of the month, which would have been Thursday, Feb. 7.
Some 60,000 CBOT wheat spreads, or 120,000 contracts need to be traded in Chicago by index funds, Chicago veteran traders estimated Friday afternoon.
“We already lost two days of the Goldman roll … we won’t be able to get it all done on Monday,” one Chicago wheat trader said.
Trade data released late Friday by the Commodity Futures Trading Commission showed that index funds were net long roughly 190,000 CBOT wheat (combined futures/options) positions and 29,000 KCBT wheat as of Feb. 5. The CFTC does not break out index positions for MGE wheat due to its smaller open interest and trading volume; but commercials held nearly 69 percent of the shorts in MGE wheat futures. The squeeze on all commercial hedgers in wheat has been unrelenting and looks to get worse in the coming week as the market tries to find adequate sellers in the runaway rally.
World wheat prices are soaring to record heights, but the rally has been particularly sharp for high-protein spring wheat, used to make bread. Minneapolis March spring wheat futures have jumped more than 85 percent since farmers in Canada and the U.S. northern plains finished harvesting a small crop that was quickly swamped by demand by panicked buyers. Winter wheat varieties traded in Chicago and Kansas City have lagged behind.
But since Jan. 9, the contract has been on a steep upward climb that has traders talking about shorts getting squeezed… especially the Canadian Wheat Board, which has a monopoly on sales of spring wheat from the Prairies to millers and export markets. I talked to Curt Denisuik, the CWB’s director of commodity risk management, about the rumors on Feb. 6. He declined to comment on commercially sensitive details about the CWB’s position. But he said the main reason for the climb was the shortage of wheat:
By the looks of the $3-a-gallon prices at the U.S. pumps, you’d think gasoline supplies were running out. Oddly enough, they’re brimming. The latest data from the Energy Information Administration shows inventories have grown to their highest level since 1994, when a gallon of the fuel went for a buck.
Before you become outraged…
The increase in inventories IS expected to push prices lower over the winter, possibly by as much as 50 cents, experts said on Wednesday. The main reason prices are pointing lower and supplies are pointing higher is that Americans — pressured by recent high energy costs and an uncertain economy — appear to be reducing their consumption.
What a difference a year makes. Last year, Chicago traders were focused on watching their home-town favorite play in the Super Bowl. This year it’s runaway U.S. grain markets.
For starters, all eyes are on the soaring Minneapolis wheat market — surging to an all-time top of over $14 a bushel on Friday, Feb. 1. The Minneapolis wheat market will continue to monopolize price direction for all food commodities given the huge demand for high-protein wheat — both from exporters and domestic flour millers, they said.
Beans in the teens, wheat in the teens, corn in the … well, above $5 a bushel. Do we have a bubble here? On Thursday, a Wall Street Journal story said farmers were wondering if grain prices would go the way of dot-coms or, more recently, housing. Wonder they should. (A Sept 28 Reuters story “U.S. ‘grain bubble’ in the making,” now looks a little premature.)
U.S. wheat prices are up 6 percent so far this year, topping $14 a bushel for the first time ever, at least on the Minneapolis Grain Exchange. That followed a 77 percent gain last year. Corn in 2008 is up 10 percent at 11-year highs, following last year’s 14 percent rally. Soybeans are toying with $13 for the first time, having gained 76 percent last year.
Given the limit moves in Chicago Board of Trade grain and oilseed markets last week — both up and down — the only thing that veteran grain traders are counting on is more volatility for the week starting Jan. 27.
What’s interesting about last week’s moves is with all the volatility, March corn ended even on the week at 4.98-1/4 a bushel and soybeans dropped $1 a bushel to $12.43 in March soy. CBOT traders expected a downward correction after a run to record highs since the first of the year in nearly all Chicago commodities but the big question is it over?
Fears of U.S. recession have pushed grain prices and fertilizer stocks off recent peaks. But the chief executive of Potash Corp, the world’s largest fertilizer company, said it’s a short-term stumble. A recession could hurt some industries, but not those based on feeding a hungry and wealthier planet, said Bill Doyle. “Keep in mind we’re not in a luxury business,” he told analysts on Thursday. “Eating is very high on most peoples’ priority lists.” Doyle also said $6/bushel corn is not out of the question, on a day when nearby corn futures closed limit-up at $4.89-1/4.
Here’s part of my interview with Doyle:
Q: Are you concerned about fears of U.S. recession, given the fact that in the past few days, grain futures markets were hit so hard?