Commodity Corner

Views on commodities and energy

from Global Investing:

Start building the bunker

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They keep telling us that the recession is over so maybe now's the time to start worrying about inflation. That's the view many wealthy investors are already taking, reasoning that a little bit of the yellow shiny stuff will provide some comfort as we start piling our cash into wheelbarrows to do the weekly groceries shop.

It is gold exchange traded commodities (ETCs) that have seen the biggest investor inflows this year so perhaps it's not surprising that the gold price broke through $1,000 an ounce this week.

"Investors are concerned about sovereign risk, quantitative easing, government deficits and the outlook for the US dollar," said Nicholas Brooks, head of research and investment strategy at ETF Securities, at a Dow Jones Indexes commodities briefing on Tuesday. "They are using gold as an insurance policy."

Physically-backed gold ETC holdings are now 8 million ounces, up 33 percent versus end-2008 levels, he said. Gold inflows have been relatively steady, even when the price has corrected, with the biggest flows coming not when Lehman went bust, but when the scale of US quantitative easing and the fiscal cost of the financial bailout became apparent. This supports the view that gold is being used as a hedge against sovereign and inflation risk, Brooks said.

Oil ministers who like to use the tradesman’s entrance

The big question ahead of the expected arrival in Vienna of the new Iranian oil minister is which door will he use?
Iran’s oil ministers have had a long history of sneaking into the city’s Intercontinental Hotel through the garage, theoretically to avoid the awaiting press.
In practice, journalists are always camped out in the basement, inhaling the fumes of limousines and honing questions to put to OPEC’s second biggest producer.
They also make their way up to the hotel’s executive floors, where the ministers tend to stay, as well as lurking in the lobby, where most officials make their entrance ahead of meetings of the Organization of the Petroleum Exporting Countries.
The new Iranian Oil Minister Massoud Mirkazemi, formerly the country’s commerce minister and regarded as close to the president, could of course decide to say nothing at all regardless of how he gets into his hotel and how many reporters greet him.

Big U.S. corn, soy harvest in the wings

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iowa-corn-field-august-2009Confidence in an approaching record harvest for both U.S. corn and soybeans and the sudden drop in the cash soybean market late last week will cast a bearish cloud over grain prices in coming days.  Given the latest weather and crop conditions, most analysts have upgraded their forecasts to record highs ahead of the government’s next U.S. crop production update on Friday. 
    
“It’s kind of a bearish time period,” said Bill Nelson, an economist at Doane Advisory Services, an agricultural consultant. “Short of a big surprise on Friday that would reverse the trend, there’s more downside risk than upside.”
    
After weeks of nervousness about tight soy supplies before harvest and the chances for an early frost to cut final yields, traders last week seemed to come to a general view that the danger is over and the bigger crops are now “made.” An old saying on LaSalle Street — home to CBOT markets — is that “big crops get bigger.” That reality hit last week. So the markets began transitioning to supplies and away from demand, a normal psychology at harvest. 
    
Traders will still try to out-guess each other on crop size and keep a sidelong glance every day at any sudden changes in the weather outlook for the Corn Belt, where most of the 165 million or so acres of U.S. corn and soybean are planted. But as of Friday, traders were expecting the U.S. Department of Agriculture to raise its corn output next Friday above the record 13.074 billion bushels U.S. farmers harvested in 2007.
    
“Everyone I talk to is pushing this big increase in plant populations” for corn, said Roy Huckabay, an analyst with The Linn Group. “If NASS follows through, you’re talking about six bushels per acre just from plant populations above August.” 
    
NASS — the National Agricultural Statistics Service — is the USDA’s official crop counter for its monthly reports. Last month, USDA forecast corn yields at 159.5 bpa while the market is currently trading a minimum 163 bpa yield, traders said. For soybeans, based on a jump in plantings, USDA has all season been projecting a record harvest, now pegged at 3.199 billion bushels. But after a cool July, good August rains and steady-to- better crop ratings last month, the grain trade sentiment is that USDA will come out with an even bigger number. 
   
CROPS GO UP, PRICES GO DOWN 
Soybeans on the Chicago Board of Trade last week fell to a five-month low on those prospects, losing 15 percent on the week to end at $9.61 a bushel in the September futures contract. September corn closed at a contract low of $3.00-1/2, its lowest in eight months and a key chart support point to watch when the CBOT reopens on Monday night after the long Labor Day holiday weekend. If corn slides, wheat will tag along given ample U.S. and world stocks and reports of strong hard red spring wheat yields now coming out of the Northern Plains. 

“On Monday night, if the weather is nonthreatening then we’ll see if we can take out the contract lows on corn,” said analyst Don Roose at Iowa based brokerage U.S. Commodities. 
    
Wheat last week fell to its lowest point in more than two years, losing 5 percent overall and ending at $4.44 in the CBOT September futures. 
   
One word alone could turn the market around — frost. 
   
Analysts still estimate that some 15 million acres of corn in the northern Midwestern states will not be ripe by Oct 1, the usual first frost date for the region, given the immaturity of the crop after a cool, wet summer. Soybeans, planted after corn, also remain at some risk. But the accelerated growth in recent weeks may well temper any jolt that forecasts for a “killing” frost — in other words, one that halts plant growth — might deliver to speculators. For now, the weather is ideal for early harvest. 
  
Soybeans were already trickling into grain terminals and processors in Nebraska, southern Illinois and some areas of Iowa last week as farmers took advantage of historically high cash prices. That pressured cash soybean bids, even where harvest pressure on supplies had not yet shown itself. 
   
Exporters at New Orleans, the leading gateway for U.S. grain exports, backed off their spot soybean bids as much as $1.15 per bushel over CBOT November and were bidding 95 cents over November on Friday. At Decatur, Illinois, home to the leading processor Archer Daniels Midland as well as other crushers, the spot bid for soybeans on Wednesday night had been $2.00 a bushel over CBOT November futures. On Friday night, it had sunk to $1.20 over. 
 
As more soybeans moved into the hands of processors and exporters late in the week, front-month futures spreads deflated on profit-taking. Traders said, barring a frost scare, that trend looks likely to continue through at least expiration of September soybean futures on Sept. 14.
PHOTO: Iowa corn field with high plant populations taken by Christine Stebbins.

Inside the OPEC bunker

Reuters energy correspondents covering the Vienna OPEC meeting will be sharing their insights and taking you behind the scenes of the Reuters operation with this live blog.

Inside the OPEC bunker

Burning midnight oil can yield surprise outcomes

Late-night discussions can take unusual turns – especially when those doing the talking are members of the Organization of the Petroleum Exporting Countries.
The group will at 9.30 pm on Wednesday assemble for what in theory should be a straightforward decision to keep existing supply targets intact, given that oil prices are still widely considered high enough to offset producer concerns about overly full inventories.
But past performance implies a surprise cannot be ruled out.
The last time OPEC scheduled a meeting at night was in September 2008 when the talks again took place during Ramadan and therefore could not begin until after the fast of the day and feast of the evening.
That meeting ended at about 3 a.m., later than scheduled, with a decision that left exhausted journalists in shock.
Instead of the simple no change or slight adjustment to output that might have been expected, the first minister to emerge announced to the attendant press the group had returned to its “Doha quotas”.
What on earth were they? He did not explain, although it was later revealed he was referring to a decision made a year earlier in the Qatari capital. Obvious really, except some sleepy attempts at calculation failed to get the output targets to tally.
Needless to say, the OPEC press pack is praying this year’s Ramadan meeting will be less of a challenge to sleep-starved journalists.

from Ayesha Rascoe:

Rally against climate bill exposes anger against govt

A rally in Richmond, Virginia on Thursday was supposed to be a protest against Washington's climate bill. But like the raucous healthcare townhall meetings of recent weeks, there was plenty of anger to go around.

Sponsored by a powerful oil lobby and other business groups, the Energy Citizens Alliance event was a pep rally of sorts to encourage  residents to rise against the recently passed House of Representatives climate bill that would limit greenhouse gas emissions.

Scarce soybeans stay in CBOT spotlight

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rainbow1It’s crunch time for soybeans — if only processors could find any to crunch.
     
The protein-rich bean, in huge demand around the world for foods from edible oil and tofu to feedstocks for both animals and biodiesel plants, is in the grip of a supply scare.
    
The United States, the single-largest grower and exporter of soy, is forecast to produce a record-large crop of 3.2 billion bushels this year. Harvest starts in the Midwest grain belt in a few weeks.
    
So why did Chicago Board of Trade soybeans of September delivery reached a two-week high of $11.64-3/4 a bushel on Friday? Because while supply will be big, demand — nervous demand — will be bigger, at least for a while.
    
“If soybeans are ever going to be tight, it’s right now — it’s this week, it’s next week, into the new crop,” said Dan Cekander, a grain market analyst at brokerage Newedge USA. 
    
The U.S. soybean marketing year ends on Aug. 31, with the opening of the traditional harvest month of September. On that date, U.S. soybean stocks-on-hand are expected to have fallen to a 32-year low — with more declines seen before harvest can replenish supplies for processors and exporters.
    
“The other problem you have exacerbating the situation is the new-crop maturity is delayed, so the harvest is going to be delayed. So it’s not like you can all of a sudden turn on a lot of new-crop supplies — just because the old-crop marketing year ended,” Cekander told Reuters TV on Friday.
    
Active soy harvest in the central Midwest — Illinois and Iowa alone produce a third of all U.S. soybeans — is not expected until the third or fourth week in September.
    
So U.S. cash soybean prices soared last week as exporters and processors kept battling over dwindling old-crop supplies. Exporters at New Orleans were bidding as much as $2.10 per bushel over CBOT November futures prices to draw in soybeans on Friday, up from a premium of $1.35 over a week earlier.
    
Processors tried to compete but many continued to be forced to take extended “down time” for lack of bean supplies to crush into soybean meal, a popular high-protein livestock feed, and oil. Some Midwest brokers were quoting prices of up to $100 per ton above CBOT September futures for loaded railcars.
    
“What that tells you is that there are end users right now paying prices as high as they paid at the very height of the bull market a year ago in 2008″ for soymeal, Cekander said. 
    
Driving the strength in prices continues to be China’s torrid buying. But a drop in temperatures this week in the Midwest also sent a shiver through traders fearing an early frost that might cut yields in soybeans.
    
CBOT prices fell on Monday amid outlooks for milder U.S. crop weather through the middle of September. Also weighing on prices were worries that China may unilaterally terminate derivative contracts with some foreign banks that provide over-the-counter commodity hedgers services.
PHOTO: Northwestern Illinois fields after an August shower taken by Christine Stebbins

Soybeans stay in the spotlight as China buys

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iowa-soybean-field-1Soybean prices could extend Friday’s strength in coming days given China’s latest buying spree of U.S. soybeans as well as a seasonal tendency for soy prices to rise going into September. 

Every day last week, the U.S. Department of Agriculture confirmed that China, the world’s top soy buyer, made big purchases of soybeans — 896,000 tonnes in all, or some 15 ocean cargoes for delivery from September onward. 
    
“The big story has been the Chinese and their drumbeat of buying,” said Rich Feltes, senior vice president of MF Global Research. 
    
The United States supplies 45 percent of the world’s soybean exports, followed by Brazil and Argentina. The weakness in the dollar and last week’s drop in prices made U.S. soybeans an attractive buy for China. U.S. cash soybeans are cheaper than Brazilian soy for loadings all the way through February. 
   
The China National Grain and Oils Information Center, a think-tank based in Beijing, said on Friday the country would likely continue its brisk import pace. Traders and analysts will be watching for signs of new Chinese demand, such as rising cash markets at export points such as New Orleans. 
   
“Tight farmer holding, hand-to-mouth users that are coming to the trough, a very tight old-crop carry-over situation, and this record pace of PRC buying of new-crop are all converging as we undertake this transition to new crop,” Feltes said. 
   
The marketing year for U.S. soybeans ends in about a week on Aug. 31. USDA has already forecast end-season stocks on hand of soybeans to shrink to a 32-year low of 110 million bushels. For traders, that means a tricky tug of war will continue for several more weeks as exporters battle domestic soybean processors for scarce remaining supplies. The U.S. soy harvest will be late this autumn given the immaturity of the crop. 
   
“I’m looking for prices to bounce (this) week seasonally. We seem to get a rally from August into September” amid the transition from old- to new-crop soy supplies, said veteran oilseed analyst Anne Frick of Prudential Bache Commodities. 
    
HUGE US CORN/SOY HARVESTS LIKELY, BUT GROWTH LAGS 
Tight stocks mean soy will remain the leader at the Chicago Board of Trade grain complex. But crop scouts on an annual U.S. crop tour last week underscored both the current immaturity of corn and soybeans but also the clear potential for big yields. Farm markets newsletter Pro Farmer, the tour’s organizer, forecast the American corn harvest at 12.807 billion bushels with an average yield of 160.1 bushels per acre. 
   
That was above USDA’s forecast as of Aug. 1 for 12.761 billion bushels and 159.5 bpa yield — already ranking as the second-largest U.S. corn crop in history. The group also pegged soybean production at 3.150 billion bushels with an average yield of 41.0 bpa. That compared with USDA’s outlook earlier this month for a crop of 3.199 billion bushels at a yield of 41.7 bpa — the largest on record. 
   
Analysts were not surprised by the Pro Farmer numbers, but said the lagging maturities of both crops highlighted the need for a warm September to ripen yields, for beans in particular. 
  
“It’s going to be sensitive here until you know whether you get an early frost,” analyst Dan Cekander at Newedge USA said. 
   
The U.S. Census Bureau will issue July soybean crush data on Thursday, which should confirm the struggle going in the U.S. cash markets to secure quick-delivery soybeans. Traders expect the crush — which measures the amount of soymeal (a livestock feed) and soyoil produced as well as soybeans crushed — to be 10 million to 15 million bushels below July 2008 when processors crushed 139.3 million bushels. This year, many processors extended their plant downtime maintenance in July due to both weaker profit margins and the unwillingness to outbid exporters for spot soybeans. 
  
CBOT September soybeans closed Friday at $10.23 a bushel — just 1-1/2 cent lower on the week, rebounding from a mid-week sell-off. Corn tread despite the outlook for a bumper crop, ending the week nearly unchanged at $3.21-3/4. Wheat meanwhile is hovering at eight-month lows as world supplies build. September fell 4 percent to $4.60-1/4.
PHOTO: Iowa soybean field in mid-August taken by Christine Stebbins

Sugar shortage spawns sweet jokes from late-night comedian

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By Christopher Doering 
    
The surge in sugar prices and potential risk of a shortage has provided some sweet fodder for one late-night comedian who can’t help but poke fun at the attention the tasty ingredient is receiving.
 
colbertStephen Colbert, who hosts the Colbert Report on Comedy Central, spent part of his show this week lamenting the sugar crisis. 
 
After showing a montage of television clips about the sugar situation, Colbert proceeded to break a glass cover — similar to one containing a fire extinguisher — and pulled out a bag of sugar, which he dosed all over himself.
 
“Oh my God, there’s a sugar shortage,” said Colbert. “How could this happen. Well, like interstate highways and potable water it’s the government’s fault.”
 
Large U.S. food companies, including Kraft Foods, General Mills Inc and Hershey Co, have been pushing the Obama administration to ease sugar import curbs, citing forecasts for unprecedented sugar shortages that could result in higher retail prices and possible job losses.
 
In a letter to U.S. Agriculture Secretary Tom Vilsack dated Aug. 5, the companies and other groups warned that “our nation will virtually run out of sugar,” if a USDA forecast is accurate.
 
“Can you imagine an America with no sugar?” said Colbert. “Juice would contain nothing but 10 percent juice and we’d all be eating uncaramelized apples. What are we going to do?”  The Colbert Report Mon – Thurs 11:30pm / 10:30c Sugar Shortage – Marion Nestle www.colbertnation.com Colbert Report Full Episodes Political Humor Health Care Protests

For more information on the sugar shortage, click here.

Crop scouts bond over corn yields, long car trips

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Pro Farmer promises nothing to scouts on its annual Midwest Crop Tour but hard work, long days and the chance to get really dirty. For most, it does not sound like the best way to spend a week in mid-August.

But the tour attracts a group of regulars who come back every year to gauge the potential of corn and soybeans around the region as well as reconnect with people they met on previous tours.