There is nothing like nice weather during July to take some risk premium out of Chicago Board of Trade grain markets. The weather in July for corn pollination, the critical yield-determining period for U.S. corn, has been just what the doctor ordered. Corn likes hot days and cool nights, and the Midwest crop has had both this month. With some timely rains mixed in to reduce plant stress, the late-planted Corn Belt crop is coming back nicely — making good pollination now look like a “cinch” this summer, as one CBOT grain trader said this week. 
     As a result, corn prices have deflated nearly 20 percent since making their record top above $8 a bushel in June amid flood worries. 
    Soybeans have followed along with corn’s slide, with growth also benefiting from the prime conditions in the Midwest. But soy prices have retained more of a risk premium, down 12 percent after notching all-time highs above $16 a bushel two weeks ago. 
    Traders remain more concerned about soybeans, which may have been harder hit by the June flooding — soybeans don’t like their feet wet and are always later-planted than corn anyway, causing their root development to lag corn. The critical flowering and pod-filling stages for beans also trails corn, so continuation of July’s excellent crop weather through August will be key for this year’s yields.
    The very tight end-stocks outlook for both corn and soybeans also provide a daily reminder to traders of the razor’s edge that grain supply-demand will be on in the coming year. Even before the June floods, U.S. corn stocks a year from now were already projected at 13-year lows. Soybean stocks are even tighter. Grain traders and analysts were stunned by the July supply-demand report from the U.S. Agriculture Department which showed a revision to the 2007-08 soybean balance sheet putting “residuals” at a -35 million bushel deficit.
    “That’s never happened before,” said Mike Woolverton, agricultural economist at Kansas State University. “We simply have to have a good harvest this year or we’ll be in trouble.”
    News that Argentina repealed its controversial soy export tax hike on Thursday was really the big pressure point for beans, soymeal  and soyoil as well. Argentine farm protests about the tax over the past four months in effect paralyzed  exports from the world’s third largest soy exporter and  its top meal and oil supplier. 
    U.S. farmers benefited from the situation as world buyers extended their buying out of the United States. There was talk on the CBOT grain trading floor by Friday that Argentina was  back open for business and buyers were booking supplies. 
    Besides the weather  and export factors, traders are also eyeing another wild card for futures — rising concerns that U.S. politicians, due to consumer pain over soaring food and fuel prices, will impose greater oversight of domestic commodity markets. The brokerage industry argues such moves will send business offshore. The talk seemed to be shaking some longs out of many commodities  last week. 
    “There is this sentiment that Big Brother is watching. It just feels like funds are paring back on positions,” one veteran trader said.
    The most heavily traded grain contract, corn, has seen open interest fall nearly 10,000 contracts in the past two weeks. 
    There was a big sell-off in crude oil as well. Crude saw its biggest one day drop since 1991, falling below $130 a barrel this week, the lowest level in five weeks. 
     The threat that Big Brother could be watching may also help grain traders get more traction from CBOT and CFTC on the thorny issue of convergence  — or lack thereof — between cash grain prices and CBOT prices.  
     The Commodity Futures Trading Commission has called a second public hearing on the issue for July 29 (the first was April 22), when the grain industry will air their arguments that CBOT’s hedging process is broken. Record weakness in the cash basis for soft red wheat after this summer’s harvest is driving the latest protests to regulators. Fears that corn and soybeans will face another such debacle with this Fall’s harvest, especially if weather turns damaging and futures spike higher, are also red flags grain users are waving.
     The grain industry blames Wall Street hot money inflating futures prices above real supply-demand and CBOT recalcitrance is reining in such hot money, especially “long-only” index funds. The  July 29 meeting is open to the public and could provide more fireworks. 
    For next week the same factors will influence CBOT markets: weather, politicians bantering about oversight of commodities, value of the dollar,  and the direction of crude oil. 
    USDA will issue its weekly crop progress report on Monday. The weather has been ideal so look for conditions to be steady or possibly improve a little, especially soybeans.

The next several weeks promise to keep traders nervous and prices volatile as the corn crop goes through its most critical yield-determining development stage, pollination. 
    Any changes in the weather outlook will send shivers through the market. Monday was a case in point. A forecast for scattered, beneficial showers across 80 percent of the U.S. Corn Belt sent Chicago Board of Trade corn prices sliding the 30-cent trading limit.
    This year corn will pollinate about two weeks behind its usual pace, agronomists say, due to cool spring weather and growth-retarding heavy June rains in many areas.
    That means most corn plants will pollinate in late July — typically the hottest and driest period of the summer. A deep, mature root structure to tap groundwater is the key to good pollination and a question mark over lots of corn this year.
    “Then on the backside of the season it tends to push maturity a little closer to a killing fall frost,” said Bob Nielsen, extension agronomist at Purdue University in Indiana.
    The U.S. Agriculture Department reported late Monday that only 6 percent of the corn crop was silking, behind its typical pace of 19 percent by early July. Silks, the female part of the plant, extend from each ear of corn and catch the pollen from the male part, the tassel, to produce each kernel of corn.
    Traders will also increasingly focus on growing degree days, or GDD, a measure of heat accumulation and a barometer of yield potential. Corn likes hot days and cool nights. But heat makes corn, as long as the roots provide enough moisture. 
    Given the cool start to the season, the crop is running well behind in growing degree days. State crop reports will typically will list growing degree days updated each week and compared to seasonal averages. 
    “Many corn hybrids require 2,600-2,700 growing degree days from planting until the crop is mature,” Nielsen said.  
    So corn traders are fastening their seat belts. With USDA already projecting September 2009 US corn stocks to fall to a 13-year low, any heat-related losses in the maturing U.S. crop — even with the question of flood-related losses still up in the air — will no doubt drive expectations for sharper cuts in the market’s thin cushion of supplies. Market prices will tend to rise as those expectations fall. 
     
   
“Knee-high by the Fourth of July” 
    Photo of a corn field in northern Illinois taken over the July 4th weekend. An old benchmark used for years to gauge corn development. Typically, corn planted mid to late May will easily be knee-high by July 4th. But corn seeded in late April should be chest to head high by now. June-planted corn will be below the knee. Corn planting ran easily one to two weeks behind normal this year.

Of the many years I have reported on Chicago Board of Trade corn prices, 2008 seems like a dream: when was the last time corn was front-page news in U.S. and foreign newspapers, Wall Street cable channels like CNBC, or at the Fed? 
    But we’re not dreaming. If oil is the fuel of the world economy, corn is the fuel of the food economy — the basic feed for meat animals, the basis of the starch and sweetener industries, a food and cooking oil. Add in the hundreds of industrial uses that start with corn, from ethanol to bioplastics to paints, adhesives and other products. Add in the rising middle classes of booming Asia who are demanding meatier diets  — and U.S. corn for their herds. 
    So the historic highs in corn prices — unthinkably high prices, like $140 crude oil, before this year — are perhaps no surprise after all. Corn prices soared above $8 to all-time highs a week ago — more than double the 40-year average price range of $2-4 a bushel. The question is: how high can prices go? 
    Demand seems more of a domestic question mark than a foreign one. If the Democrats win in November, will they roll back the 2007 energy bill’s mandate for ethanol production to soar?
    But more immediately, the market’s focus is on supply, not demand. The US corn crop — responsible for 50 percent of world exports — is now in its key month of growth, its key period for determining yields.
    Corn users have plenty to be edgy about after the worst flooding in 15 years in the U.S. Midwest — the heart of corn production for not just the U.S. but the world. Estimates that as many as 5 million acres of U.S. corn and soybeans may have been lost or needed replanting sent both corn and soybean prices to records last month.
    But last week, USDA calmed some fears when it forecast that farmers planted more corn than most analysts had expected. If the government is right, American farmers will harvest 78.9 million corn acres, the second highest since 1944, just behind last year. The unexpectedly high corn plantings reflected a 1.3 million acre increase from USDA’s March planting intentions report. What of the flooding losses? USDA said it calculated harvested acreage using 90.4 percent of planted acres versus the typical 92.4 percent to reflect the effects of the flooding. 
     There remains much skepticism in the trade about the numbers. USDA said it only had time to do a quick phone survey of some 1,200 Midwest farmers during June 23-25 — ahead of the June 30 acreage report — to a get a handle on farmers’ harvest intentions due to the flooding that occurred during the entire month of June. 
     But an Illinois-based data analysis firm, Lanworth, which uses satellite imagery to project corn and soybean acreage, was not surprised by the government’s latest projections. Lanworth studied satellite pictures from the area between the major rivers in Iowa, the state hardest hit by the floods, to assess how fast fields were drying out and when farmers started to replant, said Nick Kouchoukos, director of information services for Lanworth. 
    The company is currently estimating up to 2.7 million acres, corn and soybeans combined, were lost by flooding, versus the 3.0 million reflected in a USDA state reports compiled by its National Agricultural Statistics Service.
    “We were and still are slightly more optimistic about the extent of the damage than NASS,” Kouchoukos said. 
    USDA plans a second survey of 9,000 farmers later this month to further fine-tune its acreage numbers, which will be first reflected in its Aug. 12 crop report.

European industry is suffering under soaring energy costs. Profit warnings are becoming more common and industry leaders predict plant closures and job losses may follow.

Companies say they are doing all they can to improve their game but want government help.

Britain's Castle Cement, part of Germany's Heidelberg Cement, is a case in point. Its cement furnace in Stamford, England, is replacing much of its coal with  alternatives  -- tyres, bone meal, paper -- as $140 a barrel oil sends all fuel costs skyrocketing.   

[youtube]http://www.youtube.com/watch?v= y0l5b5NNBws[/youtube]

Industry says tax cuts and energy market reform is needed. Big energy users also want an easing in EU plans for tough CO2 emissions cuts, arguing the measures will simply put them out of business and shift production to places like China which have less efficient and more environmentally damaging production processes.

So, are governments doing enough to support the continent's core industrial base?

Should certain sectors of the economy be singled out for special support?

Will planned European CO2 cuts, which are not matched by the U.S. and China, wreck the continent's industrial core without helping the environment?

Renewable power sources like wind and solar are some of the fastest growing sectors in the energy business.

But this graph forecasts that coal, the dirtiest power source in terms of carbon dioxide and other pollutants, will still dominate global power generation growth for decades into the future.

The forecast, released by the U.S. Energy Information Administration, the statistics branch of the Department of Energy, shows that global power generated from coal will grow 115 percent to 15.36 trillion kilowatt hours from 2005 to 2030.  It assumes no changes in emissions laws or policy.

Global power generation from renewables including hydropower, meanwhile, will grow 58 percent to 5 trillion kilowatt hours over the same time period.

The world is trying to come to an agreement on a new greenhouse gas regulation pact at a U.N. meeting in Copenhagen late next year. Would a new pact eventually make this coal forecast overcooked?

Are steel companies really hurting from huge rises in the price of raw materials like iron ore? The biggest miner BHP Billiton reckons they aren't and hopes to sway anti-trust regulators who are reviewing its takeover bid for rival Rio Tinto.

Steel firms from China to Japan to Europe have cited rising raw material costs as they ramp up prices, with Germany's Salzgitter the latest to push the blame upstream.

Rio Tinto agreed record prices rises with China's Baosteel on Monday that nearly doubled the price of iron ore this year under long-term contracts and BHP may try to get even more .

Raw material costs, however, only make up about 30 percent of the price of hot rolled coil steel, a figure which has not changed much over the past seven years, BHP Billiton Chief Executive Marius Kloppers argued at a presentation on Tuesday.   

During the same period, iron ore prices have jumped 382 percent, metallurgical coal is up 599 percent and manganese ore is 486 percent more expensive. Tightness in the steel market is to blame for steel prices that have more than tripled and have allowed steelmakers to pass on all the the raw material costs to consumers, Kloppers said.   

"It basically shows that the very high steel costs have been driven almost entirely, certainly in the majority, by constraints on steelmaking capacity, and not raw material
costs," Kloppers said.  

He was floating an argument he hopes will win the day as BHP seeks competition approval for a marriage of Rio and BHP, the second and third biggest iron ore producers respectively, which will command over a third of the seaborne iron ore market.    

Steelmakers have vowed to oppose the all-share takeover offer worth $170 billion, while BHP argues that they are enjoying healthy margins despite the price rises in raw materials. Watch this space.

President George W. Bush urged Congress this week to end a ban on offshore oil drilling, responding to consumer anxiety over soaring gasoline prices. Bush said opening federal lands off the U.S. coast — where oil drilling has been banned by both a presidential executive order and a congressional moratorium — could yield about 18 billion barrels of oil. That would meet current U.S. consumption for about 2 1/2 years, but it would likely take a decade or more to find the oil and produce it.

The following is a map showing the offshore areas at issue. Click here for a more detailed, high-resolution version from the U.S. Minerals Management Service, which manages the nation’s natural gas, oil and other mineral resources on the outer continental shelf.

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China'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.

The early decision may demonstrate Beijing's confidence that it has social cohesion under control -- a result of the positive reaction across the country to the government's handling of the Sichuan earthquake and the Chinese perception of bias in Western media coverage of unrest in Tibet and the run-up to the Olympics.

The timing of the price increase also shows that Beijing is prepared to engage with other world powers on the global inflationary pressures that are threatening to slow Chinese economic growth.

Major oil producing and consuming countries are meeting in Saudi Arabia this weekend to discuss ways to reverse the rise of crude prices -- China's action on fuel prices ahead of the meeting permits Beijing to claim a leadership role in helping control oil prices.

    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.

Only 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.

On June 30, the U.S. Department of Agriculture will release its annual acreage report, which will give an accurate picture of the crop damage.  In March USDA said farmers intended to plant 86 million acres of corn this year, down from a 92 million acres in 2007. They expanded soy plantings to 75 million acres from 64 million. It does not look good for farmers, some of whom replanted during a let up in the rain, then lost fields a second time. Up to 5 million acres across the Midwest may have been ruined and will not produce a crop this year. Farm losses could top $2 billion. The result: record high prices this week for corn, cattle and ethanol. If you thought your food and fuel budget was tight, just wait …