Thursday, September 13, 2012

20120913 1023 Global Commodities Related News.

Bulls Oust Commodity Bears in Fastest Turnaround Since 2008(Bloomberg)
Commodities are surging from a bear to a bull market in the fastest turnaround since the depths of the financial crisis four years ago as traders await economic stimulus measures from central banks. Within 11 weeks the Standard & Poor’s GSCI spot index rose 22 percent from its 2012 low, stoked by falling supplies of oil and grains and speculation that the Federal Reserve will prop up U.S. growth while the European Union ends its sovereign debt crisis. The gauge of 24 raw materials soared to a record high four years ago before plunging as the U.S. slid into the deepest recession since the 1930s. After the jobless rate stayed at more than 8 percent for 43 months, traders are speculating that Fed Chairman Ben S. Bernanke will unveil a third round of so-called quantitative easing as soon as this week. Corn prices are about an all-time high after the worst U.S. drought since 1956 and oil is rising amid mounting tension over Iran’s nuclear program.
“There have been a lot of moving parts within the commodities markets this year,” Jim Paulsen, chief investment strategist in Minneapolis at Wells Capital Management, which oversees $320 billion, said in a telephone interview. “We are turning a corner. The surprise is going to be that global growth is going to accelerate.”

DTN Closing Grain Comments 09/12 14:47 Grains Mixed at Midweek (CME)
Soybeans posted a strong rally while the corn market struggled throughout the day. Wheat contracts were higher with a late rally erasing losses. While there was a great deal of talk about the influence of USDA's numbers, market action indicates it was limited at best.

USDA Crops Update Fails to Light Corn Traders’ Fire(CME)
The U.S. Department of Agriculture further trimmed its outlook for the nation’s corn harvest to reflect severe Midwest drought, though the smaller than expected adjustments weren’t enough to “light a bullish fire” under the market, DTN Senior Analyst Darin Newsom said. Farmers will reap 10.727 billion bushels of corn this fall, the USDA said in a September 12 report, down 0.5% from an August forecast and down 13% from the 2011 crop. The projected crop would be the smallest since 2006. Still, CME Group corn futures fell after the report was released, indicating drought damage was already priced in with a recent rally. “So much had been made of harvest reductions in both corn and soybeans that the September USDA numbers were going to have to be extraordinary to move the needle,” Newsom said in a report.
The USDA lowered its soybean crop estimate by 2.2% from last month, to 2.634 billion bushels, down 14% from 2011 and the smallest harvest since 2003. The cut was larger than the estimates from many analysts, who on average expected a decline of 1.3% from the USDA’s August forecast. In midday trading September 12, December corn futures traded on CME Group were down 10 cents at $7.67 ¾ a bushel, while November soybean futures were up 45 cents at $17.46 ½ a bushel. December wheat fell 9 ½ cents to $8.74 ¼ a bushel.

USDA to sharpen estimate of smallest corn crop in years (Reuters)
U.S. corn crops likely shrank by 399 million bushels from last month's forecasts while the soybean harvest withered by 1 percent as the worst drought in decades dealt a final blow to grain supplies, the U.S. government is expected to report on Wednesday.

Pro Farmer: After the Bell Wheat Recap(CME)
Wheat futures were highly choppy today, but rallied into the close to end slightly to moderately higher at all three exchanges. Early pressure came on spillover from the corn pit, but around midday wheat futures turned higher on help from dollar weakness and spillover from soybean futures. Traders also viewed this morning's USDA data as slightly friendly as USDA trimmed 2012-13 U.S. wheat carryover more than expected.

Wheat Market Recap Report(CME)
December Wheat finished up 6 1/4 at 890, 3 1/2 off the high and 21 1/4 up from the low. March Wheat closed up 7 at 902 3/4. This was 21 3/4 up from the low and 2 3/4 off the high.
December Chicago wheat traded sharply lower midday but finished the day seeing marginal gains. Kansas City and Minneapolis wheat closed higher as well. The market broke lower after the USDA cut world ending stocks to only 176.71 million tonnes when the market was expecting a cut near 174.50. The USDA also left Australian wheat production unchanged at 26 million tonnes while the market fully expected a cut due to the recent estimate by ABARES down to 22.50 million tonnes. Russian wheat production was revised lower to 39 million tonnes which was in line with market expectations. Chicago wheat was pressured early on after corn fell to a new 7-week low, however comments from the Ukraine Ag Minister that suggest Ukraine will only produce 14.50 million tonnes of wheat vs. today's USDA esimtate of 15.50 offered support. Jordan bought 100,000 tonnes of Ukraine wheat today for December and January shipment. The US Dollar finished the day lower and added to the positive tone.
December Oats closed down 1/2 at 387. This was 1 3/4 up from the low and 4 3/4 off the high.

Pro Farmer: After the Bell Corn Recap(CME)
Following the release of USDA's report data, corn futures surged higher, plunged lower and then eventually moderated to post losses ranging from around 5 to 10 cents for the rest of the session. Futures settled mid-range with losses of 5 1/2 to 11 1/4 cents. Action in the corn market centered on followthrough selling after USDA cut its corn production estimate 324 million bu. less than expected to 10.727 billion bushels.

Corn Market Recap for 9/12/2012(CME)
December Corn finished down 8 1/4 at 769 1/2, 15 1/2 off the high and 10 1/4 up from the low. March Corn closed down 8 at 773 1/4. This was 10 up from the low and 15 off the high.
December corn traded sharply lower into the close and hit a new 7 week low following the release of this morning's USDA report. The USDA pegged the average US corn yield at 122.8 bushels per acre vs. the August estimate of 123.4. Production was lowered to 10.727 billion bushels vs. August production of 10.779. The market was disappointed after expectations leaned toward a yield of 120.59 and production at 10.380 billion bushels. Exports were cut by 50 million bushels to 1.250 billion bushels to offset some of the decline in supply. Corn used in ethanol production was left unchanged at 4.5 billion bushels. Ethanol production for the week ending September 7th averaged 816 thousand barrels per day which is down 7.2% from last year. Total Ethanol production for the week was 5.71 million barrels which was down nearly 9 million barrels from the week prior. Corn used in last week's production is estimated at 86.92 million bushels vs. 88.30 the week prior. Corn use needs to average 86.29 million bushels per week to meet this crop year's USDA estimate of 4.5 billion bushels. Basis in the Gulf of Mexico firmed today on tight supply and after farmer sales slowed due to the recent lower price trend. November Rice finished up 0.225 at 14.945, 0.055 off the high and 0.005 up from the low.

Corn-Crop Drought Damage Less Than Expected Spurs Price Drop(Bloomberg)
Corn output in the U.S., the world’s largest grower, will fall by less than analysts expected after the worst drought in more than 50 years, the government said. Prices fell to a seven-week low. Farmers will collect 10.727 billion bushels, the smallest crop in six years and down 13 percent from 12.358 billion in 2011, the U.S. Department of Agriculture said today in its second survey-based estimate for the crop. Last month, the USDA forecast 10.779 billion. The average prediction of 35 analysts surveyed by Bloomberg was for 10.420 billion. Supplies of the grain on Aug. 31, 2013, will be greater than analyst estimates. Crop conditions as of Sept. 9 were the worst since 1988, with the harvest about 15 percent complete, USDA data show. Since mid-June, prices have surged 52 percent, reaching a record $8.49 a bushel on Aug. 10. Futures for December delivery fell 1.1 percent to close at $7.695 at 2 p.m. on the Chicago Board of Trade, after touching $7.5925, the lowest for a most-active contract since July 24.
The larger-than-expected estimate is “a psychological blow to the market,” Randy Mittelstaedt, the director of research for R.J. O’Brien & Associates in Chicago, said before the report. “It’s still a small crop, and that means the market cannot afford to drop prices, or that will stimulate increased demand.”

Drought-hit Russia grain yields down 24.5 pct by Sept 10 (Reuters)
Drought-hit Russian grain quality has fallen sharply, with yields from the key global wheat supplier's current harvest down 24.5 percent from last year to 1.85 tonnes per hectare as of Sept. 10, data of the country's Agriculture Ministry showed.

GRAINS: Chicago soybeans rose after hitting a three-week low, while corn gained following two straight days of losses in positioning ahead of key U.S. reports which will shed light on damage caused by a historic Midwest drought. (Reuters)

SOFTS: Arabica coffee futures consolidated in early trading after a rally to a six-week high in the prior session, while sugar was steady with upside potential capped by record crushing in perfect weather in Brazil. Cocoa was little changed, as dealers focused on weather in top grower Ivory Coast before the start of the main crop. (Reuters)

Brazil sugar mills keep pedal to metal in record August(Reuters)
Perfect weather in the second half of August allowed Brazil's center-south cane mills to hit a second straight record fortnight, churning out 3.34 million tonnes of sugar, up 12.4 percent from a year earlier, industry association Unica said on Tuesday.

Oil Trades Near Two-Day Low as U.S. Stockpiles Unexpectedly Gain(Bloomberg)
Oil traded near the lowest level in two days in New York after a government report showed an unexpected increase in stockpiles in the U.S., the world’s biggest crude user. Futures were little changed after dropping for the first time in six days yesterday. Crude supplies climbed 1.99 million barrels last week, the Energy Department said. They were forecast to fall by 2.9 million barrels, according to the median estimate of 11 analysts in a Bloomberg News survey. Global inventories have become “more comfortable,” the International Energy Agency said in a report. Oil for October delivery was at $96.87 a barrel, down 14 cents, in electronic trading on the New York Mercantile Exchange at 8:52 a.m. Sydney time. The contract yesterday slipped 16 cents to $97.01, the lowest close since Sept. 10. Front-month prices are 2 percent lower this year.
Brent oil for October settlement climbed 56 cents to $115.96 a barrel on the London-based ICE Futures Europe exchange yesterday. The European benchmark grade’s premium to West Texas Intermediate was at $18.95. U.S. gasoline inventories fell 1.18 million barrels, the Energy Department report showed. They were forecast to decline by 1.7 million, according to the survey. Distillate supplies, a category that includes heating oil and diesel, rose 1.48 million barrels, compared with a projected 500,000 barrels drop in the survey.

Recap Energy Market Report(CME)
October crude oil traded higher during the initial morning hours but spent most of the US trading session grinding lower to finish negative on the session. Early gains were impressive, pushing prices to their highest level since August 23, supported by a positive outside market tone, a new four month low in the US dollar and a favorable German court ruling on the ESM bailout fund. Another source of support seemed to come from mounting geopolitical risk after the US ambassador to Libya and three counterparts were killed in an attack. This morning's EIA data showed an unexpected build in weekly crude oil inventories of 1.994 million barrels, which compared to expectations for a 3.0 million barrel draw. The disappointing figure inspired a decline in October crude oil prices to their low of the session. Crude oil imports for the week stood at 8.565 million barrels per day compared to 8.035 million barrels the previous week. The refinery operating rate was down 1.4% to 84.7%, the lowest since April. October crude oil prices grinded lower through the afternoon hours and broke a five day winning streak in the process.

OIL-Oil gains on euro zone bailout, Fed hopes
LONDON, Sept 12 (Reuters) - Brent crude oil rose for a fifth straight session, lifted by a German court decision in favour of a euro zone bailout fund and hopes the Federal Reserve will ease monetary policy this week.
"I think it should be seen as a positive step in the long road to solving the eurozone debt crisis. I think markets will be relatively pleased with the announcement, and the conditions put in place," said Henk Potts, market analyst at Barclays Wealth.

Brent-WTI Crude Undergoing "Fundamental Change"(CME)
By U.S. Energy Information Administration - Wed Sep 12 17:20:00 CDT 2012 CT
Gap Between Benchmarks Likely to Halve
The relationship between Brent and West Texas Intermediate crude oil benchmarks appears to have undergone a “fundamental change” that will lead to the price gap between the two shrinking to less than half recent levels, the Energy Information Administration said in its This Week in Petroleum Report. Brent’s price premium to WTI, which averaged $19 a barrel on spot markets during August, may decline to $9 be the end of 2013 as excess U.S. supply balances out, the EIA said. The premium should narrow further in 2014 because of expanding pipeline capacity to deliver WTI crude from Cushing, Okla., storage facilities to refineries along the Gulf of Mexico. Prior to 2011, the Brent was typically within $5 of WTI.
“New pipeline capacity from Cushing to the Gulf Coast will make it unlikely that light sweet crudes will move from the Gulf Coast to Cushing for delivery against WTI futures contracts as in the past,” the EIA said. “This suggests that the historical WTI premium to Brent in the futures market is unlikely to return.” In NYMEX trading September 12, WTI futures for October delivery fell 16 cents to $97.01 a barrel, while Brent “Look-Alike” futures rose 59 cents to $115.40 a barrel.

China Growth Raises Conundrum for Global Oil Markets(CME)
By CME Group - Wed Sep 12 14:00:00 CDT 2012 CT
Is a New International Crude Benchmark Coming?
The world faces “major questions” over adequacy of oil supplies and the ability of long-established, international benchmarks to provide sufficient price transparency, industry consultant Jan-Hein Jesse said. China and Russia are poised to become dominant market players over the next two decades, according to Jesse, who runs Josco Energy Finance & Strategy Consultancy out of the Netherlands. Meanwhile, production of one international bellwether, North Sea Brent crude, has halved over the past decade. The debate also involves West Texas Intermediate crude, the U.S. benchmark. One question is, “will China and others in the region continue to allow oil prices to be set in the West?” Jesse said. By the time all this shakes out, a new global benchmark may be in place. Jesse, an expert for the International Energy Agency and a former acquisitions manager with Royal Dutch Shell, will address this topic and others at the S&P Dow Jones Commodity Seminar in London September 20.

IEA says world well supplied with oil
LONDON, Sept 12 (Reuters) - Global oil demand is poised to be depressed for the next 18 months while supply levels from OPEC countries are at fairly comfortable levels, the West's energy agency said on Wednesday as it faces calls for an emergency stocks release.
Sources have told Reuters the United States is considering an emergency stocks release in a move to help suppress high oil prices, and other members of the International Energy Agency, such as France and Great Britain, could join the move.

U.S. crude stocks up slightly, gasoline falls-API
NEW YORK, Sept 11 (Reuters) - Rising imports boosted U.S. crude stocks, which rose slightly last week instead of falling as forecast, while gasoline stocks fell by a sharp 4.2 million barrels, data from the American Petroleum Institute showed on Tuesday.
Crude inventories rose by 221,000 barrels in the week to Sept. 7, compared with analysts' expectations for a drawdown of 2.6 million barrels.

U.S. sees tighter oil market; OPEC disagrees
NEW YORK/LONDON Sept 11 (Reuters) - The U.S. government and OPEC offered differing outlooks for global oil markets on Tuesday, with Washington ratcheting up price forecasts for oil on stronger demand while OPEC highlighted rising output from the exporter group.
In separate monthly reports, both emphasized the possibility that a worsening European crisis could still drag down oil prices, warnings that may complicate deliberations over whether to tap into strategic oil reserves again.

OPEC pumps more oil, sees abundant supply
LONDON, Sept 11 (Reuters) - Oil consumers have enough crude supply and the risk to global demand growth remains skewed to the downside, exporter group OPEC said on Tuesday, in a report that builds a case against any use of strategic reserves by consumer nations to lower prices.
The Organization of the Petroleum Exporting Countries said its production rose by about 260,000 barrels per day (bpd) in August, despite a European Union embargo on Iran's exports, due to higher output from other members of the 12-member group.

Oil prices lower after bearish inventory report(CME)
By Dominick Chirichella - Wed 12 Sep 2012 11:28:27 CT
Oil markets broke ranks today (as expected) from the QE wait and were mostly impacted by the latest EIA weekly oil inventory report...which was mostly biased to the bearish side (see below for a more detailed discussion on inventories). That said after the dust settles the long awaited outcome of the September US Fed FOMC meeting is likely to have a much deeper impact on oil and most risk asset prices and will likely have a much longer lasting impact on prices. The consensus opinion by over 2/3 of economist polled in various polls are expecting QE3 to be announced tomorrow for about $500 billion over a six month period of time. I remain in the 1/3 group as I am expecting it after the election.
As I have already discussed in Wednesday's newsletter the market has been pricing in some additional easing by the Fed. In fact the market may be setting up for a downside correction irrespective of the outcome. If the Fed announces a new QE3 program the market could be in a buy the rumor sell the fact mode and thus result in a downside correction. On the other hand if the Fed pushes the decision down the road (my likely outcome) we could also see a downside correction in risk asset markets. Irrespective of the outcome the next several days are likely to be volatile with the potential for intraday price reversals.
Although it has not impacted oil prices (as of yet) there has been a stark reminder over the last twenty four hours that the geopolitics of the middle east have not gone away. There have been demonstrations and attacks on US Embassy's in both Egypt and Libya with the US Ambassador of Libya killed along with three other Americans. The Libyan attack is currently being reported as an orchestrated and planned attack (possibly by al Qaeda) with the protests just a cover up the terrorist act. Whatever the case this is a very volatile region and one that can change from quiet to very active in a heartbeat. As a significant amount of oil that flows to the consuming world comes from this region and elevation of unrest in the region can always result in a possible interruption in supply. For now supply of oil is not an issue as the events over the last day are simply a reminder of the risk from this region.
Global equity markets have been mostly higher over the last twenty four hours as shown in the EMI Global Equity Index table below as market players await a new round of QE. The global equity markets are clearly in a holding pattern until the outcome of the FOMC meeting is announced early Thursday afternoon... as are just about all risk asset markets. The EMI Index has gained another 0.6% over the last twenty four hours widening the weekly gain to 1.5% and the year to date gain to 6.8%. the rankings of the bourses remain the same but Germany surged to a 24.5% gain for the year after the Federal Court approved Germany's participation in the ESM. Global equities have been a positive for oil prices and the broader commodity complex. However, as it stands right now if no action is taken by the Fed tomorrow there is likely to be a strong sell-off.
Wednesday's EIA inventory report was bearish for crude oil and distillate fuel and neutral to bullish for gasoline and jet fuel. Total commercial stocks increased strongly as did crude oil inventories all related to the recovery from the preemptive shut-ins from Hurricane Isaac. Refinery utilization rates declined on the week down to 84.7% of capacity. The data is summarized in the following table along with a comparison to last year and the five year average for the same week.
Total commercial stocks of crude oil and refined products increased by 3.3 million barrels after decreasing by almost 10 million barrels the week before. The year over year surplus widened to 7.1 million barrels while the surplus versus the five year average for the same week widened to 30.8 million barrels. By all measurements total oil supply in the US is still well balanced to comfortable irrespective of the evolving geopolitical risk in the Middle East and teh shut-ins from Isaac.
Crude oil inventories increased (by 2 million barrels) and versus an expectation for a modest draw. Crude oil inventories have been increasing steadily for most of this year and are still well above the levels they were at during the height of the recession as well as being at the highest level since 1990. With the increase in stocks this week the crude oil inventory status versus last year is still showing a surplus of around 6 million barrels while the surplus versus the five year average for the same week came in around 23.3 million barrels. Crude oil imports increased modestly on the week after falling strongly last week due to the storm.
PADD 2 crude oil inventories increased by about 0.5 million barrels while Cushing, Ok crude oil inventories declined by about 0.8 million barrels on the week. Crude oil inventories in the mid-west region of the US are off of their record high levels as the Seaway pipeline is now pumping oil out of the region as well as refineries running at over 90% of capacity (temporarily lower from Isaac). The decline in crude oil inventory in Cushing is marginally bearish for the Brent/WTI spread. The spread traded has widened over the last twenty four hours as the supply situation in the North Sea is still not back to normal after the maintenance season. The Oct spread is once again approaching the $19/bbl level.
Distillate stocks surprisingly increased (versus and expectation for a draw) even after a 1.4% decline in refinery run rates. Heating oil/diesel stocks increased by 1.5 million barrels. The year over year deficit came in around 28.2 million barrels while the five year average remained in a deficit of about 23.7 million barrels. The lost distillate production was offset by a likely reduction in exports.
Gasoline inventories decreased within the expectations...again all related to Isaac. Total gasoline stocks decreased by about 1.2 million barrels on the week versus an expectation for about the same size decline. The deficit versus last year came in at 11.1 million barrels while the deficit versus the five year average for the same week was about 6.2 million barrels.
The following table details the week to week changes for each of the major oil commodities at every level of the supply chain. As shown I have presented a mixed categorization on the week as inventories for distillate and crude oil were bearish while distillate and Jet Fuel were neutral to bullish. Overall this week's report was marginally biased to the bearish side as total stocks are once again back to building mode.
I still think the oil price is overvalued and toppy at current levels as it approaches a key technical resistance area. WTI is still currently in a $90 to $100/bbl trading range while Brent is in a $110 to $120 trading range. That said prices are almost solely being driven in the short term by a combination of last week's outcome of the ECB meeting and the growing view that more stimulus from both China and the US is on the way.
I am keeping my view at neutral as the industry is already almost back to normal operations after Isaac. At current prices the economics still favor Nat Gas but if prices do work their way to the upper end of the trading range utilities could begin to move back to coal.
Markets ended the US session mixed as shown in the following table.
Due to my travel schedule I am publishing Thursday's report on Wednesday afternoon.

Silver Market Recap Report(CME)
December silver carved out a trading range in excess of $1.60 in the wake of the German ESM court ruling, and finished Wednesday's session with a moderate loss. A sluggish Dollar combined with generally strong global equity market provided an early boost for silver prices this morning. However, a sharp selloff after US economic data was released took the silver market far below the overnight highs by mid-session.

Gold Market Recap Report(CME)
The gold market reached a new 61/2-month high early in Wednesday's trading but then proceeded to fall all the way back into negative territory by the close. The German Constitutional Court's ruling allowing that nation to ratify the ESM bond buying program boosted commodity risk sentiment and provided strong support for gold prices early during this morning's session. A weaker Dollar in front of tomorrow's FOMC meeting announcement was also felt to be an additional positive factor for the gold market. However, today's set of decent US economic numbers weighed on December gold and took prices well below their early highs.

Thomson Reuters: Gold Update By Thomson Reuters - Wed 12 Sep 2012 08:16:28 CT
Gold hovered near a six-month high as investors stayed put ahead of a German court ruling on the euro zone's rescue fund and the Federal Reserve's policy meeting, while a weaker dollar lent support.

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