Tuesday, October 16, 2012

20121016 0956 Global Commodities Related News.

DTN Closing Grain Comments 10/15 14:48 (CME)
Grains Struggle Once Again
The collapsing soybean market led the other grains lower again Monday as noncommercial long-liquidation remains the driving force.

Pro Farmer: After The Bell Wheat Recap (CME)
Wheat futures closed mostly around 8 cents lower in Chicago, mostly around 7 to 9 cents lower in Kansas City and mixed with a downside bias in Minneapolis. Wheat futures faced constant spillover pressure from the corn and soybean markets today. In addition, the U.S. dollar index was mildly firmer for much of the day, which encouraged speculative-based selling, especially given the active fund selling in the corn and soybean markets.

Wheat Market Recap Report (CME)
December Wheat finished down 8 1/2 at 848 1/4, 12 off the high and 8 up from the low. March Wheat closed down 8 3/4 at 860 1/2. This was 7 1/2 up from the low and 11 off the high.
Chicago wheat traded lower throughout today's session but was able to climb off session lows to end the day. KC and Minneapolis wheat ended the day weaker as well. The wheat market saw a brief period of support this morning on news that a large US investment back reiterated its $10.25 price target for wheat by the end of this year. The bank also said they estimate global wheat production at 648 million tonnes vs. the current USDA forecast of 653. Additional support was added after reports surfaced that the farm ministry in the United Kingdom lowered their wheat production estimate to 13.31 million tonnes which is down 12.8% from last year and yields fell to a 23 year low due to detrimental weather and disease. Export tenders are beginning to hit the market once again as prices trend lower. Iraq issued a tender to buy 50,000 tonnes of wheat with the US included in its acceptable origins. Algeria has also issued a tender for 50,000 tonnes of milling wheat for December shipment. Export inspections for the week ending October 11th disappointed the market with only 7 million bushels reported. Inspections needed each week to reach this year's USDA forecast are 24.75 million bushels. December Oats closed down 4 at 388. This was 3 1/2 up from the low and 4 1/2 off the high.

Pro Farmer: After The Bell Corn Recap (CME)
Corn futures faced pressure throughout the day and softened late in the session to end around 15 cents lower through the July contract, while deferred months were roughly 5 to 11 cents lower for the day. Futures lacked fresh fundamental news today, which left it vulnerable to spillover pressure from heavy soybean losses and fund-based selling amid a firmer U.S. dollar index. Adding to the negative tone, traders still have last week's reports that livestock and poultry producers in southeastern regions of the U.S. are importing corn from South America as a cheaper alternative to U.S. supplies on their minds.

Corn Market Recap for 10/15/2012 (CME)
December Corn finished down 15 1/2 at 737 1/4, 14 1/4 off the high and 4 3/4 up from the low. March Corn closed down 15 1/2 at 737 1/4. This was 5 up from the low and 14 1/4 off the high.
December corn got caught up in the heavy liquidation in the soybean market and ended the day lower but was able to bounce off lows from last week. December corn failed to make a new high for the move last Friday which may have triggered a fresh round of long liquidation. Unstable outside markets along with evidence that may suggest demand rationing is taking place has resulted in a lower trade. News that the US livestock industry had imported 600,000 tonnes of Argentina corn which is the second major import deal signed in recent weeks added to the demand woes in the corn market. Export inspections for the week ending October 11th were disappointing and were reported at 17.2 million bushels vs. 17.3 last week. Inspections needed each week to reach this year's USDA forecast is pegged at 24.7 million bushels and the current export pace is 9% of this year's USDA estimate. Additional pressure was linked to broad-based commodity liquidation as funds exit commodity markets on fears that global economic growth is slowing. November Rice finished down 0.015 at 15.01, 0.01 off the high and 0.03 up from the low.

Corn Belt Shifts North With Climate as Kansas Crop Dies (Bloomberg)
Joe Waldman is saying goodbye to corn after yet another hot and dry summer convinced the Kansas farmer that rainfall won’t be there when he needs it anymore. “I finally just said uncle,” said Waldman, 52, surveying his stunted crop about 100 miles north of Dodge City. Instead, he will expand sorghum, which requires less rain, let some fields remain fallow and restrict corn to irrigated fields. While farmers nationwide planted the most corn this year since 1937, growers in Kansas sowed the fewest acres in three years, instead turning to less-thirsty crops such as wheat, sorghum and even triticale, a wheat-rye mix popular in Poland. Meanwhile, corn acreage in Manitoba, a Canadian province about 700 miles north of Kansas, has nearly doubled over the past decade due to weather changes and higher prices.
Shifts such as these reflect a view among food producers that this summer’s drought in the U.S. -- the worst in half a century -- isn’t a random disaster. It’s a glimpse of a future altered by climate change that will affect worldwide production. “These changes are happening faster than plants can adapt, so we will see substantial impacts on global growing patterns,” said Axel Schmidt, a former senior scientist for the International Center for Tropical Agriculture now with Catholic Relief Services. While there is still debate about how human activity is altering the climate, agriculture is already adapting to shifting weather patterns.

Sugar Glut Extending to Longest in More Than Decade: Commodities (Bloomberg)
The global sugar glut is extending into a third year, the longest stretch in more than a decade, as Brazil and Australia expand output and imports contract to the smallest since 2008. Production will exceed demand by 5.9 million metric tons in the year that began Oct. 1, more than the U.S. consumes in six months, the International Sugar Organization estimates. Global supply including inventories will be the highest ever, the London-based group says. Raw-sugar futures traded in New York may drop 9 percent to 18 cents a pound by the end of the year, according to the median of 15 estimates from traders and analysts compiled by Bloomberg. Futures fell 45 percent since reaching an all-time high of 36.08 cents in February 2011 as farmers from Russia to Thailand planted more crops. The drop is moderating global food prices that the United Nations says rose 7.7 percent in the past three months as drought and heat waves wilted U.S. and European wheat, corn and soybeans.
Lower prices are helping to cut costs for food companies including Nestle SA (NESN), which spent about 1.5 billion Swiss francs ($1.6 billion) last year on sugar. “The surplus is probably getting worse,” said Jonathan Kingsman, the chief executive officer of Lausanne, Switzerland- based research company Kingsman SA who has traded sugar for more three decades. “More sugar will have to be stockpiled on lack of demand and we would expect prices to stay under pressure.”

Natural Gas Slides on Forecasts for Above-Normal Temperatures (Bloomberg)
Natural gas futures dropped for the first time in six days on forecasts of warmer-than-normal weather that would reduce consumption of the heating fuel. Gas declined 3.5 percent after forecasters including MDA EarthSat Weather predicted normal or above-normal temperatures across most of the lower 48 states through Oct. 24. Heating demand may be 28 percent below normal from Oct. 21 through Oct. 25, according to Weather Derivatives in Belton, Missouri. “Without early heating-season demand, the market is starting to balance out,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The buyers are bailing out.” Natural gas for November delivery fell 12.5 cents to settle at $3.486 per million British thermal units on the New York Mercantile Exchange. The futures are down 5.9 percent from a year ago. Gas rose to $3.611 per million Btu on Oct. 12, the highest settlement price since Dec. 1.
November $3.80 calls, bets that prices will rise, were the most active gas options in electronic trading. They were 2.5 cents lower at 1.3 cents on volume of 564 contracts as of 1:59 p.m. Calls accounted for 59 percent of options volume. The low in New York on Oct. 24 may be 45 degrees Fahrenheit (7 Celsius), 3 below normal, according to AccuWeather Inc. in State College, Pennsylvania. About 50 percent of U.S. households use gas for heating, Energy Department data show.

Oil Trades Near Three-Day Low; Brent Premium at Widest in a Year (Bloomberg)
Oil traded near the lowest level in three days in New York before a report that may show U.S. stockpiles climbed a second week. Brent oil’s premium to West Texas Intermediate increased to the widest in a year. Futures were little changed after dropping one cent yesterday. Crude inventories in the U.S., the world’s biggest user of the commodity, probably rose by 1.5 million barrels last week, according to a Bloomberg survey before a government report tomorrow. Brent’s premium gained as the European Union tightened sanctions on Iran’s energy exports to intensify pressure on the nation to curb its nuclear program. Crude for November delivery fell 23 cents to $91.62 a barrel in electronic trading on the New York Mercantile Exchange at 10:25 a.m. Sydney time. The contract yesterday closed at $91.85, the lowest settlement since Oct. 10. Prices are down 7.3 percent this year.
Brent oil for November settlement climbed $1.18, or 1 percent, to $115.80 a barrel on the London-based ICE Futures Europe exchange yesterday. The contract expires today. The more- active December future gained 79 cents to $114.40. The European benchmark grade’s premium to WTI closed at $23.95, the widest gap since Oct. 14, 2011. EU foreign ministers in Luxembourg yesterday approved extra curbs on trade with Iran and on its finance, energy and transport industries following an oil embargo and a central-bank asset freeze earlier this year. The ministers also froze the assets of 34 Iranian entities to hinder the Iranian government’s ability to raise funds for its atomic program, which the U.S. and EU say is aimed at producing weapons.

Oil recovers most of its early session losses (CME)
Another wide trading range session with WTI dropping below the $90/bbl level on concerns about the slowing economy only to recovery the majority of its earlier day losses on better than expected US economic data and growing geopolitical concerns. As has been the case for about a month the oil price battle continues with the main headwind still the slowing global economy. Last week several agencies highlighted the negative impact on global oil demand growth from the slowing of the global economy. On the tailwind side of the equation the combination of the evolving geopolitical situation in the middle east... especially around Iran's nuclear program coupled with the regional imbalances in refined products as well as the perception that the quantitative easing programs will eventually result in an inflation surge in oil and commodity prices (so far the inflation surge has not been the case).
As bad as the global economy was looking last week so far this week there have been a few bright spots from both China and the US. Out of China (starting over the weekend) exports came in better than expected and lending figures were also positive. In addition many analysts are expecting both industrial and investment data due out later in the week to also be positive. Possibly China may be stabilizing and if one extrapolates the export growth data it could be an early sign that China's main export markets... US and Europe may also be starting to stabilize. From an oil perspective any sign that the Chinese economy is bottoming out is a direct signal that oil demand growth will start to grow at a faster pace than it has been growing over the last year or so.
On the geopolitical front mixed signals over the last few days. On the bullish for oil side of the equation an article in a German magazine over the weekend revealed a plan by Iran to block the Straits of Hormuz by creating a massive oil spill which provided a bit of support to oil prices. However, on the other hand there were indications today that Iran might be willing to come to the negotiating table if the West guaranteed a supply of 20% enriched uranium to Iran for peaceful use in the country and if so then Iran would limit their own enrichment program. A positive sign and thus bearish for oil. So for today the Straits story seemed to override the negotiating story for the moment. As I have been saying for weeks I think eventually the Iranians will come to the negotiating table and agree to a plan that eases the concerns of the west while allowing the Iranians not to lose "face". I still believe that the geopolitical support for oil prices will drift lower as the likelihood of any military intervention by the Israeli's is in the background and not likely until next year at the earliest (if at all).
Global equities gained ground over the last twenty four hours as shown in the EMI Global Equity Index table below. So far the Index has recovered all of last week's losses and then a little but more. The Index is up by 0.5% for the week resulting in the year to date gain widening to 7.2%. China remains the only bourse in the Index that is still in negative territory for the year. However, the China bourse is currently off of its lows for the year and if the above discussed improvement in some of the data out of China continues we could see this Index starting to recover. Global equities have been a positive for oil prices so far this week and certainly helped to push oil prices well above their intraday lows on Monday.
The weekly inventory cycle will be back to its normal schedule. The weekly oil inventory cycle will begin with the release of the API inventory report on Tuesday afternoon and with the more widely followed EIA oil inventory report being released Wednesday morning at 10:30 AM EST. With the global economy and oil fundamentals becoming more the focus of the trading and investing community this week's oil inventory report could be a price catalyst especially if the actual outcome shows a large deviation from the projections. However, any inventory reaction could be short lived if the macroeconomic data remains the main focus of most market players.
My projections for this week's inventory report are summarized in the following table. I am expecting the US refining sector to increase marginally as the refining sector begins the process of returning from fall maintenance programs.. I am expecting a modest build in crude oil inventories, and a build in gasoline and another draw in distillate fuel stocks as the weather was colder than normal over the east coast during the report period. I am expecting crude oil stocks to increase by about 1.5 million barrels. If the actual numbers are in sync with my projections the year over year comparison for crude oil will now show a surplus of 35 million barrels while the overhang versus the five year average for the same week will come in around 35.6 million barrels.I am expecting a modest draw in crude oil stocks in Cushing, Ok as the Seaway pipeline is now pumping and refinery run rates are continuing at high levels in that region of the US. This would normally be bearish for the Brent/WTI spread in the short term but the spread is currently trading at the highest premium to Brent in over a year. The slow return from maintenance in the North Sea has been the main driver that has resulted in the Nov Brent/WTI spread now trading over the $24/bbl level as of this writing. The widening of the spread should begin to ease once the North Sea returns to a more normal production level over the next month or two.
With refinery runs expected to increase by 0.2% I am expecting a build in gasoline stocks. Gasoline stocks are expected to increase by 1 million barrels which would result in the gasoline year over year deficit coming in around 9.9 million barrels while the deficit versus the five year average for the same week will come in around 8.2 million barrels.
Distillate fuel is projected to decrease by 1 million barrels. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 29.9 million barrels below last year while the deficit versus the five year average will come in around 30.3 million barrels.
The following table compares my projections for this week's report (for the categories I am making projections) with the change in inventories for the same period last year. As you can see from the table last year's inventories are not in directional sync with this week's projections. As such if the actual data is in line with the projections there will be a significant change in the year over year inventory comparisons. The oil complex has breached all of its current support levels and as such I am keeping my view at neutral for today as crude oil continues to trade within a wide trading range (see above for more comments). The battle continues between the negativity from the slowing of the global economy compared to what global stimulus programs might do to the economy going forward while geopolitics has continued to remain an issue for market participants. I am keeping my Nat Gas price view at neutral with bias to the bullish side as the fundamentals and technicals are quickly catching up the current price levels. As I mentioned above the market appears to be moving into a buy the dip mode
Markets are higher heading into the Asian trading session as shown in the following table.
Best regards,
Dominick A. Chirichella

Recap Energy Market Report (CME)
November crude oil prices experienced a volatile session that first broke down to a new four day low, with a loss of more than 2%, before bouncing to close near unchanged levels. Early weakness in the crude oil market came on sluggish demand prospects following a decline in September China crude oil imports. The market came under added pressure following Empire State Manufacturing data that showed the third month of contraction. Meanwhile, reports of further delays in North Sea crude production and further widening in the Brent vs. WTI crude oil spread offered a measure of support. It is also possible that the crude oil market garnered support after EU leaders agreed to pursue tougher sanctions against Iran's nuclear program.

Indian Ore Plunging With Eagle Bulk Seen at Record Low: Freight (Bloomberg)
The biggest slump in Indian iron-ore exports on record is driving rates for ships hauling the cargoes to the lowest since at least 2005, extending losses for Eagle Bulk Shipping Inc. (EGLE) and other owners. Supramaxes, each hauling enough ore to make about 33,000 metric tons of steel, will earn an average of $8,500 a day in 2013, 15 percent less than this year, based on forward freight agreements traded by brokers and used to bet on shipping costs. That’s 13 percent less than New York-based Eagle Bulk, the largest U.S. owner of the ships, says it needs to break even.
Goa, India’s top exporting state, banned all production last month to curb illegal mining, and shipments from the world’s fourth-largest supplier will decline 36 percent this year, according to Clarkson Plc (CKN), the biggest shipbroker. Supramaxes take about 40 percent of the nation’s cargo, Drewry Maritime Research estimates. That’s curbing demand at a time when owners are contending with record fleet capacity and ore prices are slumping because of weaker global consumption. “The loss of Indian iron ore is eating away at Supramax demand,” said Marc Pauchet, an analyst at ACM Shipping Group Plc, a London-based shipbroker founded three decades ago and now with offices in 10 cities from New York to Shanghai. “In this environment, every lost cargo hurts.”

Gold, Silver Drop Most in Three Months on Economy, China (Bloomberg)
Gold and silver futures fell the most in three months amid concern that the global economy is slowing and China may refrain from additional economic stimulus. Bank of Israel Governor Stanley Fischer said the world is “awfully close” to a recession. People’s Bank of China Deputy Governor Yi Gang said that while policy makers will provide “appropriate” stimulus to stabilize growth, the central bank’s main task is price stability, citing bubble risks in housing. “There are no clear signals from China whether there will be more stimulus,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “Also, overall slowdown concern is sending all commodities, including precious metals, down.” Gold futures for December delivery tumbled 1.3 percent to settle at $1,737.60 an ounce on the Comex at 1:47 p.m. in New York, the biggest drop for a most-active contract since July 6. The metal fell 1.2 percent last week.
Silver futures for December delivery declined 2.8 percent to $32.743 an ounce, the largest decline since June 21. The Standard & Poor’s GSCI Spot Index of 24 raw materials slipped as much as 1.4 percent to a one-week low. Gold declined before tomorrow’s second U.S. presidential debate because investors are concerned that Republican Mitt Romney may cut government spending if elected, Streible said. “Romney strength is negative for gold as he is anti- government spending,” Streible said. Some polls showed that Romney gained momentum following the first debate against President Barack Obama on Oct. 3. The election is on Nov. 6. On the New York Mercantile Exchange, platinum futures for January delivery slumped 1.6 percent to $1,632.30 an ounce. Palladium futures for December delivery slipped 1 percent to $632.60 an ounce.

Gold Market Recap Report (CME)
News of unresolved South African labor problems were given little if any credence today as gold was a physical commodity disappointed with reduced odds of US easing or gold was simply a commodity that came under follow through technically orientated selling. While the Euro was weaker today the magnitude of the moves in the currency markets did not seem to be responsible for the hard washout in gold prices. Perhaps some gold longs decided to bank profits in the wake of the most recent COT positioning report figures or maybe gold was simply pressured because of sagging economic views toward China. In the end, reduced QE benefits were mostly likely the main theme emboldening the bear camp today.

Silver Market Recap Report (CME)
Like gold, the silver market was under noted pressure today and in retrospect a moderate portion of the losses today might have been knock on selling from weak chart action. However, silver did see a long list of physical commodities under attack today and that in turn probably gave added credence to talk of reduced US easing ahead. With December silver at times reaching down to the lowest level since September 13th it would appear that the mostly bearish track from the prior week was pulled forward into the new trading week.

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