Commodities Slump as U.S. Rating Cut May Worsen Slowdown, Eroding Demand (Source: Bloomberg)
Commodities extended the biggest weekly drop in three months on speculation the U.S. credit- rating cut will worsen the economic slowdown, eroding demand. Gold climbed to a record as investors sought a haven. The Standard & Poor’s GSCI Spot Index of 24 commodities fell as much as 2.5 percent and was down 2 percent by 11:41 a.m. in London. The measure lost 5.9 percent last week, the most since the start of May. Crude oil led the decline, sliding as much as much as 4.3 percent in New York. Gold for immediate delivery soared as much as 3.1 percent. Group of Seven nations said they will take every action necessary to stabilize financial markets after S&P lowered the U.S. rating by one level to AA+. Policy makers held emergency conference calls over the weekend to stave off a collapse in confidence that has already wiped out about $5.4 trillion in global equity values since July 26. The European Central Bank signaled it’s ready to start buying Italian and Spanish bonds.
Goldman maintains constructive view on commodities
Aug 8 (Reuters) - Goldman Sachs said on Monday that although risk to its constructive commodity views has risen, it still maintains its long trade recommendations and overweight recommendation on commodities relative to other assets.
"Several factors are leading us to keep our constructive commodity views over the next year intact, including still-high expectations of global GDP growth sufficient to tighten key commodity markets, expected strong growth in EM (Emerging Markets)," the bank said.
Corn (Source: CME)
US corn futures end lower on spillover pressure from steep losses in external markets. Traders reduce risk as concerns increase about the world economy, dragging down equities and commodities. There was a lack of other news to drive grain prices, with weather forecasts looking mostly favorable for crops, traders say. Cooler weather is welcome in the Midwest after intense heat hurt the crop during a critical period of development in July. "The cooler weather may prevent further reductions in yield," says Kyle Tapley of MDA EarthSat Weather. CBOT December corn drops 17c to $6.86/bushel.
Wheat (Source: CME)
US wheat futures close lower as jitters about the global economy spark broad selling of equities and commodities. A lack of demand adds pressure to prices as the US continues to face stiff competition for export business from Russia. Traders say Egypt, typically the world's top wheat buyer, is seeking wheat after today's slide in prices and will likely buy from the Black Sea region. CBOT September wheat falls 22 1/2c to $6.56 1/2 a bushel, KCBT September loses 25c to $7.55 1/4 and MGE September drops 22 1/4c to $8.05 1/4.
Rice (Source: CME)
US rice futures slip as widespread selling of commodities and equities drag down the grain markets. The market succumbs to spillover pressure but avoids steep losses due to concerns about output. Traders are waiting for the USDA to update its global supply-and-demand estimates in a monthly report Thursday. Recent reports have sent prices higher as they cut forecasts for plantings and inventories. CBOT September rice falls 2 1/2c to $16.27/hundredweight.
Australia eyes above average wheat crop, weather a risk
SYDNEY, Aug 8 (Reuters) - Australia, typically the world's fourth-largest exporter of wheat, remains on track to produce an above average crop in 2011/12 provided weather conditions stay favourable ahead of the upcoming harvesting, a crop analyst and farmers said on Monday.
As long as there were no adverse weather events such as late frosts or a heat wave the harvest should exceed 24 million tonnes, they said.
Soil moisture aids Argentine wheat seeding- gov't
BUENOS AIRES, Aug 5 (Reuters) - Argentine farmers made progress toward finishing wheat plantings in the last week thanks to good soil moisture in many growing regions, the Agriculture Ministry said on Friday in its weekly report.
Argentina is a top global wheat exporter and Brazil is its biggest market.
"(Farmers) finished planting due to good weather conditions, low temperatures and soil moisture," the ministry report said about Veinticinco de Mayo in central Buenos Aires province, the country's top wheat-growing region.
No relief in sight for Texas heat and drought
WASHINGTON Aug 5 (Reuters) - The nation's triple-digit heatwave -- which hit its 34th day on Friday -- could last until the end of August, while extensive drought in and around Texas may last into October, forecasters said.
The deadly heat event that has broken numerous records has left the southern Plains and Mississippi Valley struggling to meet demand for power and water and has caused billions of dollars in damage to crops and livestock.
Weather Services Warn Of Potential 'La Nina' Return (Source: CME)
A new round of the extreme weather patterns that devastated production of iron ore, coal and agricultural crops such as wheat in Australia, South America and the U.S. in late 2010 could be poised to return this autumn and hit prices in the process, but with less serious consequences overall than last year, weather forecasters said. Sentiment towards commodities lying in the traditional path of conditions known as La Nina is starting to turn more bullish, exacerbated by supply shortages in a number of products like iron ore and coal. Forecasting models by the U.S. National Weather Service's Climate Prediction Center predict La Nina will redevelop this autumn. "Atmospheric patterns continue to reflect La Nina-like conditions," the weather body said. La Nina is a periodic climatic phenomenon that brings more rain to the western Pacific, and to a lesser extent, to the eastern Pacific.
Climatologists blamed La Nina for last year's floods that gripped Australia, resulting in major losses to coal and iron ore stockpiles. Australia, the world's largest exporter of coking coal, lost around 10 million metric tons of its supply last year as mines were flooded, causing prices of the commodity used in steelmaking to soar. But while it isn't clear what impact La Nina might have on the production and shipment of commodities, its return isn't expected to cause the same serious problems as in 2010. That's because historically the La Nina weather phenomenon occurs in bursts of three consecutive years, with the first one being the worst and the next two much milder. Yet that doesn't mean the changing weather patterns won't hit the production of crops and products like coal this time around.
Joe Vaclavik, grains broker at Chicago-based MF global, said from an agricultural commodity markets perspective, the biggest fear of a second La Nina would be the continuation of the current drought in the U.S. southern plains, causing further damage to the winter wheat crop. Futures prices for winter wheat grown in the southern Plains are already up 13% from a year ago at about $7.65 a bushel at the Kansas City Board of Trade, as weather-related concerns mount over the next crop. Matt Rogers, President of Maryland-based Commodity Weather Group, warned that possible effects from the second round of La Nina could bring above-normal precipitation in eastern Australia, but would actually benefit the wheat and barley crops in terms of moisture. Yet, dryness concerns could be an issue for Argentina and southern Brazil, which would experience lower amounts of rainfall, causing damage to wheat, corn and soybean yields.
Japan rice market faces volatility over radiation scare
TOKYO, Aug 5 (Reuters) - Japan's rice futures market, to be launched for the first time in 72 years, is braced for high volatility from the start as the price outlook is clouded by the unclear impact on rice crops of radiation leaked from the Fukushima nuclear plant.
Tokyo Grain Exchange (TGE) and the smaller Kansai Commodities Exchange will start trading rice futures on Aug. 8 on a trial basis for two years, to assess the pros and cons of the trading and see if there are any structural issues that need to be addressed before moving to full-fledged trading.
BASF Sees Crop Protection Growth In Emerging Markets (Source: CME)
German chemicals company BASF SE expects strong growth in crop protection in coming years, particularly in emerging markets, an executive board member said in a recent interview. "We make a good 40% of our crop protection sales in emerging markets... by 2015 we want to make over 50% of sales from there," said Stefan Marcinowski, BASF's board member in charge of crop protection and plant biotechnology. "We're expecting a good performance in South America in the second half of the year," he said. The manager couldn't promise that the division will reach its targeted 2011 earnings before interest and taxes, or Ebitda, margin of 25%. "The 25% Ebitda margin is our general aim, good weather conditions and stable foreign exchange rates and stable harvest prices permitting," he said, adding that weather and currency were "not optimal" in the first half of the year.
BASF's Agricultural Solutions unit, which contains the crop protection and plant biotechnology businesses, is the company's smallest subsidiary with sales of EUR4 billion in 2010, making up just 6.3% of the company total. The unit should achieve its aim of increasing sales and earnings in 2011, Marcinowski said. North and South America and certain Asian countries are the focus for BASF's genetically modified products, as those countries show "more willingness to accept these future technologies," than Europe, he added. The manager doesn't expect strong resistance to genetically modified crops in Europe to dissipate in the near future. However Germany will remain a base of genetic technology development for the time being, he said. He didn't rule out acquisitions in the crop protection business, which makes primarily fungicides, herbicides and insecticides amongst other things, but said the potential acquisition targets are limited and currently very expensive.
Marcinowski also expects strong growth in sales of genetically modified seeds in the coming years. Unlike peers Bayer AG, Syngenta AG, Monsanto Co., BASF doesn't have its own seed business, preferring to market its knowledge in partnerships with other companies, a strategy which Marcinowski said won't change. These partnerships focus on the largest crops such as wheat, corn, soya, rice, rapeseed and sugar cane and beet, he said. BASF expects 2020 gross sales of genetic traits - the technology it develops to modify plants, for instance, to increase their resistance to drought or increase yield - of EUR1.9 billion from the plant technology pipeline based on an exchange rate of EUR1 to $1.30, Marcinowski said, a figure which doesn't include sales costs and the partners' share. At the moment, BASF doesn't make any money from its plant biotechnology business as it's still under development.
So far, BASF has invested more than EUR1 billion in plant technology and plans to invest an additional EUR150 million annually in research and development.
EPA, USDA Outline Plan to Help Rural Water Systems (Source: CME)
The federal government is stepping in to help cash-strapped local governments improve rural water systems. The Environmental Protection Agency and the U.S. Department of Agriculture said they would provide grants to help communities that rely on small water and sewage systems. The program will also provide training for water- and sewer-system operators, a move the government agencies said could bring some jobs into rural areas. "A critical part of this agreement is to ensure that we have a well trained, professional work force available to replace workers when they leave or retire," said Nancy Stoner, acting assistant administrator for EPA's Office of Water. Small community water systems often lack resources to keep their facilities upgraded and in compliance with rules such as the Clean Water Act. EPA officials said many community systems have aging infrastructure in need of maintenance but lack funding to deal with problems.
The program will be funded jointly by the EPA and USDA, although the total cost isn't yet known. The money will come from existing funds.
Food Processors Sweat Over Corn Crop (Source: CME)
The U.S. corn crop is in trouble, with a blistering heat wave threatening to stunt growth and leave consumers with higher food bills and food producers with lower profits. The scale of the problem will come into focus on Thursday, when the U.S. Department of Agriculture gives the first crop supply-and-demand projections of the year to include field surveys -- rather than just an analysis of statistical trends. The early signs are far from promising, which has helped to propel corn prices back above $7 a bushel, a shift that will likely ripple through farmers, food producers and retailers. The photographs of the crop right now -- pored over by traders and food producers a month before harvest -- have been alarming, said Hussein Allidina, head of commodities research at Morgan Stanley. "The entire cob is the size of a can of coke," Mr. Allidina said. "Normally it's just shy of a one-liter [bottle]."
While farmers have planted more corn to take advantage of tight global markets and a price that is up 80% from a year ago, a weak crop could exacerbate existing food shortages. Prolonged drought in the U.S. Southwest has seen ranchers push cattle north, and meat production is set to fall for the third consecutive year as the country's cattle and hog herds decline in size. Tyson Foods Inc., which produces chicken, beef and pork, will provide an update on how it is handling these problems, when it reports third-quarter earnings. Thursday's USDA report will be "a very important day for all of us in agriculture," said Mike Cockrell, chief financial officer of Sanderson Farms Inc., a large chicken producer. The Midwest weather is one of the first things Mr. Cockrell checks from his southern Mississippi office each morning. Throughout July, the weather was blistering during the day and, just as important, hot at night.
High night-time temperatures causes corn to devote more energy to maintaining the plant rather than adding to the size of its kernels. Both Iowa and Illinois climatologists say July was the hottest month since 1955. Across the Midwest, the month was among the top-10 hottest of all-time, and there has been little relief so far in August. That will affect the price consumers pay at the grocery store for chicken, as well as beef and pork produced by companies such as Tyson and Smithfield Foods Inc. There are implications throughout the food chain, as the USDA last month forecast overall food inflation at 2.5% to 3.5% in 2012 but said price levels will hinge on Midwest weather through the end of this summer. Morgan Stanley's Mr. Allidina said that both the USDA's yield and acreage projections are too high. Corn supplies are already at their lowest level in 15 years.
Meat producers won't be the only ones closely watching the report. For fertilizer companies such as Mosaic Co. and Potash Corp. of Saskatchewan, a smaller crop estimate could reaffirm that boom times will continue through next year, with high corn prices prompting farmers to plant more acres and putting more money in their pockets, allowing them to withstand high fertilizer prices. The report also serves as an indicator of the likely strength in the farm economy for equipment makers such as Deere & Co. The USDA's report won't be the final word on the corn crop. Cooler temperatures later this month, followed by a late first frost, could help the crop rebound. Plus, the report comes amid growing dissatisfaction with what market analysts have said are erratic month-to-month projections. In August of 2010, the USDA projected a record average yield of 165 bushels per acre, well above the actual final tally of 152.8 bushels.
While the USDA last month forecast a national yield of 158.7 bushels per acre, many expect the crop to be closer to 155 bushels, if not lower. Pilgrim's Pride Corp., the world's second-largest poultry producer, expects to spend an additional $500 million to $600 million this year on corn. Chief Executive Bill Lovette said recently that the company, which filed for bankruptcy in 2008 due largely to soaring corn costs, was closing a Texas plant, and that the USDA's most recent corn acreage estimate for the U.S. is too high. He added that the July heat could "jeopardize the crop," and is betting that prices will go higher. "We still believe there is potential upside risk," he said.
ICE sugar, coffee slip on shaky global economic outlook
LONDON, Aug 8 (Reuters) - ICE sugar and coffee futures fell on Monday, as most commodity markets were lower on fears of a prolonged global economic slowdown, after ratings agency Standard & Poor's cut its U.S. rating late on Friday to AA-plus from AAA. Raw sugar futures dipped over 2 percent lower at the market opening, before paring losses, trading around 14 percent off the contract high of 31.68 cents a lb touched last month.
Frost damages trees in Brazil's coffee belt
BRASILIA, Aug 5 (Reuters) - Frost struck the heart of Brazil's coffee belt in the early hours of Friday, a freeze cooperatives said was certain to cut output next year though the full extent of damage was not known.
Local forecaster Somar said the southern Minas Gerais coffee heartland would again be the coldest coffee area in the early hours of Saturday, with lows of 6 Celsius around Pocos and 12 Celsius further east in the important coffee growing region around the town of Varginha.
Uganda bans sugar exports to ease shortage
KAMPALA, Aug 5 (Reuters) - Uganda has taken steps to ease a severe sugar shortage including banning exports and applying to the East African Community trade bloc to be allowed tariff-free sugar imports, instead of the 100 percent now imposed, officials said on Friday.
Drought and a temporary closure of Uganda's second-biggest raw sugar producer have caused shortages of the commodity in the east African nation, and prices have doubled.
Uganda lifts 2010/2011 coffee export forecast
KAMPALA, Aug 5 (Reuters) - Uganda, one of Africa's leading exporters of coffee, lifted its coffee export forecast to 2.8 million 60 kg bags for 2010-2011 on expectations for good harvests, just months after scaling down its estimate owing to a drought.
Exports of the beans rose in July compared with the same month last year after good harvests in the southwestern part of the country, the state-run Uganda Coffee Development Authority (UCDA) said on Friday.
Uganda seeks zero-rated sugar imports to ease shortage
KAMPALA, Aug 5 (Reuters) - Uganda has applied to the East African Community regional trade bloc to be allowed to import sugar free of tariffs, instead of the 100 percent imposed at present, to ease a shortage, a junior cabinet minister said on Friday. Drought and a temporary closure of Uganda's second-biggest raw sugar producer have caused severe shortages of the commodity in the east African nation, forcing prices to double.The supply crunch has forced supermarkets in Kampala, the capital, and other major towns to start rationing the sweetener, while members of the public and government have accused some traders of hoarding stocks and escalating the crisis.
Bumper cocoa crop upsets view I.Coast in decline
LONDON, Aug 5 (Reuters) - A bumper 2010/2011 Ivory Coast cocoa crop, even at a time of violent political conflict, indicates output from the top producer may not be in long-term decline from lack of investment, as traders and analysts had previously assumed.
High prices encouraged a surprisingly high level of crop husbandry, which combined with ideal weather to produce about 1.6 million tonnes of cocoa beans, including an estimated 200,000 smuggled through neighbours Togo and Ghana, according to a European fund analyst.
Ivory Coast cocoa field spraying up 50 pct-GCFCC
YAMOUSSOUKRO, Aug 4 (Reuters) - Ivory Coast's Cocoa Management Committee (GCFCC) plans to spray 775,000 hectares of cocoa trees against pests for the 2011/12 season starting in October, up from 500,000 hectares this season, a top GCFCC official told Reuters on Thursday.
In an interview, Boloba Silue, the head of the GCFCC's cocoa producers' development fund, said a campaign of treatment to ensure plantations are protected against insects and fungal black pod disease would start in the next two weeks.
Oil falls $3 as U.S.downgrade spurs growth worries
LONDON, Aug 8 (Reuters) - Oil fell as much as $3 a barrel on Monday as worries over a possible double-dip recession spread after Standard & Poor's cut the United States' top-tier credit rating and European central banks struggled to contain a deepening debt crisis.
"Chances of a double-dip recession have increased over the last week," said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. "I still don't think another recession is a probability, but economic growth forecasts are being lowered."
Oil Falls to Eight-Month Low in New York as Investors Buy Treasuries, Gold (Source: Bloomberg)
Oil fell to the lowest level in more than eight months as investors fled commodities for assets such as Treasury bills and gold after Standard & Poor’s downgraded the U.S. credit rating for the first time. Futures dropped 6.4 percent on the first trading day after the ratings service cut the U.S. one level to AA+ late on Aug. 5 and kept the outlook at “negative.” Two-year Treasury yields fell to a record low and gold touched a record high on the Comex in New York. The MSCI All-Country World Index of stocks slid as much as 5.1 percent. “There’s flight away from any kind of risky assets at the moment,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “It’s hard to say where the bottom is.”
Crude Oil Heads for Biggest Two-Day Decline Since 2009: Brent Below $100 (Source: Bloomberg)
Oil in New York headed for its biggest two-day plunge in more than two years as the U.S. credit rating cut and rising stockpiles stoked concern an economic slowdown will worsen, reducing demand in the world’s biggest crude consumer. Brent tumbled below $100 a barrel. New York futures fell to the lowest in more than 10 months. Asian stocks dropped for a sixth day after U.S. equities slumped the most since December 2008 in the first trading session since Standard & Poor’s Aug. 5 downgrade. An Energy Department report tomorrow may show crude inventories climbed for a third week. Brent oil traded in London slipped below $100 for the first time since Feb. 8.
“Until we can see some confidence coming back to the U.S. consumer, the situation is probably not going to change that much in terms of another strong price rally,” said David Lennox, a resource analyst at Fat Prophets in Sydney, who kept his forecast for New York crude to average $115 this year. “A recession would obviously have the potential to reduce consumption and that will place pressure on prices.”
Crude Oil Drops Below $80 for First Time Since October in Extended Decline (Source: Bloomberg)
Oil fell below $80 a barrel in New York for the first time since October 20, 2010. Crude for September delivery slid as much as $1.76, or 2.2 percent, to $79.55 a barrel.
China begins new crackdown on rare earth sector
BEIJING, Aug 8 (Reuters) - China will punish rare earth producers that fail to stick to a nationwide production quota after launching a inspection of the sector at the beginning of August, the country's industry ministry said on Monday.
In a notice posted the Ministry of Industry and Information Technology (MIIT) said enterprises that exceed quotas or continue to employ environmentally destructive production
techniques will have their licenses and quotas cancelled.
China port iron ore stocks hit record in week ending Aug 5
BEIJING, Aug 5 (Reuters) - Stockpiles of imported iron ore at major Chinese ports rose by 1 percent to reach a record 95.35 million tonnes by the end of this week, data by industrial consultancy Mysteel showed on Friday.
Port inventories declined for the first time in nearly three months last week following a 6.5 percent decline in Indian ores, with many mills seeking to replenish their own stockpiles without making costly forward bookings.
Japan steelmakers' price talks with Korea hit stalemate
TOKYO, Aug 5 (Reuters) - Japanese steelmakers' talks with South Korean customers on August-October exports have reached stalemate as a slowdown in the global economy and low-priced exports from China weigh on the market and the yen's strength makes price cuts difficult for Japanese exporters.
Japanese steelmakers are aiming for a price of $750 a tonne for hot-rolled coil for shipments during the three months, but South Korean customers insist on a level closer to $600, citing recent Chinese prices sold to South Korea of $600, two industry sources familiar with the matter said.
Copper to Extend Slump by 6.4% on Head-and-Shoulders: Technical Analysis (Source: Bloomberg)
The slump in copper on the London Metal Exchange may not be over, according to technical analysis by Sucden Financial. Prices that dropped 9.3 percent in the past four sessions to an 11-week low of $8,750 a metric ton yesterday are testing a potential “neckline” in a so-called head-and-shoulders pattern, Brenda Sullivan, a senior market strategist at Sucden, said yesterday in a telephone interview from London. A drop below that line, which connects the lows on Nov. 17 and May 12, could “open targets beginning at $8,219,” or a 6.4 percent drop from yesterday’s close, within a few weeks, she said. While prices were up 19 percent from a year earlier, after touching a record $10,190 on Feb. 15, the pattern of the past few months may mean the long-term rally is “under pressure,” Sullivan said.
METALS-LME copper up 0.2 pct after falling on US downgrade
SHANGHAI, Aug 8 (Reuters) - London copper recouped early losses on Monday after hitting a session low below $9,000 following a global rout on news that rating agency Standard & Poor's had cut the United States's prized triple-A credit rating.
Three-month copper on the London Metal Exchange edged up 0.2 percent to $9,061.25 a tonne by 0724 GMT, after breaching the $9,000-mark at one point to $8,950, its lowest since June 27. It dropped 4.2 percent in the last session.
PRECIOUS-Bullion strikes record above $1,700 on S&P downgrade
SINGAPORE, Aug 8 (Reuters) - Bullion roared to record highs above $1,700 an ounce on Monday as an unprecedented downgrade to the U.S. credit rating sent investors scrambling out of riskier assets, hammering equity markets and the dollar.
Both U.S. gold futures and cash gold could rise further if pledges by the Group of Seven nations to support battered financial markets fail to bear fruit as investors turn their attention to the Federal Reserve's policy-setting committee, the FOMC, meeting on Tuesday.
Gold Tops $1,750 for First Time as Equity Rout Stokes Demand (Source: Bloomberg)
Gold futures exceeded $1,750 an ounce for the first time as the global rout in equities and commodities deepened on concern the economic slowdown will worsen after Standard & Poor’s cut the U.S. credit rating. Gold for December delivery in New York advanced 2.5 percent to a record $1,756.80 an ounce and traded at $1,752.60 at 1:17 p.m. in Melbourne. Immediate-delivery gold rose as much as 2 percent to $1,754.63, also an all-time high. The precious metal has surged 23 percent this year, heading for an 11th year of gains, as the global sovereign-debt crisis and a faltering economy boost demand for wealth protection from investors. Gold holdings climbed the most since May last year while U.S. stocks had the biggest slump since December 2008 yesterday as investors retreated from riskier assets. Gold was costlier than platinum for the first time since December 2008.
Gold bar premiums steady in Asia, defy record prices
SINGAPORE, Aug 8 (Reuters) - Premiums for gold bars were mostly steady in Asia as purchases from investors who are worried about the state of the global economy helped the physical market offset pressure from record bullion prices, dealers said on Monday.
Rising gold prices normally spur heavy selling in the physical market, which could drastically cut premiums for gold bars, but dealers noted buying interest in Asia even as spot gold hit an all-time high above $1,700 an ounce.
Shanghai Gold Exchange to raise margins on gold forwards
SHANGHAI, Aug 8 (Reuters) - The Shanghai Gold Exchange (SGE) will raise trading margins on three of its gold forward contracts to 11 percent from 10 percent starting from Aug. 12 to limit trading risk, it said in a statement on Monday.
The contracts to be affected include , Au(T+N1) and Au(T+N2) , while trade margins for its various spot gold contracts will remain unchanged, the SGE said.
