Times Online -- The Financial Services Authority's crackdown on short-selling failed to prevent shares in HBOS slipping below the bank's rights issue price on the first day of the new regime.
After opening at 300p a share, HBOS slumped to 273.75p before closing at 282.5p. It is the second time that the stock has fallen under the 275p subscription price, raising fears that investors could shun the capital-raising.
The bank's share price had been boosted by the City watchdog's new rules to stop short-sellers from forcing down a company's shares during a capital-raising. The rules were introduced after short-sellers routed HBOS in March by using rumours that the bank needed emerging central bank funding.
The new rules came into effect yesterday but a combination of unease over HBOS's trading update on Thursday and negative notes from analysts at Citigroup and Panmure Gordon prompted investors to dump the shares regardless.
ProAg -- The possibility of a blow off top in either corn or soybeans (or maybe both) this month seems large given recent market behavior.
Corn futures have rallied about $1.30 in the past two weeks while soybeans have jumped $2+. These kind of moves cannot be sustained by the markets as there just isn't enough time for users/suppliers to adjust. Why do blow off tops occur?
Blow off tops accomplish something that the market has not been able to do via a typical rally. While a typical rally doesn't get the attention or eyebrow raising reaction from the world (users, suppliers, the media, and government officials) and thus changes in behavior of those participants, the blow off top phase of the market does. This accomplishes a lot of things a typical rally cannot, and it seems while allocating short supplies cannot be done efficiently in a typical rally market, it seems the blow off top phase does get it done.
The above words might not mean much until you put an example to it. HRS wheat prices from 2002 to this past winter was a case in point. Users and suppliers watched as it took from the 2002 breakout point of a $2.50-$3 price range to rally to $5 by 2006 (4 years). It took another 12 months for HRS wheat prices to move from a $3.50-$5 range, and then another 7 months to rally to above $10.
During all of these price moves, users and outsiders thought HRS wheat producers would surely respond to the price rallies by producing more, and users using less of this product. But it really didn't happen. In fact, HRS producers were actually switching acreage away from HRS wheat to corn/soybeans due to variety improvement in corn/beans and roundup ready technology which made it much easier to produce corn/beans vs. wheat.
Producers had also just experienced the 1993- 2000 period, where head scab had made wheat production a much riskier proposition. Producers used to think wheat production would provide 50 bu wheat with your eyes closed - just plant it and the crop will come. Head scab changed all that, as yield ranges went from 40-50 bu/acre to 0-50 bu/acre in top wheat producing areas. All of a sudden, corn and soybean production were less risky ventures than wheat, and the fungicide application to wheat for scab was costing $5-20/acre - effectively taking 2-5 bu/acre off the profit side immediately to pay for the fungicide. While wheat production got more difficult, corn production became routine to get 150 bu/acre corn (from 8 or 10 years ago), and the world of producers was irreversibly changed. Economics changed as the perceived world wheat producers operated in changed environments. How could the HRS wheat market get producers attention??? The blow off top which took prices from $10 to $25 took just 2 months!!! That turned many producers heads, not only in the US but in the entire world. Wheat production looked profitable again, and the world responded in earnest as wheat acres jumped considerably in 2008. The blow off top got everyone's attention, making producers want to produce more and suppliers to switch to other sources of protein (wheat gluten?). Human behavior changed, HRS wheat shortage solved!
Note in HRS wheat how blow off tops accelerate each price rise, with prices moving higher, quicker in each stage. The heads of market players also change, as the psychology of different groups emerge and meet in the marketplace.
Speculators (think spec funds) purpose in life is to educate the world about what is happening in it, forcing everyone else to accept their view of it before they change it (just when you believe $25 wheat is possible or reasonable, then it drops to $10 in 2 more months!). By buying and controlling the HRS wheat market with huge long positions and catching shorts unprepared, they were able to blow the market much higher than anyone could imagine, with the final dramatic stage (think the move from $10 to $25 in 2 months) making us all believe the unbelievable. HRS wheat will never be worth over $15, let alone $25, right? But once it ran to $25, we all had to believe it. When we did, prices dropped below $15 almost immediately!!! When the unbelievable becomes reality, funds are essentially done with their play as they've accomplished their purpose. If not for fund traders, who would have believed that users would pay $25/bushel for HRS wheat? Or, that they would pay $10/bu premium to soybeans for HRS wheat? Or, that HRS wheat was worth 2x as much as SRW or HRW wheat?
When the unbelievable becomes reality, blow off tops are usually done and the world looks at the market of a blown off top differently than it did before. The lesson taught in HRS wheat is that its worth whatever someone can believe it is worth, and perceptions change with time. Most of us (99% or more) are simply price followers, and a few (1%???) are price makers. Funds were price makers in HRS wheat last February, and they forced us all to accept that anything could happen to HRS wheat prices, as the impossible became reality, and then reality became possible again (<$10 wheat)!
Corn seems closer to the 'unbelievable' now than any other crop, as corn is now at a premium to SRW wheat. But perhaps $8 corn is similar to $10 wheat? What next can happen to corn? Can we do the blow off top in the same dramatic fashion as HRS wheat??? If so, it becomes difficult to put a topside in the market, or even measure one. Inflation adjusted highs in HRS wheat were $24, and we hit $25 in the 'unbelievable' stage of the rally. Inflation adjusted highs in corn fall around $15/bushel, while soybeans is actually closer to $40/bushel. So the top for corn could be anywhere in between $7.91 (this week's high) and $15, and soybeans between $15+ (this week's high) and $40. But remember, the spike from $8 to $15 ($15 to $40 in beans) may only take 2 months or less, not years. Psychologically, the market will blast all perceptions if the blow off top occurs.
In the past 2 years of corn rally, USDA has continually announced no intention of using CRP early out as a solution to the problem. Yesterday, USDA spokesman were saying the CRP early out consideration is being accelerated (meaning an announcement is imminent???). Pro Ag has been saying for almost 12 months that every time USDA said they won't open CRP, the market (think funds) is just saying "we need to go higher". Perhaps when the CRP announcement is made, then funds will finally decide we are high enough!!! Ironically, while governments and politicians like to believe they control markets, instead markets might control governments (the market goes up until government policy changes), and therefore the market accomplishes its purpose which is to make people change what they do. HRS wheat producers planted more, HRS wheat users used less, and the rest of the world learned the real value of HRS wheat. Is this finally happening in corn/beans??? If so, then the blow off top is occurring, and is nearly done!
Devastating floods and bad weather in the Midwest are raising the tide of opposition against the renewable fuels standard.
Groups that have been pressing lawmakers to reconsider federal supports for ethanol are now pointing to flooded fields in the nation's cornbelt as further evidence the United States may struggle to meet the standard.
The record floods have soaked more than 1 million acres of cropland in the Midwest and swallowed nearly 10 percent of the corn crop in Iowa.
The Agriculture Department estimated yesterday that 12 percent of the U.S. corn crop -- or about 3 million acres -- is in poor to very poor condition, up from 9 percent last week.
Commodities markets responded with climbing prices for corn, settling yesterday at $7.45 a bushel for July delivery on the Chicago Board of Trade. The high prices are not only hard on livestock farmers, but also ethanol plants. The ethanol industry is seeing more narrow profit margins because of the price increases.
Groups that have consistently criticized the renewable fuels mandate and subsides for ethanol are tying their message to this event too. They say the floods and expected poor crop yields could cause further strain on food and feed supplies.
The Environmental Working Group released a report this week describing what they call a "perfect storm" for the "ill-conceived" corn ethanol mandate. The report cites agriculture economists and state climatologists who have said problems with the crop in Illinois or Iowa could cause skyrocketing prices.
"Our ethanol policy requires perfect weather, and not surprisingly, we aren't getting it," said EWG analyst Michelle Perez. Since Congress cannot control the weather or global food and fuel demand, Perez called on lawmakers to scale back the biofuels mandate.
The Public Ledger -- SPANISH millers are at the front of the queue for specific soft milling wheat varieties from the UK, which shrank last year due to the poor harvest – but which are expected to triple to 3m tonnes this year.
The need for continued imports of UK soft milling wheat varieties, which mostly fall within the nabim Group 3 category, was reiterated by Spanish millers last week.
A delegation from Home Grown Cereals Authority's (HGCA's) British Cereal Exports visited flour millers in Valencia and Barcelona to discuss the prospects for UK wheat exports following the 2008 harvest.
"A large UK crop is forecast," said George Forbes, chairman of British Cereal Exports, "and the export availability could amount to over 3m tonnes in comparison to just over 1m tonnes exported this season."
Mr Forbes said "Some very promising, high-yielding, new Group 3 varieties are coming on to the market, which will be attractive to UK growers, and also very suitable for the export markets. The good news is that Spanish millers want and need UK soft milling varieties, and continue to offer a great marketing opportunity for the UK wheat sector."
Fuel and food prices are rising, along with mortgage bills, and inflation has hit its highest level in 16 years. But a minister was criticised last night for claiming on his blog that Britons have never had more spending power and questioning why people are so "bloody miserable".
Tom Harris, a junior transport minister and MP for Glasgow South, said that despite the credit squeeze, people in Britain have never been so well-off, and complained that they seemed to be afflicted by "crippling levels of cynicism and pessimism".
Under the heading "Heaven knows we're miserable now," Harris wrote: "High-def TVs fly off the shelves at Tesco quicker than they can be imported. Whatever the latest technological innovation, most people can treat themselves to it.
"Eating out - a rare treat when I was a child in the 70s - is as commonplace as going shopping. And when we do go shopping, whether for groceries or for clothes, we spend money in quantities that would have made our parents gasp."
Harris conceded that job security has dwindled, but wrote: "The corollary of that is the tremendous real-terms rises in incomes over the years and the consequent improvements in quality of life.
"There are more two-car homes in Britain today than there are homes without a car. We live longer, eat healthier (if we choose), have access to forms of entertainment never imagined a generation ago. The majority of us have fast access to the worldwide web, which we use to enable even more spending. Crime is down. So why is everyone so bloody miserable?"
His comments drew a sharp response from the shadow treasury chief secretary, Philip Hammond. He said: "The short answer to Mr Harris's question asking why everyone is so miserable is, 'We've got Gordon Brown as our prime minister'."
China bit the bullet yesterday and said it will increase gasoline and diesel prices by 1,000 yuan a ton. At first glance that may not seem overly significant. However the government there have up until now been insulating the populace from the soaring price of oil, which of course isn't going to ration demand. They have finally said enough is enough and that they can't afford to keep subsidising gasoline at the rate that they have been. This follows the lead set by India, Indonesia, Malaysia & Taiwan who have all hiked their countries fixed fuel prices recently. Once these increases filter through to the masses consumption will inevitably fall. Bring it on.
You couldn't make it up. Did you know that the EU has strict rules on how bendy a cucumber can be? Well it does, but maybe not for long if cucumber-loving MFB gets her wicked way. She'd now like to see your bendy cucumber nestling amongst her knarled and mis-shapen melons on the shelves of the local supermarket.
(The Independent) -- Never mind the common fisheries policy, the single currency, the MEPs' expenses gravy train and all the other myriad tales of Brussels that have been used to excoriate the European Union over the years. What has really damaged the reputation of the EU in Britain is the bent cucumber. Or to be more precise, the directive that forbade misshapen fruit and vegetables being sold as "class one" produce throughout the single market.
This was always a ridiculous rule. There is nothing about a vegetable's shape that determines either its taste or quality. Indeed, many would argue that such aesthetic discrimination has been positively harmful to the taste of the produce on sale in many of Europe's supermarkets, as suppliers have been encouraged to pay more attention to appearance than flavour.
Rising food prices look likely to put paid to the EU's fussy vegetables directive after the European Agriculture Commissioner, Mariann Fischer Boel, tabled a scheme to simplify the rules of marketing fruit and vegetables.
Among those to go would be the infamous "cucumber" quality standard which ensures that cucumbers bend more than 10mm for every 10cm of length cannot be labelled Class One vegetables. This directive has encouraged the food industry to waste tonnes of perfectly edible food every year. It has also reinforced the awful stereotype of meddling Brussels bureaucrats, humourlessly measuring bananas with their protractors.
Wheat export sales for the week ended June 12 were 538,100 tons, up 69% from the previous week and above trade estimates of 200,000 to 350,000 tons.
Corn weekly export sales reported by the USDA totaled 343,000 metric tons for old crop corn and 225,000 for new crop versus trade estimates of 200,000 to 500,000 tons.
Weekly soybean export sales were 180,300 metric tons. Sales in the 2007-08 crop year totaled 171,200 tons for the week ended June 12. Analysts had forecast sales between 200,000 and 475,000 metric tons. The sales were primarily for China with 82,000 metric tons.
Soymeal sales were a net 122,400 tons, in line with trade estimates of 75,000 to 175,000 tons.
Soyoil commitments were 900 metric tons, within trade estimates of zero to 10,000 tons.
Subdued trading conditions remain with only isolated low-volume scattered business to report so far today.
Spot wheatfeed pellets ex Wellingborough (8mm) reported done £103, with bog-standard material ex Icklingham under offer at £101.
In the north 6mm wheatfeed pellets ex Leith traded £116 and 6mm ex Silloth £114.50 also done.
EU wheat futures are modestly lower this morning in quiet trade. Traders still seem to be having difficulty reconciling impending bumper crops all round Europe against generally steadier Chicago levels.
"It's a very strange situation," said a Paris dealer. "We are following Chicago, but it's very different here than in North America."
The weather has turned warmer and drier in France, which will aid development and ripening. Durum fields in southern France are already ripening and early harvesting of the French soft wheat crop could begin by mid-July.
Paris-based milling wheat futures for Nov are EUR2.75 lower at EUR211/ton with 1110 lots traded. London-based Nov feed wheat is up GBP1 at GBP151.50 with 65 lots traded.
Corn futures are expected to open 3 to 7 lower; soybeans 3 lower to 4 higher; wheat 2 lower to 2 higher. Pressures from overbought conditions led to weakness in overnight trade. Improved weather is expected to allow field work to proceed at a better pace.
An improved weather outlook for the next few days saw a late mini sell-off in the eCBOT grains complex. Corn futures dipped to close with July down 10 3/4c at $7.35 1/2 a bushel.
Wheat futures also dipped late in the session with July ending down 6 3/4c at $8.97 1/4 a bushel.
July soybeans closed 4c lower at $15.52/bushel.
New Delhi (PTI)-- India's wheat production has touched a record 78 million tons in 2007-08 season, which will keep the prices stable in the domestic market, a senior government official said on Thursday.
The government's most recent official estimate pegged wheat output at 76.78 million tons in 2007-08 season. The revised figure should be reflected in the the government's next estimate, schedule for release next month.
"Wheat production has touched 78 million tons this year," Food Corporation of India (FCI) Chairman and Managing Director Alok Sinha told at a gathering of flour millers.
Wheat prices in domestic market would remain stable throughout this year, he said adding FCI would sell in the open market, if required, to ensure that enough wheat is available.
(Freese Notis) -- We proved last year that there can be considerable crop losses in the Plains winter wheat belt if there is substantial rain at harvest, and unfortunately we are seeing a dose of that again this year.
Thunderstorms were common from late yesterday through the overnight hours from southern South Dakota southward into Texas. Coverage of that rain was far from 100 percent, but those that did see the storms saw locally heavy rain and in particular saw a lot of severe weather. Very high winds were reported at a couple locations in Nebraska, with the western part of the Texas panhandle seeing several instances of baseball- to even softball-sized hail.
Thunderstorms were still occurring early this morning in southern parts of the Texas panhandle, with a bigger area of rain and thunderstorms in southeastern Kansas through northeastern Oklahoma. The same areas that got the thunderstorms during the past 24 hours will largely be the same areas seeing additional thunderstorm activity through the end of this work-week, with the threat of severe weather each and every one of those days as well.
Given the longevity of this rainfall threat, additional total rainfall during that period in southern Nebraska southward through northern Texas should be commonly over an inch, and locally over 2.50 inches.
A couple factors are making this wet weather situation less ominous than a year ago.
First of all, we have already seen a good deal of wheat already get harvested in Texas and Oklahoma; data released on Monday afternoon showed harvest progress for those two states to be at the five-year average and well above the pace of a year ago.
Second, this does not appear to be the start of an overall wet weather pattern there, as conditions do look to dry out for the weekend and into next week. Except for far western and southwestern areas,
Corn Belt weather looks pretty quiet for the rest of this work-week and into the weekend with limited rain expected. Temperatures during that period will be cool, especially for today and tomorrow and especially in eastern parts of the region.
The USDA release their weekly export sales report at 13.30BST today, here is a summary of what the trade is expecting:
U.K. May retail sales significantly surprised to the upside printing a 3.5% jump against expectations of a 0.1% decline, which was the biggest increase since records began in 1986. The rebound ended consecutive monthly declines of 0.3% declines in April and March and prevented the first decline for three consecutive months since 1991. A 9.2% increase in clothing sales from a 2.1% decline in April, as Britons continued their penchant for shopping. The warmest May ever saw shoppers load up on seasonal foods and clothing lifting annualized sales 8.1% from 3.8% the month prior. The pound briefly jumped through the $1.97 barrier on the news and is currently $1.9675 at 11.00 am London time.
According to Eurostat estimates and those submitted by the Member States in early June, the area under cereals is expected to increase by 5.7% compared with 2007. This is certainly a response to the very high producer price increases for cereals observed in 2007 and the beginning of 2008, due to an imbalance between supply and demand for cereals worldwide. Durum wheat shows a large increase of 12.6%.
In contrast, the rapeseed area decreases (-3.1%) for the first time since 2003, but by different rates across Member States. There is possibly a partial shift from rapeseed area to cereal area. The area under protein crops, of which peas represents almost half, continue its negative trend (-13.4% for peas area between 2007 and 2008 and -35.5 % over the past five years). The sugar beet area again shows a reduction (-6.8%).
Grain stocks grew by 44 percent over five months, to 6.7 million tons, against the same period of the previous year. During the same period, wheat stocks increased by 20 percent, to 3.5 million tons, according to the State Statistics Committee.
Agricultural enterprises have stockpiled 1.9 million tons of grain, at grain elevators and grain collecting stations. In addition, there are 4.8 million tons of grain at flour-grinding enterprises and bread-baking plants, including 3.2 million tons at grain elevators and grain collecting stations.
According to the Agricultural Policy Ministry, Ukraine forecasts to harvest grain from 15.6 million hectares, including eight million hectares under wheat crops and 7.6 million hectares under spring crops.
SAN FRANCISCO (MarketWatch) -- The head of the Senate's government affairs committee Wednesday unveiled a series of restrictive proposals aimed at financial speculators in commodities, including one that would place an outright ban on big pension funds buying agricultural and energy futures.
The three legislative ideas from Connecticut's Joe Lieberman, which the independent senator plans to discuss at a hearing June 24, count as the most drastic efforts yet from lawmakers targeting potential culprits behind high oil and grain prices.
The most severe would prohibit private and public pension funds with more than $500 million in assets from investing in agricultural and energy commodities traded on a U.S. futures exchange, foreign exchange or over the counter, according to materials provided by Lieberman's office.
A second plan would direct the Commodities Futures Trading Commission to establish total limits on the share of the commodity market held by financial investors.
A third proposal would direct the futures regulator to impose speculative-position limits on any stakes not related to real hedging activities, an action that could limit the commodities-swaps activities of big investment banks such as Goldman Sachs Group and Morgan Stanley.
"We are not, as some continue to argue, witnessing the ebb and flow of natural market forces at work. We are instead seeing excessive market speculation at work and that is why our government must step in with new laws to protect our economy and our consumers," said Lieberman in a statement.
Lieberman will most likely introduce legislation with Sen. Susan Collins, R-Maine, after the July 4 holiday recess, said a staff representative of Lieberman. That legislation could incorporate some or all of these proposals, depending on feedback from witnesses at the hearing, as well as the public.
Investment banks and pension funds aren't waiting for that forum to make their anxiety about Lieberman's proposals known. A statement penned by six influential trade groups, including the Securities Industry and Financial Markets Association, the Financial Services Roundtable and the Investment Company Institute, warned that efforts to bar financial investors from commodities markets could "substantially harm the ability of Americans to protect themselves against inflation."
Well they would say that wouldn't they, where would they be without their profits from oil and grains now their other markets have gone tits up?
Recently there was an interesting article at Spiegel Online regarding the faces of commodity speculation, as told by a farmer, baker, banker, and hedge fund manager. The use of the futures market by both the farmer and baker (hedging against falling and rising prices, respectively) are well known, as is the interest by both investment bankers and hedge funds, but the perspectives offered by the participants are interesting nonetheless.
While the article highlights only four individuals/institutions, and is somewhat anecdotal, it does offer a few observations. For instance, the following quote from the farmer is telling: "Farmers who don't have supply contracts at the moment are now calling the shots." This particular farmer, who had not yet signed a contract, is planning to sell only half of his crop to the cooperative at the end of July at the current price. He then plans to store another 50% until at least October in silos in the hope that prices will rise further. He admits that farming is becoming more speculative and that he is willing to take the risk. Quiet a turn of events and roles.
The baker on the other hand is worried about speculation and the associated risk, and is still worried that his raw material costs will be too high. As prices have increased, he is being forced to pass cost increases on to his customers, and is worried that the markets he must now operate in are too unpredictable. Since the EU has abolished intervention prices - which had helped to regulate the market he operates in, prices are now set at the CME, which he worries is being driven by speculators.
The investment banker is, not unexpectedly, trying to take advantage of the market by offering new products, such as certificates whose value rises or falls along with the price of food commodity contracts on the CME. Of interest from the investment banker is the quote of how they want to "provide each private investor with a toolkit he can use as if he were a hedge fund manager worth millions." This brings back memories of people quitting their day jobs in the late 1990s to trade stocks online at home, only to see the market correct violently. As has been pointed out by others numerous times before, when the average investor begins talking about securities and markets that he or she never talked about before (day trading tech stocks before, commodities and futures this time around), it is usually the sign that a top in the market is near.
Finally, a hedge fund manager was interviewed and pointed out that he no longer trades crude oil futures (ironically, since they are too speculative), but continues to watch them closely, since at the moment "... oil futures are the measuring stick for everything." Whether trading in oil futures or not, the fund manager needs to know how high crude oil might go given that its price has such a strong impact on the stocks he trades. Many other traders have also expressed how crude oil is affecting nearly every other asset, and how crude oil itself is becoming the new global currency. Right now that currency is in an uptrend, but volatile, and worrying market participants of a correction.
(The Independent) -- Ministers are preparing to open the way for genetically modified crops to be grown in Britain on the grounds they could help combat the global food crisis.
Ministers have told The Independent that rocketing food prices and food shortages in the world's poorest countries mean the time is right to relax Britain's policy on use of GM crops.
Last night, the Environment minister Phil Woolas held preliminary talks with the Agricultural Biotechnology Council, an umbrella group formed in 2000 to promote the role of biotechnology in agriculture. It is run by representatives from the companies Monsanto, Bayer CropSciences, BASF, Dow AgroSciences, Pioneer (DuPont), and Syngenta.
He said: "There is a growing question of whether GM crops can help the developing world out of the current food price crisis. It is a question that we as a nation need to ask ourselves. The debate is already under way. Many people concerned about poverty in the developing world and the environment are wrestling with this issue."
He stressed that the "very robust" procedures for ensuring the safety of experiments would continue, with scientists looking at each application on its merits.
The move will anger environmental groups, who accuse the GM industry of trying to exploit the global crisis to win approval for their products.
(Daily Telegraph) -- Tate & Lyle, the struggling sugar and sweeteners group, slumped to a four-year low Wednesday after Citigroup warned about the impact of soaring corn prices.
Tate & Lyle's corn starch is used to sweeten a wide variety of products from cereals to fizzy drinks but Citi believes it will struggle to pass on higher costs over the next couple of years. Corn prices have jumped by 25pc in the last six weeks alone because of the recent floods in the US and Citi analyst Eamonn Ferry predicts Tate & Lyle's corn costs are set to double by 2010. Tate & Lyle shares fell 22¼ to 402¼p.
For once a relatively quiet session thus far with no particularly significant changes. Wheat on eCBOT is around a cent firmer at 8.30am, beans 1-4c lower and corn 3-4c easier. As I said yesterday I just don't buy into wheat suddenly becoming the strongest leg of the complex in Chicago. They cited rains delaying harvest in some areas last night as one reason for the market being firmer. Given that there is so much stuff in the silos over there some elevators are having to store wheat on the ground I really don't think harvest delays are significant do you?
It will be interesting to see what happens on LIFFE/Euronext later this morning, in recent sessions there have been signs that although the EU wheat markets feel "obliged" to follow Chicago higher, traders know that fundamentally the European outlook is bearish.
Fresh forecasts out of Hungary showed wheat output could be up 30% on the year at 5.25 million tons. The Agriculture Ministry also said Hungary's corn crop could be even better than the bumper crop of 2006. This follows projections out of France Tuesday for a 21% rise in winter barley production.
In an effort to secure future food supplies for its future, the Bahraini government is looking to invest in farmland abroad, some as far off as the Philippines. Due to the severe limitations on its own agricultural resources, Bahrain is highly dependant on food and drink imports to meet the needs of its growing population. Despite generous government subsidies, domestic prices of basic foodstuffs are still rising due to ongoing shortages on the world market, leading to considerable social unrest.
Therefore, a number of regional governments have taken a new approach, looking to secure supplies by investing directly in land and agricultural production abroad. This is a trend that BMI expects will continue for some time, due to the Gulf states limited capacity to increase their own production and their need to sustain the rapid population growth upon which their continued economic growth is dependant.
Currently Bahrain imports an estimated 45,000 tonnes of rice per year, with the majority coming from India and Pakistan. Therefore, when the Indian government decided in March to ban non-basmati rice exports and to curb sales of the more expensive basmati variety, this led to widespread alarm. With Indian supplies not forthcoming, the Bahraini government has scrambled to secure imports from other sources. In early June it was reported that Thailand, which previously supplied only around 5% of the Kingdom's rice imports, had agreed to increase its supplies to Bahrain in 2008 and 2009.
Bahrain has now taken this approach one step further by investing directly in farmland in major rice-producing countries. The government has invited private companies to set up joint ventures to invest in farmland in Thailand, while the agriculture ministry has reportedly secured an agreement from its Filipino counterpart for Bahraini investment in the Philippines' agricultural sector. Given Bahrain's need for food supplies and the Philippines' need for foreign investment, such agreements are being presented as win-win deals.
Bahrain is not the only Gulf country taking this approach, with UAE and Saudi Arabia reportedly looking to establish similar deals or joint ventures.
(Times Online) -- Morgan Stanley became the latest financial services group to fall victim to a rogue trader as it admitted that it had suspended a credit trader in London for trying to hide losses of about $120million (£61.3million).
America's second-biggest securities firm said that the Financial Services Authority was conducting a full investigation into the conduct of an unnamed employee after Morgan Stanley discovered in May what it called a “$120 million negative adjustment to marks previously taken in a trader's book that did not comply with the firm's policies”.
The presence of the rogue trader emerged as Morgan Stanley reported a 60 per cent decline in its second-quarter profits, dragged down by a $955 million loss on its portfolio of mortgage-related investments and loans to finance private equity buyouts. The group announced net income of $1.03 billion in the three months to June, down from $2.58 billion a year earlier but slightly ahead of expectations.
The decline in profits came despite a one-off gain of nearly $1.5 billion from the sale of its Spanish wealth-management business and a secondary offering of shares in MSCI Barra, a provider of data for hedge funds and other indices in which Morgan Stanley is the majority shareholder.
NEW YORK (AP) -- Morgan Stanley on Wednesday reported second-quarter profit plunged 61 percent as the credit crisis continued to take its toll on trading and investment banking.
Shares fell more than 5 percent in premarket trading on the news, even though results came in slightly ahead of Wall Street expectations.
The second-largest U.S. investment bank reported profit fell to $1.01 billion, or 95 cents per share, from $2.57 billion, or $2.45 per share, a year earlier. Revenue dropped to $6.51 billion from $10.52 billion last year.
The Public Ledger -- Soybeans are falling out of favour in Brazil with the banning of purchases from deforested parts of the Amazon Basin and maize becoming increasingly attractive proposition for farmers given recent price rises due to the washed-out US crop.
Brazil's new environment minister reached an agreement with the grain processing industry to ban purchases of soya from deforested Amazon until July 2009, winning praise from environmentalists.
They called environment minister Carlos Minc's initiative essential to the protection of the world's largest rainforest. Deforestation in the region quickened in the past months as world grain prices continue to set record highs.
The moratorium is a commitment by the local Vegetable Oils Industry Association, which includes big crushers such as Cargill, Bunge, ADM and Louis Dreyfus, and the Grain Exporters Association to extend the expiring, one-year ban that began in July of 2006.
"The decision today is very important as it shows a leading sector in Brazilian agribusiness can guarantee food production without the need to cut down one more hectare of Amazon," Paulo Adario, Greenpeace Amazon campaign director, said in a note.
Deforestation of the Amazon is on course to rise after three years of declines, with figures for April released earlier this month showing a startling 434 square miles (1,123 sq km) of trees lost in the month.
Maize is becoming just as attractive as soy to farmers in the Brazilian state of Parana, said Anderson Galvao Gomes, anagribusiness consultant at Celeres.
"Maize will be a barrier to soya expansion in Parana, without a doubt," he said.
"It's not necessarily the price that's going to be the deciding factor though," he added, citing better maize than soya returns in Parana these days.
Last year, because of competition from maize and sugarcane, Parana soya expansion was less than 1%, according to government estimates from the agriculture ministry.
"Farmers will have to consider credit availability and warehousing space. But right now the market is favouring both soya and maize and Parana doesn't have the farm land available to expand both," he said. Normally, farmers sell two bags (of 60 kg each) of maize for what they can get for one bag of soyabeans. But in May, that fell to 1.9 bags of maize per bag of soyabeans.
Maize is Brazil's No. 2 crop behind soyabeans, of which Brazil is the world's second-largest producer behind the U.S.
Maize competes with soy for cropland in Brazil's south and is positive in the western central region. However, "I don't see maize competing in Mato Grosso," Mr Gomes said of the No. 1 soya-producing state in the nation.
Corn futures are expected to open 2 to 4 higher; soybeans mostly unchanged to 2 lower; wheat 3 to 5 higher. Overnight trade was slow, but grains were firm. Traders are still fearing more crop losses but will even up positions ahead of the USDA Acreage report June 30.
After a relatively busy May, June has gone terribly flat with many compounders reporting stagnant sales and slow off-take.
Odd loads trading here and there seems to be very much the order of the day.
Spot distillers ex Portbury done yesterday at £185, and spot gluten ex Liverpool done today at £165.
Also hearing spot Liverpool soya hulls done at £145 and spot liverpool citrus pellets traded £140 today.
Wheatfeed? All over the shop.
The German cartel office has initiated a probe of the German dairy industry, according to reports in the national media today.
The media cites a cartel office spokesperson as saying: "We assume that the competition on the dairy market isn't working according to the rules".
However, it is understood that the cartel office is not yet suspecting any companies in particular.
Turnover rose by 46% to £116.46m (2007: £79.9m)
Operating profit rose by 55% to £3.33m (2007: £2.15m)
Pre-tax profit rose by 51% to £2.958m (2007: £1.963m)
Net assets increased by 19% to £31.81m (2007: £26.83m)
Interim dividend of 2.00p (2007: 1.875p)
Ken Greetham, Chief Executive, commented:
"Trading in the first six months of the financial year has been good across both our agricultural business and retail operations. These strong results reflect the strength of our diversified business model as well as the benefit of the acquisitions we made last year.
It is pleasing to see our Country Stores improve like-for-like sales, resulting from a combination of improved product range in our stores and greater discretionary spending by arable and dairy farmers.
The acquisition of pet superstores chain, Wilsons Pet Centres, in January, represented a major step forward in our objective to establish a large scale pet product retailing business. Trading across the pet stores to date has been very strong and appears to be highly resistant to the general downturn in consumer spending.
The general outlook for the business remains positive, with improved farm gate prices and emerging markets for agricultural produce giving a more promising outlook for the industry.
The business enjoys a strong financial base and we see good opportunities for continuing growth as we pursue our twin track strategy of acting as a consolidator in agricultural supplies and developing our retailing activities, especially in the pet products market."
FWi -- The cost of production for feed wheat could hit £130/t next season, and many growers will struggle to turn a profit without subsidy income unless prices start to climb. That was the stark prediction from consultant Andersons at Cereals.
It estimated that higher fuel and fertiliser prices, plus increased rents, would push typical costs of production for winter feed wheat towards £115-130/t in 2009, compared with £97/t this year and in 2007.
If the wheat price goes below £115-120/t, many combinable crop growers will be in a situation where they're dependent on support to make a profit next year, Andersons' head of business research, Francis Mordaunt said. The margins from production are that thin and I don't see any sign of the principal costs - fuel, fertiliser etc - coming back £115/t is very much the new break-even figure for feed wheat if you include rent and finance, plus the farmers' own income.
The situation this harvest was slightly better, despite escalating costs, because many growers bought fertiliser last autumn and sold a proportion of crops forward at higher prices, he said.
Machinery depreciation could be another significant cost, particularly as many growers had recently invested in new equipment, Mr Mordaunt added. Some will have gone a bit overboard on replacing kit, so you could easily add another £20/ha [£2.20/t at a 9t/ha yield] on to the cost of production.
Permission to build a 65mW biomass power plant in the north east of the UK has been granted to Helius Energy, by the Department of Energy. The power station is, says the company, the first phase of an integrated bioenergy development on a 36 hectare site 4km from the port of Immingham.
The new plant will, says Helius Energy, produce enough renewable electricity for around 100,000 homes, and will save approximately 450,000 tonnes of carbon dioxide a year compared with a similarly sized coal-fired power station. Options to use the heat produced by the plant either on site or locally are also being considered.
"This consent allows Helius Energy to begin to implement our plans for the production of renewable electricity from sustainable biomass", said John Seed, Managing Director of Helius Energy. "Now that we have been granted consent by the Secretary of State we look forward to working closely with North East Lincolnshire Council to bring this project to completion."
In a statement issued Tuesday, Energy Minister Malcolm Wicks said: "This is another stepping stone towards powering a greener, cleaner UK. Not only does it help tackle climate change and increase secure supplies of energy, but the building and running of this biomass plant will also provide jobs in Lincolnshire.
"This announcement takes us closer to achieving our proposed renewable energy targets. We have doubled the amount of renewable electricity to 5% over the last few years and later this month we will be launching our consultation on how we can drive this forward even further."
Construction of Phase I, the biomass energy plant, costing circa £200 million, is expected to start later this year and to be operational by 2011. The site will also incorporate an area dedicated to wildlife conservation.
The biomass power plant will require around 430,000 tonnes of sustainably sourced feedstock each year, with a significant amount coming from the UK, says Helius Energy.
CHINA - Poultry traders have said they are considering getting a one-off compensation from the government and quitting the business for good.
China Daily reports that the traders also hinted at a protest during the Olympics if the government did not meet their demand for compensation soon enough.
The Panel on Food Safety and Environmental Hygiene held a special meeting at the Legislative Council on 16 June to discuss the discovery of H5N1 bird flu virus at wet markets last week.
At the meeting, chairman of the Hong Kong Poultry Wholesalers and Retailers Association Steven Wong Wai-chuen said "Everyone in the trade will quit" if the government insists on implementing daily cleansing at markets as they simply cannot bear the loss that the policy will incur.
Although there are still chickens available at local farms, he noted that the chickens will be 'worthless' without the retailers.
"If we [the retailers] quit, the farms will be forced to close down as well," he said.
"The sooner the government gives us the compensation, the sooner we will return the retail licenses and quit," he said, citing he did not want the issue to drag on.
Meanwhile, he hinted that they may protest during the Olympic equestrian events if the issue is still not settled then.
The retailers are asking for a compensation eight times the compensation currently given to vendors who voluntarily surrender their licences.
At the same meeting, representatives of the poultry industry said they have been struggling financially since the sale of live chickens was suspended last Wednesday.
They asked the government to think of a long-term policy for the survival of the trade.
Meanwhile, legislators asked the government to consider giving a one-off compensation to the trade.
Secretary for Food and Health York Chow maintained that daily cleansing, and eventually central slaughtering, are the most effective ways of controlling bird flu in Hong Kong.
"We understand the loss that these measures may incur, but if we don't make changes to the current operation, an outbreak is inevitable," he said.
"Another chicken-culling will be a great blow to the trade and society. We have to consider legislating for daily cleaning," he added.
Mr Chow noted that if the vendors insist on rejecting the daily cleansing policy, the government will consider giving them compensation to end their businesses.
Meantime, he said chickens in local farms may have to be culled since all wet markets have been declared infected areas.
The government is expected to reach a decision this week, he said.
(FinancialWire)-- Verasun said it is delaying the opening of two midwestern ethanol distilleries until market conditions improve. The plants, each scheduled to produce 110 million gallons per year, were to be built in Welcome, Minnesota, and Hartley, Iowa.
VeraSun spokesman Michael Lockrem said record corn prices and low ethanol prices, relative to spikes in gasoline, have made making the biofuel difficult. The plants had been scheduled to come on line during the second quarter of 2008. Lockrem could not say if they would start this year.
Daily Telegraph -- The supermarket group Waitrose is to stop selling foreign pork and bacon by the end of this year, as part of its drive to support beleagured British pig farmers.
While meat prices have soared on supermarket shelves over the last year, the price of pork has increased at a slower rate and bacon prices are virtually unchanged.
Waitrose has been backing a "Save our Bacon" campaign this year and it hopes by banning foreign pork it will help highlight the issue once again.
Most supermarkets – to help keep their prices down for shoppers – have increasingly relied on Danish and Dutch pork, which tends to be far cheaper.
The reliance on imports has led the UK pig herd to halve from 8 million pigs in 1996 to about 4 million this year.
Six out of ten rashers of bacon sold in British food shops now come from overseas.
Natalie Mitchell, senior meat buyer at Waitrose, said: "British pig farmers produce some of the world's best pork – and they need our support now more than ever before.
"It would be an absolute travesty if Britain were to lose one of its finest farming industries at a time when Britain is sourcing large quantities of bacon from abroad.
Stewart Houston, Chairman of both the National Pig Association and the British Pig Executive said: "This is very good news for the British pig industry and Waitrose is to be congratulated for the move."
According to that bastion of the British press the Daily Mirror, cut-price booze in supermarkets is to be banned. Link here: Cheers!
"The best way to take control over a people and control them utterly is to take a little of their freedom at a time, to erode rights by a thousand tiny and almost imperceptible reductions. In this way the people will not see those rights and freedoms being removed until past the point at which these changes cannot be reversed" - Adolf Hitler, he knew a thing or two about repression.
I really, really just don't get it. Wheat seems to have suddenly gone from being the poor relation of the grains complex to the strongest leg. How the hell did that happen? It defies logic if you ask me, and it seems to be defying me to show my arse in Burtons window, as promised on here a few weeks ago.
Wheat is up around 13c this morning, adding to last night's gains. Why? Because rising corn prices in the US will lead to increased wheat usage for feed. Its not like they don't need homes for the stuff is it? They're in the middle of a crop 20% larger than last year and have so much of it in the silos that they're having to store it outside! Only in America, in the current over-hyped market eh?
But no, we're going up in Europe as well, at least the futures markets are (yesterday excepted). Torn between impending bumper crops round the corner, and watching America go higher.
The usual suspects are in the export market, Japan, South Korea, Pakistan & Iraq. That seems to be enough for the bulls in the US.
Corn and soybeans are both around 8-10c firmer in the overnights on uncertainties over the extent of crop losses due to Midwest flooding. It seems to me that this uncertainty isn't going to go away until harvest starts. After that it may well be a case of buy the rumour, sell the fact. Unfortunately before final output figures are clearer we may well have to put up with the futures market paddling it's own canoe. Quite appropriate that really under the circumstances!
The cash markets, however, may well be different. Certainly reports are suggesting that in some areas of the US basis has widened on wheat from a "normal year" of 30c/bushel to more like $2.50/bushel. If the futures markets continue to go up then that differential could widen further, both in the Chicago and at home.
In the meantime keep an eye on Burtons window!
Ethanol was touted as one solution to U.S. concerns about its reliance on imported oil, but that was before soaring global food prices and major flooding in the U.S. corn belt. Ethanol was also supposed to provide an attractive and environmentally friendly sector to invest in.
It hasn't apparently measured up on either score, at least not to date. A case in point on the investment side is the 52-week low of $4.16 (U.S.) set yesterday by VeraSun Energy Corp. In December, the shares set a high of $17.75. Those same shares were changing hands at $30 apiece just after VeraSun went public in June, 2006.
BioFuel Energy Corp., another pure-play ethanol supplier, is also hurting. Its shares dipped to $2.91 last Thursday, quite a drop from the $10.50 when the initial public offering was done at a year ago and the high of $11.97 last July.
And shares of Archer Daniels Midland Co., which processes oilseeds, oats and barley along with corn, are close to, but still above their 52-week low of $31.28 established last August. At $33.12, however, they are far off the high of $48.95 which dates back to April 22.
The stocks, particularly the pure plays, have been hit by what might be seen as a perfect storm. The rains have made what was already a bad situation, with sharply rising food prices, worse and in the process, pushed ethanol margins at small and mid-sized producers into negative territory.
David Driscoll, who follows the sector for Citigroup Global Markets Inc., says that each 10-cent a bushel increase in the price of corn reduces ethanol production margins by 2 to 3 cents a gallon. And he noted in a report last Thursday he had learned of at least five small to mid-sized ethanol plants that have shut down because of the poor margins.
"This appears to be just the tip of the iceberg as we believe as much as two to five billion gallons of ethanol could go offline in the next few months due to high corn prices and poor ethanol production margins," he said.
Mr. Driscoll raises the possibility that Washington may intervene in the ethanol markets to curtail production in the near term and relieve the pressure on the corn market.
In a separate report, he cited a May 2 letter sent to the U.S. Environmental Protection Agency signed by Senator John McCain and 23 other senators urging the agency to waive some or all of the Renewable Fuels Standard. The standard specifies minimum biofuels consumption levels for the U.S.
"In our opinion, just the spectre of possible political intervention will likely cause the market to question the magnitude of future biofuel growth, adding further pressure on valuations across the ethanol industry," Mr. Driscoll added.
As a result, he has downgraded VeraSun and BioFuel to "sell" from "buy," while lowering Archer Daniels Midland to "hold" from "buy." The hold on Archer reflects the fact that it has other businesses "which could possibly mitigate problems in ethanol," he said. He also reduced his target price for VeraSun to $3 from $12.50, and for BioFuel to $2.75 from $11. He adjusted the target for Archer to $42 from $51.
Foxy isn't she? I don't know about you but I think I'd let her do whatever she liked.
(CTK) -- Grain harvest in the Czech Republic will be above-average this year - at between 7.2 million and 7.5 million tonnes, compared with 2007's 7.153 million tonnes, according to Czech Agricultural Chamber estimates.
Owing to the high demand, prices can hardly be expected to fall. Grain prices in some cases even doubled last year against 2006, Josef Kubis of the Chamber said.
The good harvest expected this year can be ascribed to favourable weather and a larger crop area.
A better harvest is expected in the whole of the EU which after last year's dramatic growth in grain prices suspended the validity of a regulation saying that part of farmland be left fallow.
Czech farmers thus raised the winter cereals area by 2.3 percent, or 22,000 hectares, of land. Winter rape area increased by 7.3 percent (+24,000 hectares).
According to Czech Statistical Office (CSU) data, cereals were grown on 1.58 million hectares of land in the Czech Republic last year, and 337,600 hectares were planted with rape.
(Interfax) -- Kazakh agricultural enterprises have fully completed spring planting work, the Kazakh Agriculture Ministry's press service said.
"According to tentative regional data, planting work has been completed today and the [planting] rates were 1%-2% higher than last year's," the ministry said.
Spring grain has been planted on 15.6 million hectares, including wheat on 13.1 million hectares, barley on 2 million hectares, grain maize on 90,000 hectares and rice on 74,000 hectares.
Oil crops have been planted on 851,000 hectares, including sunflowers on 528,000 hectares, soy on 50,000 hectares and rapeseed on 181,000 hectares. In addition, the country has planted sugar beets on 19,000 hectares and cotton on 165,000 hectares.
The planting area in 2008 is to total 19.9 million hectares, including grain on 16.2 million hectares of which wheat will be planted on 13.6 million hectares.
(Interfax) -- The Ukrainian Grain Association, which unites the country's grain companies, believes Ukraine could export about 13.5 million tonnes of grain in the 2008-2009 marketing year, Volodymyr Klimenko, president of the association, told Interfax.
"According to our figures, wheat exports could total 7 million tonnes, barley - 4 million tonnes and corn - about 2.5 million tonnes," he said, noting that Ukraine exported about 860,000 tonnes of grain in May and could ship more than 1 million tonnes of grain abroad in June.
Grain traders working in Ukraine are experiencing difficulties in exporting due to the global drop in wheat demand, he said.
Leonid Kozachenko, president of the Ukrainian Agrarian Confederation, which represents public agricultural organizations uniting producers, processors and exporters, said he was afraid of a possible drop in prices for grain from the new harvest on the domestic market during the harvest campaign and has asked the government to take measures to prevent this situation.
"A number of factors could cause a sharp decline in domestic grain prices," he said, noting that the most important factors are a reduction in transfer grain stocks from the 2007 harvest, which totaled about 7 million tonnes on June 1, as well as a decline in global grain demand.
Grain stocks at agricultural enterprises (apart from small-sized ones) and grain storage and processing companies totaled 6.7 million tonnes as of June 1, up 44% from the same date of 2007, the State Statistics Committee reported. Wheat stocks totaled 3.5 million tonnes on June 1, up 20%.
The Ukrainian grain harvest is to total more than 40 million tonnes in 2008 compared to 29.3 million tonnes in 2007.
Former Royal butler, convicted liar, slight dyslexic and desperate Wannabe Paul Burrell has today revealed in his newest book "Your Secret Is Safe With Me Your Majesty," that he is having Ricky Tomlinson's baby.
"He told me he was a member of the Royle Family so obviously I let him do what he wanted," sobbed Burrell, "He sold me a line and I stupidly swallowed it," he went on. "I'm not homophobic, I just don't like it in my face," he insisted. "I thought he was the Duke of Kent, with that beard and that, and it was a bit dark," said Burrell.
Next week: "Burrell: I've done the Queen Mother without her teeth in"
Tesco's Chief Executive, Tim Mason, has dismissed the company's US Fresh & Easy chain was failing after indicating expansion beyond the West Coast was being considered.
Mr Mason said the firm’s 60 convenience-style shops were thriving. He stressed the decision to bring in the supermarket giant’s former Thailand chief, Jeff Adams, was a signal of preparation for future expansion rather than an admission the venture was in trouble.
Mr Mason said: “We have always known we will need more executive vice-presidents in operations because this country is so big that as soon as we go into a new geography, we will need someone to run it, so we have brought him in a little early.”
There is speculation that Mr Adams will be based in Chicago and that Tesco expansion could take place in the Mid West.
The Tesco boss also refused to rule out the expansion programme would take place after 2012 but added that nothing would be done until the company had “explained” how they were performing on the West Coast.
DTNAg -- Up to 20 percent of Iowa's crop production may have been lost to flooded fields and delayed or prevented planting, according to Dave Miller, an economist and director of research and commodity services for Iowa Farm Bureau.
That estimate was based on conditions Friday and is subject to change, according to an article posted on Wallace's Farmer website.
Miller estimated floodwaters have claimed nearly 1.3 million corn acres and up to two million acres of soybean acres, the website reported.
As of Friday, 16 percent of Iowa's 25 million tillable acres were under water, the website said.
As far as replanting is concerned, Miller said June 25 is about as late as a short-season corn can be planted in Iowa, while soybeans can be planted as late as July 1.
Corn futures are expected to open steady to 3 higher; soybeans steady to 7 higher; wheat mixed. Overnight corn futures struggled while wheat and soybeans firmed slightly. There is not much movement as traders await new direction.
Inflation in the U.K. rose to 3.3% in May from 3.0% the month prior. It was the highest level since at least 1997 when records began. Rising food and energy prices continue to stoke inflation as food prices increased 1.7% after a 1.3% gain in April.
Inflation in the U.K. rose to 3.3% in May from 3.0% the month prior. It was the highest level since at least 1997 when records began. Rising food and energy prices continue to stoke inflation as food prices increased 1.7% after a 1.3% gain in April. Prices also increased across the broader economy as the core reading stripped of food and energy rose to 1.5% from 1.4%, which was the highest since October, led by a 1.6% increase in transportation and a 1.4% gain in household goods.
BoE Governor King was required to write a letter of explanation to Chancellor Darling as to why prices have surpassed the 2% target by more than 1% and what course of action will be undertaken to attempt to reverse its course. The only previous letter was written in April 1997. In his letter he wrote that he expects that inflation will rise above the 4% mark and that the path for interest rates to meet the 2% target was uncertain.
Hardly inspires confidence does it? The pound dropped sharply on the news to $1.9502.
EU wheat futures are lower Tuesday, consolidating after a late sell-off in Chicago last night, and pressured by impending bumper supplies of new crop all over Europe.
London wheat is £0.50-1.50 easier and Paris-based milling wheat futures EUR2-3 lower.
Traders say that the German wheat crop has improved since the start of June with rainfall in the northern and eastern areas. Favourable precipitation was being reported in the Scandinavian countries.
This adds onto forecasts for bumper output so far in the rest of Europe. Thus even though more wheat is expected to be used in feed rations, replacing feed products such as imported corn and sorghum, traders said it will remain a challenge to immediately soak up such a large European harvest.
(RTTNews) -- US stocks were looking to advance Tuesday morning in New York as investors braced for a slew of economic reports and earnings results from Goldman Sachs. As of 1:15 am BST, the S&P Futures were up 6 points, the NASDAQ Futures were up 7 points, and the Dow Futures were up 43 points.
Stocks ended mixed on Monday as fluctuating oil prices also contributed to the lack of direction in the markets.Investors will be looking to Goldman Sachs for more guidance on how the credit crunch is affecting the financial sector.
Goldman Sachs is scheduled to release its second quarter results before the opening bell on Tuesday. The financial company is expected to report earnings of $3.42 per share, down from $4.93 per share a year ago.
London - Oil crude futures on retreated further from record high levels of almost 140 dollars a barrel, reached in trading yesterday.
New York’s main oil futures contract, light sweet crude for July delivery, shed 13 cents to 134.48 dollars per barrel, as the European trading day began, by 11.30am BST it was $1.33 lower at 133.28 dollars/barrel.
It had struck a record high point of 139.89 dollars on Monday despite news that Saudi Arabia was ready to raise output to help cool soaring energy costs threatening economic growth.
Brent North Sea crude for August delivery eased 16 cents to 134.51 dollars a barrel on Tuesday, a day after striking a life-time high of 139.32 dollars.
Iranian President Mahmoud Ahmadinejad on Tuesday blamed soaring crude futures on the sliding dollar, which makes commodities priced in the US unit cheaper for foreign buyers.
"The rise in consumption is lower than the rise in production," Ahmadinejad told a meeting of the Organization of Petroleum Exporting Countries’ (Opec’s) fund for international development.
"The market is well supplied but prices are rising and this situation is artificial and imposed" by world powers, he added.
Ahmadinejad’s comments came ahead of a meeting on Sunday organised by Opec kingpin Saudi Arabia in the Red Sea city of Jeddah, to bring together major oil producers and consumers to discuss surging crude prices.
Shares of U.S. food companies that sell everything from beef to bananas fell hard on Monday, some to multiyear lows, as they face higher costs for key feed crops and for fuel and fertilizers.
Analysts predict the worst is still ahead for these companies because it is not yet known how much of the U.S. corn and soybean crops, both key feeds, will be lost to widespread flooding in Iowa.
Banana distributor Chiquita Brands International and fresh produce company Fresh Del Monte Produce Inc also saw shares tumble. Chiquita said in a statement it expects higher costs for fuel and fertilizers.
Chiquita and Fresh Del Monte were among the top three percentage losers on Monday at the New York Stock Exchange, after Chiquita predicted it will post a "significant" third-quarter loss.
Shares of Pilgrim's Pride Corp, the largest U.S. chicken producer, tumbled nearly 13 percent to a four-year low, making it the fourth-biggest percentage loser, while shares at giant hog and pork producer Smithfield Foods Inc dropped as much as 7 percent to a 3-1/2-year low of $23.31, as both face higher feed costs.
"I don't think these companies have seen the worst of it yet. I think it is going to get really ugly across the board," John Urbanchuk, an economist with expert service firm LECG, said of the costs faced by meat companies.
"We are going to see unstable (grain) prices and higher grain prices throughout the growing season," he said.
Also down were shares of Tyson Foods Inc, the largest U.S. meat producer, and Sanderson Farms Inc, the No. 4 chicken producer.
In New York Stock Exchange trading Pilgrim's Pride shares were down $2.08, or 11.3 percent, at $16.31; Tyson Foods was off 15 cents , or 1 percent, at $14.81, and Smithfield Foods was off $1.09, or 4.35 percent, at $23.96.
Sanderson Farms' shares were down $2.06, or 4.8 percent, at $40.89 in Nasdaq trading.
Also in New York Stock Exchange trading Chiquita shares tumbled nearly 30 percent early and were down $6.76, or 29 percent, at $16.56 and Fresh Del Monte shares were off $4.39, or 13.8 percent, at $27.49.
Footnote: America is on a diet, it just doesn't know it yet - Kelloggs announced yesterday that they are reducing the size of some of their cereal packets. I read a report the other day of a New Yorker who regularly buys a chicken pitta bread from a well-known US takeaway service. He chucks (no pun) the pitta away & eats the chicken & salad at his desk. He says he's noticed recently that they amount of chicken in his pitta is considerably less than previously, some 20-25% less although the price of his lunch remains the same.
FWi -- TV celebrity chef Hugh Fearnley Whittingstall has successfully raised the £86,888 which will allow him to table a resolution at the up coming Tesco AGM, calling on the retail chain to stop selling conventionally reared chicken in its stores.
The TV chef bought a share in Tesco earlier this year, giving him the right to put a resolution to the company's AGM in Birmingham on 27 June.
However, Tesco requested the sum in order to pay for the distribution of Mr Fearnley Whittingstall's resolution, supporting statement and proxy voter forms to approximately 269,000 Tesco shareholders.
His resolution calls on Britain's biggest supermarket to upgrade its poultry welfare standards so that it is in line with their stated claim to endorse the Five Freedoms as set down by the Farm Animal Welfare Council.
In practice this would be achievable by a commitment to upgrading their poultry to at least the RSPCA Freedom Foods production system which, although indoor-reared, uses slower growing breeds, a lower stocking density and environmental enrichment to allow chickens to express natural behaviour.
Mr Fearnley Whittingstall auctioned himself and his services and also pledged £30,000 of his own money, and received a generous donation together with technical and fund raising assistance from the charity Compassion in World Farming (CIWF).
I'm really relieved and hugely grateful to everyone who has shown their support by donating through Compassion, and by bidding for my services, he said.
This is not just about animal welfare, it also raises the question of how huge public corporations communicate with and hold themselves accountable to, their shareholders and customers.
Mr Fearnley Whittingstall added that there have been many additional pledges of support from people who have not been able to bid or donate cash but who have written to Tesco expressing their support for his resolution.
(University of Illinois) -- Corn futures are pushing toward the $8 mark. The good news is you don’t have to sell 4 bushels to get $8. The bad news is some farmers may only have four bushels to sell. Nightmares have come true for many farm operators across the Cornbelt, as they watch crops drown and their topsoil wash down rivers that used to be miles away. Little to nothing can be done except the aftermath paperwork. But for the corn market, the headaches have only begun.
Purdue economist Chris Hurt says we only have to follow the 1993 row marker when the last 500 year flood arrived. In his June 11 newsletter Hurt says yields were ultimately reduced by 18% from planting expectations and that would mean a 127 bu. national average this year when the trend yield was 30 bushels higher. Also, 6.3 million acres were abandoned to the flood. Hurt says a 142 bushel average applied against 76 million harvested acres only produces 10.8 billion bushels compared to the 13 billion bushel crop last year and the expected ethanol consumption of an additional 1 billion bushels.
If we are short 3-4 billion bushels of corn, University of Illinois economist Darrel Good says that means rationing. In his June 16 newsletter Good says the 1993 crop saw exports decline 20% and feed use declines an average of 11% in short crop years of recent vintage. He says USDA is projecting a consistent decline in use as a result of the expected short crop this year. Feed use will be down 16%, exports will be down 21%, but domestic consumption is expected to increase 33% with the help of ethanol taking 1 billion bushels more than in 2007.
Hurt says the ethanol estimate really depends upon oil prices and corn prices. He calculates a $1 loss per bushel currently and some plants are already in a slow down or shut down phase. One help may be a 32% increase in consumption of DDGS, which Darrel Good expects because of high corn prices.
As we move toward the June 30 Planted Acreage Report, Good says the data has already been collected, and there may still be some corn replanted or beans planted that the report does not reflect. He also says harvested acreage will also be tough to calculate because of the flooding and ponding. He believes “A fair amount of crop loss and demand rationing are already priced into the corn market with December 2008 futures approaching $8. The worst of the crop stress may have passed and more favorable growing conditions are forecast. Corn prices may now moderate somewhat, at least until more is known about crop size.”
However, Hurt says we are in an explosive price environment, with the potential for July futures to reach $8.50. However, he says a drying pattern is forecast by the National Weather Service, leading to a near term peak in prices this week. If prices are at a breaking point with downside potential, you’ll be interested in the thoughts of South Dakota State University economist Alan May, who says you know your expenses, and they should be written into your marketing plan. In his June 10 newsletter he says, “If current offerings of new crop bids on corn mean profit for you, there is nothing wrong with making sales now. Remember that with every sale of new crop corn you make, you give up something (the chance for a higher price) to get something else in return (protection against lower prices).”
Rationing is either upon us or around the corner for the corn market. With the loss of several million acres of corn, and crop quality declining in the face of adverse weather, US production this year may be closer to 10 billion bushels than the 14 billion that is needed to meet full demand. Cornbelt marketing specialists believe ethanol producers will get the corn they want as long as oil prices remain high. That means livestock producers will get shortchanged along with importers, unless the US dollar weakens further. But for corn growers, cash prices are quite attractive and will yield a profit for producers who have a marketing plan.
What does a bubble look like and how do they end? In a very interesting article James Montier of Societe Generale in London looks at not only the psychological analysis, but also at the propensity for commentators to continually proclaim the end of the problem and a resumption of business as usual. This makes for interesting reading, quoted from a US perspective, but not the less pertinent to the situation here in the UK.
To quote from his summary:
"We have seen the heads of virtually all financial institutions stand up over the last few months and claim the worst is behind us. Why would anyone listen to these people? They didn't see the disaster coming, and yet somehow they are qualified to tell us it is all alright! Perhaps I am just unduly sceptical, but this reeks of a conspiracy of optimism. The recession has barely started, let alone reached its nadir. The market moves of late have all the hallmarks of a classic sucker's rally. This isn't discounting the recovery, this is denial! Far from being behind us, the worst may well still be ahead!"
Montier say that he has long been proponents of the Kindleberger/Minsky framework for analysing bubbles. And that essentially this model breaks a bubble's rise and fall into five phases as shown below:
Displacement - The birth of a boom
Displacement is generally an exogenous shock that triggers the creation of profit opportunities in some sectors, while closing down profit availability in other sectors. As long as the opportunities created are greater than those that get shut down, investment and production will pick up to exploit these new opportunities. Investment in both financial and physical assets is likely to occur. Effectively we are witnessing the birth of a boom.
Credit creation - The nurturing of a bubble
Just as fire can't grow without oxygen, so a boom needs liquidity to feed on. Minsky argued that monetary expansion and credit creation are largely endogenous to the system. That is to say, not only can money be created by existing banks but also by the formation of new banks, the development of new credit instruments and the expansion of personal credit outside the banking system.
Everyone starts to buy into the new era. Prices are seen as only capable of ever going up. Traditional valuation standards are abandoned, and new measures are introduced to justify the current price. A wave of overoptimism and overconfidence is unleashed, leading people to overestimate the gains, underestimate the risks and generally think they can control the situation.
Critical stage/Financial distress
The critical stage is often characterised by insiders cashing out, and is rapidly followed by financial distress, in which the excess leverage that has been built up during the boom becomes a major problem. Fraud also often emerges during this stage of the bubble's life.
This is the final stage of a bubble's life cycle. Investors are so scarred by the events in which they participated that they can no longer bring themselves to participate in the market at all.
The first wave of concerns created by the bursting the housing/credit bubble (and make no mistake they are two sides of the same coin) is subsiding. The optimists believe (or at least hope) that the worst is now over.
However, from Montier's perspective such sanguinity is likely to be misplaced. The slowdown in the US is barely starting. Chart show that both the demand and supply for US credit are evaporating. This effective shutdown of both sides of the market should be a serious concern for monetary policy makers, as it is one of the hallmarks of a liquidity trap situation.
Obviously demand for mortgages (both commercial and residential) is lacking, but so is the demand for consumer credit, and corporate credit. This doesn't bode well for the outlook.
The underlying asset adjustment is likely to have much further to run as well. A chart of Japanese land prices during their bubble and burst illustrate the long drawn out nature of the healing that has to occur. And America appears still to be many years away from the end of this healing process.
Indeed, one of the lessons that should be learnt from the Japanese experience, he says, is that the banks were second round losers. They didn't really begin to underperform the rest of the market until the second Japanese recession of its debubbling process. They really started to suffer when their consumers started to struggle.
One of the other lessons of importance from Japan is that it is never the stocks that led you into the bubble that lead you out. For instance, in Japan's post bubble environment it was the capital-starved autos and electricals that were the winners. Just as the US market recovery after the dot com bubble wasn't led by tech but by mining, material and financials. Those deprived of capital do best in the aftermath of a bursting bubble, not those gorged on it. This argues that it isn't likely to be financials that lead us into any sustained rally.
This makes it all the harder to understand the way in which investors have been cheering the rights issues/capital raisings that financial firms have been carrying out. Montier recently described investors responses to rights issues as the investment equivalent of being mugged and then turning around and saying thank you to the perpetrator (and perhaps offering to take them to the cash point and get some more money out for them).
Rights issues, he says, are bad news for investors. The poor performance of firms conducting rights issues prior to the issue itself is clearly observable for the 1991-1995 sub-period. Even more noticeable is the increased underperformance once the rights issue is over. If history is any guide, investors cheering such issues now are likely to end up severely disappointed at the end of the day.
From our perspective Montier says, the market is enjoying a sucker's rally. The road to revulsion is likely to witness many such events, but the recession reality is only just unfolding. Far from being behind us, the worst may still be ahead!
I commend you if you have read this far! As a footnote Nogger was out lunching with a friend Sunday who works for a large national firm of UK estate agents. They had a meeting with their "mortgage specialist" last week who told them that a year ago he had something like 8,000 different mortgage products in his portfolio. Deals to suit everyone & their circumstances. Today he has around forty. All the others have been pulled. That's 99.5% of all mortgage products!
Completed sales in their office at the moment are around 50% of normal. She is not imminently worried about her job as she says they have so few staff if they shed any more then on some days the office would be empty! They have been told that there is enough money in the kitty to ride things out for another 18 months. Lets hope things improve before then.
Beans, corn and wheat have all traded either side of unchanged in the overnight eCBOT market as the trade digest last night's planting progress and crop condition report.
July beans are currently up 15 1/2c having traded in a range of 8c down to 17c up. The percentage of the crop rated good/excellent was better than expected, falling just one percentage point to 56%, although plantings lagged behind expectations at 84% done. With a drier forecast for the next few days those with unplanted acres will be going hell-for -leather to get their crops in the ground, although late planted beans may suffer some yield loss and be susceptible to heat and/or frost later in the year.
July corn is 7c firmer, at the top of it's overnight range, having traded as lower as 6 1/4c down. Corn good/excellent fell 3 points to 57% which was better than most had anticipated.
Wheat remains a follower of corn, with July up 4 3/4c at the moment, towards the upper end of it's overnight range which saw it trade as much as 7 1/2c lower earlier in the session.
The U.S. winter-wheat harvest is moving along at a faster pace than a year ago as farmers took advantage of dry weather in parts of the Great Plains this past week to collect grain. About 16 percent of the crop was harvested as of June 15, up from 9 percent a week earlier and 11 percent the same week in 2007 when wet weather kept growers out of fields, the USDA said.
Spring wheat conditions good/excellent are also looking good, up ten points in a fortnight to 67%.
Australian wheat output may be 23.7 million metric tons in the harvest starting from October, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in an e-mailed statement. That compares with its March estimate of 26 million tons, but still well above last year's drought-reduced crop of 13 million tons.
CNN -- A large chunk of land in Sudan has been set aside for Korea to invest in crop production, the Sudanese ambassador said Monday.
Ambassador Mohamed Salah Eldin Abbas said 4.2 billion square meters of land in the northern region and 2.7 billion square meters in the central region have been prepared for Korea.
"We are expecting to start cultivation by the end of this year," Abbas said in an interview with The Korea Times.
The decision was unveiled three weeks after the Sudanese President Omar Hassan al-Bashir and Korean President Lee Myung-bak agreed on cooperation in agriculture, especially farmland for Korea, at their summit in Seoul in late May.
Lee first bandied the government's pursuit of farmland in the African country publicly prior to the Sudanese President's visit to Seoul.
What will start later this year will be a "pilot program." An area of 840 million square meters will be cultivated experimentally.
It will be a joint venture among Korean, Sudanese and Arab companies, the ambassador said. The type of crop to be grown is wheat.
The biggest country in the water-short African continent, Sudan is blessed with sufficient water supply thanks to the Nile River that flows through the country.
The rush to biofuel is “madness” and possibly the most destructive set of policy blunders in a generation, Nestle Chairman Peter Brabeck has said. He also labelled it a “craze” that has helped cause the current global food crisis.
Biofuels are also worsening the shortage of water in the world – a situation which the Nestle chief declared was more urgent than global warming. The only way to stop water from being “misused” was to impose “competitive pricing” on its major users- agricultural producers, he said.
Writing in the US media, Brabeck said activists campaigning against global warming were most to blame for the surge towards biofuel production that “has stimulated a massive, and destructive, reorientation of the world's agriculture markets”.
Brabeck reiterated that today’s global population of six billion would increase to nine billion by 2050 and that as more affluent societies in China and India demanded “more and wider varieties of food stuffs, competition for arable land is intensifying and freshwater withdrawals of agriculture are soaring”.
He added: “This could be the single most destructive set of policy mistakes made in a generation. From time immemorial, mankind has struggled to produce enough food. So why introduce a new competitor for this scarce resource? The blame falls squarely on global warming advocates.”
He questioned why politicians, business and academics were all trying to come to terms with global warming when its impact would “be felt in decades at worst, and no one at this stage can predict with any degree of reliability what its consequences might be.”
Brabeck dismissed biofuels as a viable solution, especially as they would not even meet a small percentage of global energy needs.
“Biofuels are economical nonsense, ecologically useless and ethically indefensible”, he said, before adding their production was also contributing to water shortages that were already “endemic”.
As well as increasing agricultural output, declared Brabeck, the other major challenge was to ensure responsible use of water.
“The real juggernaut is to encourage the responsible use of water. And the only way to do that is to introduce competitive pricing,” he said.
He added: “Water is being wasted and misused because few people are even aware of its worth. Today, 94% of available water is used by agriculture – and because there are no cost consequences for the farmer, almost all of that water is underused or misused.”
The Nestle Chairman dubbed the move to biofuel as a “craze, egged on by global warming activists" but said its effects could be partly offset by the efficient use of current resources.
“Right now, the urgent issue is water, not global warming, and we cannot afford to ignore it any longer,” he concluded.
After the close Monday the USDA said that the corn crop condition was down three points to 57% in the good/excellent category. The crop was 95% emerged, up from 89% a week ago, but below the five year avg of 98%. The numbers are probably a bit better than anticipated with many traders estimating a fall of five or six points in the good/excellent category.
The second crop condition report of the season for soybeans pegged 56% of the crop in good/excellent condition, one point lower than last week. Planting prgress is put at 84%, up from last week's 77% but well below the five year avg of 94% done. Beans are 71% emerged vs 86% on the five year avg. The condition number is considerably better than anticipated as traders were expecting soybeans rated good/excellent to decline by 3-6 points. Trader ideas were that planting progress would come in around the 90% mark.
Winter wheat good/excellent is unchanged at 47%. The harvest is seen at 16% done vs the five year avg of 19% complete. Significantly (for the second week running) spring wheat rated good/excellent jumped sharply, up four points to 67%, thats up ten points in a fortnight. Again, the crop condition ratings are a little better than anticipated with most traders expecting a fall in winter wheat rated good/excellent.
Freese Notis -- Rainfall was not an uncommon sight in the Midwest over the weekend, but at least we did not see the "inundating" rains in the heart of the Corn Belt of the type that have been so common throughout this spring. It was southern and eastern Indiana and much of Ohio that saw the heaviest rains since Friday morning, with amounts there commonly more than an inch and some places got over two inches. Northern and northwestern Iowa saw very limited rain over the weekend, which is good news for the Des Moines, Cedar, and Iowa Rivers as that is the area where those river systems start to drain from.
All in all, our call that the worst of the flash-flooding problems for the heart of the Midwest would end late last week was a good one, and we still expect that most major river flooding in the Midwest will reach its peak this week as well (with the Mississippi River probably starting to get most of the focus in the next few days).
The bulk of the Midwest is completely dry for today through Wednesday, with any significant rain confined to western and southwestern fringes of the region. That rain will be associated with what will be a wet work-week period for the Plains states, to the point where severe weather will be common and locally heavy rain will fall in enough quantities to stall the winter wheat harvest.
Rain chances are back into the western Corn Belt forecast for Thursday and in parts of the eastern Corn Belt for Friday, but I do not view those rains as very big; except for southwestern parts of the region, most amounts may end up as a half inch or less. I see no sign whatsoever of a return to the flooding conditions that dominated much of the Midwest in the first half of this month.
Today through Thursday is a cooler-than-normal period for the Midwest, with highs in the 70s to around 80 looking to be common. More normal temperatures arrive for late this week and into next week.
Corn futures are expected to open 12 to 16 higher; soybeans 17 to 22 higher; wheat 5 to 6 higher. Strong gains in overnight trade supports a higher opening. Traders are still worried about crop losses.
The price differential between July and November LIFFE feed wheat has narrowed from thirty quid to parity in the last six weeks.
DailyFX -- European inflation rose to 3.7% in May from 3.3% the month prior on an annualized basis. Rising commodity prices have pushed inflation to the highest level since June 1992, and are eroding company profits and consumer purchasing power. Energy, food and tobacco prices all increased with energy rising 13.7% from a year earlier. Additionally, the core reading increased to 1.7% from 1.6% in April, as rising oil prices filter into other areas like transportation, which rose 5.9% from 4.8% the month prior. However, the reading was less than the 1.8% expected by economists, which will cast some doubt on a future rate hike. The acceleration of prices was expected as ECB President Trichet warned that inflation will continue to rise and that the central bank was growing concerned with the emergence of second round effects. The monetary policy leader signaled that a rate hike may be forthcoming at the next policy meeting as he fears that companies and consumers would seek higher wages and prices, pushing inflation higher.
London-based feed wheat futures are £2.50-3.50 higher this morning despite the outlook for bumper crops in Europe. Paris-based milling wheat futures are EUR4.25-6.25 higher.
All around the European market place, traders warned fundamentals are very different between the U.S. and the European market.
While the U.S. corn and soybean crops struggle with flooding, bumper wheat harvests are expected to begin soon in the European Union, as well as in the Ukraine and Russia.
"Corn is so important for feeding animals, but the E.U. and Black Sea are set for a huge wheat crop," added the trader. "We are blindly following Chicago."
And despite recent movement on the futures market, cash trade remains very thin. Farmers have been hesitant to sell in hopes of higher prices and uncertainties over quality, especially after being burnt by quality-destroying rain during harvest last season. At the same time, consumers are without coverage, attempting to hold out for new crop stocks.
Estimates are that France's soft wheat harvest will be delayed by about two weeks due to fairly cool temperatures and ample moisture. This tends to lead to a much higher yields, but lower protein.
Europe's largest meat processing company, VION has signed an agreement to acquire Grampian, one of the UK's largest food companies.
The acquisition sees VION strengthen its UK position, where it has successful operations in the fresh pork, bacon and sausage markets.
The takeover bid has now to be submitted to the competition authorities.
"This announcement is evidence of the great importance VION attaches to the UK market. At the heart of VION's business is a 'Passion for Better Food' and Grampian is key to developing this strategy," said Daan van Doorn, Chairman of the VION Board of Management.
"The combined group will become a major player in the UK food industry. Together with Grampian's management we want to further intensify the cooperation with our retail clients by investing in Grampian, sharing knowledge and developing partnerships."
VION is also one of Europe's largest food companies. Its roots lie in the agricultural and meat sectors and it has strong ties there. VION holds a central position in the supply chain and translates market and consumer developments to the agricultural sector. VION thereby provides an active contribution to and investment in a sustainable future for the agricultural sectors in Holland, Germany and the UK.
In the UK, VION currently has four business operations. Key Country Foods is a major UK retail bacon processor. VION also has a majority share in J&J Tranfield, a leading supplier and manufacturer of pizza and sausages. VION Food UK Ltd is responsible for the sales of bacon, fresh pork, beef and convenience products to the UK market.
VION company Oerlemans Foods offers fresh frozen vegetables, potato products and fruit through its UK sales office.
Grampian Country Food Group Ltd was founded in Scotland in 1980 and has developed into one of the UK's leading food companies, supplying the major multiples with chicken, pork, beef and lamb. The company currently employs 17,500 staff (of which 4,500 in Thailand), with an annual turnover of £1.7 billion (€ 2.5 billion) and has production locations in the UK and Thailand. The head office is located in Livingston, Scotland.
FT -- Large numbers of small to mid-size ethanol producers could shut down over the coming months after flooding across the US midwest caused irreparable damage to the year's corn crop and pushed corn prices up sharply, says a report by Citigroup.
At least five small to mid-size ethanol plants had shut down in recent days, said David Driscoll, Citigroup's US food manufacturing analyst, in an equity research report.
The widespread flooding, on a scale the region has seen only twice in the last 25 years, had forced down ethanol margins over the past 10 days, leaving small and mid-sized ethanol producers running at substantial losses against cash costs, Mr Driscoll said.
"As a result of the rapid margin deterioration, we believe that many, if not all, of the small to mid-size producers will be forced to shut down over the next few months." This could result in as much as 2bn-5bn gallons of ethanol going off-line in the next few months, he said.
Mr Driscoll said corn - now selling at more than $7 a bushel, compared with about $4 a year ago - meant extreme tightness in the corn market, suggesting the increased potential for political intervention in ethanol markets.
The intervention would be aimed at cutting ethanol output and bringing corn to the food market. Corn prices have risen by $1 in the last 10 days.
"Just the spectre of political intervention will likely cause the market to question the magnitude of future biofuel growth, adding further pressure on valuations across the ethanol industry," Mr Driscoll said.
This has led Citigroup to reduce its earnings-per-share estimates for ethanol companies and drop ratings to "sell" on those that are strictly into ethanol production, including VeraSun Energy and BioFuel Energy.