Guess what? Up until 2003, all US investment banks were allowed only 12 to 1 leverage. Then in 2004, the U.S. Securities and Exchange Commission gave five banks (and only five banks) the ability to lever up 30 or even 40 to 1. Guess which ones they were then? Bear, Lehman, Merrill, Morgan and Goldman. Three men down and two walking wounded.
So whilst they point the finger at short-sellers, they really want to be pointing it at themselves, and the management of the Five Horsemen of the Apocalypse who leveraged themselves up to 40-1 with bad investments.
Crude oil rose by more than six dollars a barrel Friday, capping the biggest three-day rally in almost a decade, on speculation government measures to resolve the bank crisis will spur the economy and bolster demand.
Crude for October delivery rose $6.67 to settle at $104.55 a barrel on the New York Mercantile Exchange. Earlier, futures touched $105.25 a barrel, the highest since Sept. 9.
There was a technical element to trade Friday as October crude oil contract expires Sept. 22, and some traders were buying oil to cover shorts.
Still, prices are down 29 percent from a record $147.27 a barrel reached on July 11.
Next week, traders are expecting the Energy Dept to reveal low U.S. inventories in the wake of hurricanes Ike and Gustav, which should also add support.
Criticism is starting to mount over the US government's proposed bailout of the ailing financial markets before its even happened.
Critics say that government actions, such as those that prevented the failures of Fannie Mae, Freddie Mac and American International Group Inc., can't postpone the inevitable worsening of housing and financial markets. They say the bailouts by the Fed and Treasury also encourage future reckless risk-taking by investors.
They have a point.
The Fed or Treasury first stepped in to rescue investment bank Bear Stearns Cos. in March, followed by the takeover of mortgage companies Fannie Mae and Freddie Mac in September. This week the Fed put up $85 billion to keep insurance giant AIG afloat, and Congress is mulling tens of billions of dollars in loans to Detroit automakers.
Critics are asking: "how far down the road do they go, and where do they stop?"
The ranking Republican on the Senate Banking Committee, Richard Shelby of Alabama, said he wants the Fed to let markets work rather than opt for bailouts, even if the consequences are "brutal."
Peter Boockvar, an equity strategist at Miller Tabak & Co in New York, agrees. Bailing out Bear Stearns and creating lending facilities for investment banks, he said, "gave financial companies a false sense of security that they had time to de-lever at their leisure."
Unless the central bank stops interfering with market discipline, Wall Street's problems will continue, he said. "The market can get to the right price on its own," Boockvar said. "Anything that prevents it from happening is just prolonging the inevitable."
VeraSun Energy Corp. said late Thursday that it has retained Morgan Stanley to help it "evaluate strategic alternatives."
VeraSun shares plunged to $1.33, an all-time low, and lost nearly three-quarters of their value Wednesday after the company began a public offering of 20 million shares and said it expects to post a third-quarter loss between $63 million and $103 million. The stock had traded as high as $17.75 in December.
The company late Thursday abandoned the stock offering, which comes as little surprise considering the sharp share price drop.
VeraSun, founded in 2001, went public in June 2006 amid perfect market conditions. Corn was cheap, gas was expensive and refiners were clamoring for more ethanol to use as a cleaner-burning alternative to the additive MTBE.
It appears that the company locked in much of its corn requirements around $7/bushel, leaving it unable to take advantage of the commodity's recent fall to $5-5.50/bushel, and facing crippling margin calls.
Poet or ADM may be potentail buyers, but any aquisition of VeraSun would give them close to a quarter of the US ethanol market, triggering competition concerns.
Ethanol producers have so far successfully lobbied to keep the current federal mandates and subsidies for renewable fuels. However, agriculture secretary Ed Schafer said last week that the industry needed to become "self sustaining" and wean itself from subsidies.
A removal of the 46c a gallon tax break on ethanol could spell the end of the industry overnight.
Corn futures rallied sharply on Friday, as the financial community became positively euphoric about the bailout "cocktail" unleashed by the government on Thursday and that halted the liquidation selling pressure from the hedge and index funds. The market also saw a little support from pessimistic reports of downed corn in the ECB caused by Hurricane Ike’s remnants. For the week prices were still down 21 cents, however. On Friday, Dec was up 15 cents at $5.42 1/4.
Soybeans futures were down on the week, but higher on Friday. Soy oil had a strong rally, limit up at times, thanks to rising prices for diesel fuel and its potential use as biodiesel. The better stock market performance was also seen as possibly signifying improved consumer demand later down the road. Beans, meal and oil were all lower for the week, due to demand concerns and also due to a deferral of frost threats to most of the growing area. November beans were up 27 1/2 cents on Friday at $11.43 1/2.
Wheat futures closed mostly 20 to 25 cents higher on Friday, erasing the damage done on Thursday and continuing a pattern of alternating up and down days while the market chews through competing visions of its future. World supplies are ample at the moment, and the US wasn’t sucessful in selling to the Egyptians. However, USDA’s weekly Export Sales report on Thursday was stronger than the trade had expected and Friday price action was higher once the larger threat of index fund selling abated. CHI Dec was up 25 1/4 at $7.18. KC was up 22 1/4 at $7.56 1/2 and MPLS Dec was up 21 cents at $7.85.
EU wheat futures closed modestly higher Friday in a technical bounce from recent steep losses as outside markets rose, buoyed by the news that the US Treasury and Federal Reserve were working on a plan to rescue the ailing financial markets.
Crude for October delivery rose more than $6/barrel to close at $104.55/barrel.
Paris November milling wheat closed up EUR2.00 at EUR170.00/tonne and London November feed wheat ended up GBP0.75 at GBP106.50/tonne.
Trading was thin and volume low, with the cash market particularly slow as operators waited for commodities to stabilise following this week's extreme volatility.
Nevertheless, traders stressed that fundamentals remained bearish, with some predicting the expected rally in Chicago will be short-lived.
Strategie Grains this week raised its estimate for the 2008 EU soft wheat crop by 3.7 million tonnes to 137.6 million.
Meanwhile Toepfer raised its 2008 EU soft wheat production forecast to 139.4 million tonnes, up 4.2 million tonnes from its August forecast of 135.2 million tons, and up 25% on the year.
eCBOT Futures posted reasonable gains Friday, but fell some way short of erasing Thursday night's steep losses.
Prices were buoyed by the intervention of the US Treasury and Federal Reserve in the financial markets in an attempt to shore up confidence following the collapse of Lehman Bros, the taleover of Merrill Lynch and bailout of AIG early in the week.
Corn closed around 8-10c firmer, with soybeans and wheat around 10-12c higher.
Crude is also benefitting from the news and is steady at $100.30/barrel.
Earliest calls for this afternoon's CBOT session are: Corn futures are expected to open 5 to 8 higher; soybeans 9 to 12 higher; wheat 8 to 12 higher.
Hungary's 2008 grain crop is now seen at 7.93mmt, up 43% on last year according to the country's Central Statistics Office.
The final wheat crop is now seen at 5.65mmt, 42% higher than last season's 4mmt, despite planted acreage being up only 1% on 2007.
Barley production was 1.48mmt, 45% higher than 2007.
The FTSE100 stood 7.8 percent higher at 10.45am Lodon time on Friday to snap a four-day losing run, led by banks on hopes of a comprehensive U.S. plan to end the turmoil that is engulfing financial markets.
A ban by financial regulators on short-selling of some financial stocks also boosted the market.
At 10.45am the index stood 382.8 points higher at 5262.8, recovering much of the 9.9 percent losses in the previous four sessions.
Banks led the way higher with RBS +43%, HBOS +39%, B&B +37%, Lloyds TSB +35% and Barclays +32%.
Wall Street had its biggest percentage gain in six years on Thursday after the Treasury and Fed said they were working on a plan to deal with the billions of dollars of bad debt still clogging the financial system.
Australian wheat futures crashed sharply lower overnight, with benchmark ASX Jan down A$13 at A$310/tonne.
A weaker CBOT market and a strong A$ added to the negative tone created by nervous financial markets.
After recent good rains crop conditions in Queensland, Victoria and most of NWS are average to above average said Graincorp in a statement.
The harvest is now getting underway in some areas and the company expects to receive 7.5-10mmt grain into it's storage operation in Eastern Australia the company said.
The world's largest fertilizer companies have to face two (class action) lawsuits in Minnesota and Chicago in the US for accusations of price-fixing and conspiracy.
So far spokesman for the companies have denied any wrongdoing. Prices of fertiliser have risen in a result of tight supplies and increasing demand for fertiliser by farmers due to expanding grain and food production.
Companies included in the lawsuit are:
* Mosaic of Plymouth, Minnesota, USA,
* Agrium of Calgary, Alberta, Canada,
* Potash Corp. of Saskatchewan Inc., Canada,
* JSC Uralkali of Moscow, Russia;
* RUE PA Belaruskali, of Soligorsk, Belarus,
* RUE PA Belarusian Potash Co. of Minsk, Belarus,
* JSC Silvinit of Solikamsk, Russia, and
* JSC International Potash Co. of Moscow, Russia.
In several countries, obscure laws shield makers of potash and phosphate -- two key ingredients in fertilizer -- from certain antitrust rules.
In the US, for example, phosphate makers are among a handful of industries empowered by the 1918 Webb-Pomerene Act to talk with competitors about pricing and other issues.
The allegations come as the fertilizer companies have profited form the global grain-price boom of the past two years.
The price of phosphate has climbed to about $1,100 a tonne, up from $430 last year, while the price of a tonne of potash is now more than $930, up from $275.
The Minnesota suit alleges, among other things, that the companies exchanged "sensitive, non-public" information about prices and demand, allocated market shares, and coordinated output.
Farmers around the world have cried foul as they've watched the prices rise. The North Dakota Farmers Union, a trade group, also asked to investigate the price increases. Farmers in India and Russia have complained to their countries' regulatory bodies.
In March, Russian antimonopoly regulators required the country's largest potash maker, Uralkali, to cut domestic prices of the plant nutrient, a key ingredient in fertilizer, after wrangling with the company over its pricing behaviour in court.
Brazil's government is considering nationalizing the country's fertilizer deposits to help reduce farmers' production costs.
The dollar is firmer across the board in early trade Friday on the news that the US Treasury & Fed are to come the aid of the world financial markets with a comprehensive rescue package.
Our heroes, U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, (be still my beating heart) are giving up their weekend to "sort the job out."
Paulson said that he was planning to paint the fence, but that he could spare a couple of hours. Bernanke said that as Mrs Bernanke was out of town he could pretty much do whatever he wanted and that his planned trip to the Hot Chicks Ranch, Nevada, would have to wait.
Excatly what the weekends plan might include we will have to wait & see.
Some think it may include a kind of slush fund to buy distressed assets from banks. Maybe they might like to extend that to buying distressed purchase books from compounders? That would be interesting.
"I've got Ben Bernanke on line one, he wants to make some fixings on tapioca...Henry Paulson line three, his lorry can't pick those soya hulls up and he wants to defer them to 2012."
Anyway, investors seem to like the idea because they're buying dollars this morning. At 9am London time the pound was a fraction under the 1.80 mark at $1.7988, around 2 cents below its earlier high.
Crude is a little higher this morning on the news that the US will shortly unveil a package designed to ease the global financial turmoil.
Central banks, encouraged by the Fed, have also released $247 billion into the market in an effort to improve liquidity.
This has eased crude consumption fears and sees October crude 79c higher at $98.67/barrel at 07.45am London time.
Oil tumbled more than $10 in the first two days of the week as Lehman Bros collapsed, Merrill Lynch was sold and AIG was stalking the market for finance. However, concerns about the availability of supplies from the U.S. Gulf of Mexico and Nigeria have kept prices from falling through the $90 a barrel mark.
Overnight grains are firmer in early trade Friday morning, buoyed by news that the US is working on plans to assist banks and insurers.
In addition, the injection of $247 billion into financial markets by world central banks in an effort to improve liquidity has eased recent fears of economic meltdown and sent investors money flowing back into equities.
Asian stocks were sharply higher overnight. Grains are just getting swept along for the ride.
eCBOT corn and wheat are up around 5c in early trade with soybeans around 10-15c higher.
With US soybean stocks so tight, and the harvest delayed by late planting and wet weather, beans appear to have the most potential for nearby gains.
The Ministry Cabinet of Ukraine forecasts that in the 2008/09 MY, grain exports will increase sixfold to 22.58 mln tonnes, as opposed to 3.68 mln tonnes during the previous season.
The government also forecasts an increase in domestic grain consumption in 2008/09 MY of 26.415 mln tonnes, as opposed to 26.1 mln tonnes in the previous season.
They just haven't quite worked it out yet. But they're going to work on it across the weekend and get back to us.
U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend with Congress on the plan to deal with toxic bank assets choking the financial system.
Well, that was good enough to drive up the U.S. stock market by its biggest percentage gain in six years and powering a rally in the dollar.
The news sent Asian shares soaring this morning. Japan's Nikkei jumped 3.5% by afternoon trading. The Shanghai Composite was up 9.5% and Hong Kong's Hang Seng soared 6.5% by noon.
Exactly what form this "cunning plan" is going to take, how much it will cost, and who foots the bill remains to be seen.
There is speculation that one plan being discussed involves legislation that would force lenders to renegotiate mortgages that homeowners are having difficulty paying.
Another possibility is establishing a government agency that would take on the debt.
Meanwhile, UK and US authorities announced plans to curb short-selling of stocks.
At one stage on Thursday, Morgan Stanley's stock dropped as much as 42 percent and Goldman as much as 25 percent, adding to several days of huge declines that have wiped out tens of billions of dollars of market value. However, after news of the moves by authorities in the United States and the UK, they recovered, and were both trading higher in after-hours trade.
The merger between Lloyds TSB and HBOS, forms the UK's largest single financial services group with assests of more than a trillion pounds at June 2008.
Despite that however, Moody's hvae indicated that it will place it's ratings on both on review for a possible downgrade.
The merger of the two poses significant integration risks, says Moody's, and that there are still some difficult challenges ahead for the group.
EU wheat futures extended their decline with nearby's posting their lowest close for a spot month since June 2007.
Nov London feed wheat closed £2 lower at £105.75/tonne, and Paris Nov milling wheat ending EUR1.75 lower at EUR168/tonne.
"The financial crisis is not over and we can fear liquidations of entire positions on commodities," said one trader.
A sharply weaker dollar also did little to help EU wheat and it's failing competitiveness on world markets.
"We have a big crop and we need to export much of it," said one dealer.
Corn futures were down sharply at the close of trade on Thursday. Confusion in the financial sector has increased volatility in just about every commodity. Corn was limit down Tuesday, gained 20 cents back Wednesday and closed down near limit again at the end. Open interest continues to fall while investors are scrambling to get their hands on hard cash. Some major ethanol producers are feeling the pressure of the financial crisis, VeraSun (industry leader) stocks lost 72% yesterday and Aventine Renewable Energy stock plunged 22% lower. Weekly export sales were 325,400 MT, on the lower end of pre-report trade estimates. Dec -26 3/4 at 5.27 1/4c.
Soybeans futures tumbled Thursday as funds and speculators remain nervous and are attempting to develop a sense for the direction of commodities. Soybeans do have some supportive fundamentals but funds keep liquidating their positions taking out the speculative premium. The US dollar Index is softer along with crude oil at the moment. USDA put weekly export sales at 411,500 MT, with China buying 114,900 MT. Those sales were on the lower end of pre-report estimates. Nov -23 at 11.16; Oct Meal -10.30 at 312.40; Oct BO +47 at 44.44.
Wheat futures followed other CBOT grains lower. Wheat remains under pressure from financials and bearish fundamentals. USDA reported weekly export sales of 657,300 RB, led by Nigeria and Japan but Japan cancelled a tender for US. This was above the high end of trade estimates coming into the report. Crude oil has backed down from highs posted earlier this morning, the dollar is slightly weaker. CHI -33c at 6.92 3/4.
US ethanol producer VeraSun's shares took a thrashing Wednesday after the company announced it was caught on the wrong side of the corn market.
The company lowered its third-quarter forecast to expect a net loss in the range of $63.0 million to $103.0 million, or 40 cents to 65 cents a share. Analysts had been expecting a third-quarter loss of two cents a share.
VeraSun's shares plunged 73% to $1.41. Despite this the company announced a 20m stock offering of shares, which seems to indicate it needs the cash and this is the easiest way to get it in the current market.
VeraSun said in July, when futures approached $8 a bushel, it unwound short position used to hedge corn it purchased to cut its margin exposure, effectively pricing the grain in the cash market. Believing prices would rise further, the firm then used “accumulator” contracts that required it to buy more corn at above market prices as futures dropped.
See also: Is The Writing On The Wall For US Ethanol From Corn Industry?
Mortgage lending continued its downward spiral in August, according to the latest figures from the Council of Mortgage Lenders (CML).
The total value of new lending was £21.8bn, down by 12% from July and 36% lower than in August last year.
The combination of dear money and falling property values is crushing the market for home loans and, more worrying, the decline in lending is speeding up, according to the CML figures.
It seems that the only block trades in ag contracts in relation to unwinding AIG positions were in the overnight session on Tuesday night.
Fewer than 50,000 contracts were listed, spread among corn, soybeans, soybean oil, wheat, live cattle and lean hogs, according to CME trading records.
There were no trades registered in the day session on Wednesday.
Exactly why the CME felt oblidged to allow such a relatively small number of contracts to be traded "off the market" is unclear.
eCBOT grains futures bounced back from early losses to close firmer, as investors fled equities to crude and gold as a short-term safe haven amid global market unrest.
Wheat closed around 9c firmer, corn around 4-5c steadier and soybeans up around 12c.
Dollar weakness also helped grains as central banks pumped billions more U.S. dollars into troubled money markets.
In a statement, the Fed said it had authorized the expansion of swap lines, or reciprocal currency arrangements, with the other central banks, including amounts up to $110 billion by the ECB and up to $27 million by the Swiss National Bank.
The Fed also said new swap facilities had been authorized with the Bank of Japan for as much as $60 billion; $40 billion for the Bank of England and $10 billion for the Bank of Canada.
Crude is currently teetering just under the magical $100 mark at $99.26/barrel.
At 12.45pm the pound was $1.8232.
Early calls for this afternoon's session: Corn futures are expected to open 4 to 6 higher; soybeans 10 to 12 higher; wheat 8 to 10 higher.
London wheat futures continue to slide Thursday with November down £0.55 at £107.20/tonne.
Nov Paris milling wheat is EUR1 firmer at EUR170.75/tonne.
Lower quality wheat is abundant all over Europe and the Baltic. The only surprise thrown up by yesterday's wheat tender from Egypt was that Ukraine and Russia were able to supply the quality Egypt was looking for.
The UK is going to have to search long and hard to find reasonable export interest for it's surplus, and will likely carry plenty of the recent harvest into 2009/10.
The dollar recovered slightly against the pound in early Thursday trading reversed direction after hitting a 20-day low of 1.8259, at 9.20am London time it stood at 1.8176.
The dollar weakened after the Fed said it had authorized other central banks to auction $180 billion in dollar funds to financial institutions "to address the continued elevated pressures in U.S. dollar short-term funding markets."
Central bankers have struggled to restore confidence in markets this week as banks hoarded money on concern more banks will follow Lehman Brothers Holdings Inc. into bankruptcy. The cost of borrowing in dollars for three months jumped the most since 1999 with the crisis spreading abroad as U.K. mortgage lender HBOS Plc slumped and Russia poured money into its banks.
Markets now anxiously await UK retail sales report for August. Retail sale is predicted to fall 0.4% month-on-month, following a 0.8% rise in July.
Shares in US ethanol manufacturers took a pasting on Wall St Wednesday as they struggle with volatile corn prices and struggle with cash.
A couple of years ago ethanol from corn was seen as the golden child. "I'd rather have corn farmers growing energy rather than import oil from countries that may not like us - that's how I view it," said Bush, famously, or should that now be infamously?
Investors were throwing money into companies setting up new ethanol plants like it was sure-fire certainty. Suddenly, things don't look quite so rosy.
If you aren't even sure which bank you can trust with your money, then you certainly aren't going to put it into an industry totally reliant on government tax breaks to survive are you?
Where competition from the likes of Brazil and it's far more efficient and rapidly expanding ethanol from sugar-cane industry amkes your investment look pretty unrealistic?
Alfred Szwarc, director of Brazil's Sugar Cane Producers' Association, said this week that his country will open 25-30 new ethanol from sugar cane plants this year.
Brazil will see ethanol output rise 27% to 24.3 billion litres from the 2008/2009 harvest, Szwarc added.
In the US, Aventine Renewable Energy Holdings said Wednesday that it would seek to issue new debt and shares to shore up its cash position, or it would have to delay construction of some plants, it's shares fell 22 percent to $3.94 in afternoon trade.
VeraSun Energy has got it's corn bought on the wrong side of the market. It warned this week of a much larger-than-expected quarterly loss. Its stock plunged 72 percent to just one dollar Wednesday.
VeraSun says it expected a third-quarter net loss of $63 million to $103 million, far higher than the $2.4 million loss analysts had forecast.
VeraSun is issuing 20 million shares as it's stock trades at new lows, which analysts noted was "not something most companies would normally want to do."
Denver-based BioFuel Energy Corp were also in trouble Wednesday with it's shares down 31 percent. It has also got caught on the wrong side of corn trades and said last month it did not have the liquidity to meet $26 million in hedging losses.
According to IA APK-Inform, the Ukrainian rapeseed market again saw decreasing prices this week due to the world market situation. Prices are down down around 150 UAH/t (31 USD/t) compared to the previous week they say.
During the past week rapeseed was mainly sold to Baltic countries at prices of 340-365 EUR/t on DAF terms says their weekly report.
Further, most market participants expect rapeseed prices to continue to decline due to a lessening in export demand, it says.
They've done it again. Rooting down the back of what is rapidly becoming the world's largest settee, Strategie Grains have upped their 2008/09 EU grain production estimate by 5.3mmt from it's August number to 305mmt.
That makes it five consecutive monthly increases from SG, this most recent one pegging the crop 19% higher than last season.
Of this month's increase 3.7mmt comes from soft wheat, making that crop now 23% higher than in 2007/08. Soft wheat yields are pegged at 6mt/ha, 17% more than 2007/08.
Barley production is revised up 600,000mt and corn 200,000mt.
The overnight eCBOT market is lower across the board as wave after wave of bad news hits the streets in what some are calling a financial tsunami.
Fundamentals, what are they, I'm not even sure if there are any fundamentals anymore. I'll have a look around as they day wears on & see if I can find any.
It seems that nobody knows what to do with their money at the moment. Gold? Crude? Asia? The Dollar? Nothing is safe. Certainly the idea of investing lots of money and government subsidies into alternative fuel from corn, soybeans, wheat and rapeseed doesn't seem like such a brilliant idea all of a sudden.
Who the hell came up with that one in the first place? Was it the same bloke who advocated sub-prime and Alt-A mortgages?
It seems that there may be some good to come out of all of this. Maybe, just maybe, the large spec money is disappearing from the grains markets and we can get back to trading on the fundamentals again.
For now, it appears that there may be some more spec money in grains to be taken off the table, which would almost inevitably point to lower short-term prices. Who in their right mind would want to trade this market unless they had to?
Beans are down around 16-17c and corn off around 6c "just because." Wheat is around 3-4c easier, it is viewed that there is less spec money in wheat.
Japan has cancelled today's tender to buy 55,000 metric tons of U.S. milling wheat as sales of tainted foreign rice sparked criticism of the ministry's handling of grain imports.
The financial impact of the demise of Lehman Brothers is emerging as firms worldwide state their degree of exposure to the bankrupt firm.
Three Chinese banks have some $297.4m (£166.1m) in Lehman Brothers bonds, state media and local reports said.
Swiss Life said it had exposure of $20m Swiss francs (£9.9m) and Swiss Re had exposure of 50m Swiss francs.
German bank KfW transferred 300m euros (£237m) to Lehman after it collapsed on Monday, local media reported. However, a spokesperson for KfW said the transfer had been done in error! That's some error.
Of China's exposure, Industrial & Commercial Bank said it owns Lehman bonds worth $151.8m, according to the Xinhua agency, while Bank of China has $75.6m in bonds and China Merchants Bank had $70m in Lehman bonds.
Meanwhile, UBS said on Tuesday that its exposure to Lehman Brothers was less than $300m.
But Japanese firms' total Lehman exposure was far greater at 440bn yen (£2.3bn), according to an earlier Kyodo news report.
In the US Morgan Stanley is said to be considering a merger with Watchovia Corp. Such a deal would leave Goldman Sachs as the only independent Wall Street investment bank, after Merrill Lynch sold itself to Bank of America to avoid the same fate as bankrupt Lehman. Shares in Morgan Stanley and Goldman, the biggest U.S. securities firms, tumbled the most ever yesterday as the deepening credit crunch fueled concerns about their ability to fund themselves without the access to deposits that banks have.
Wachovia itself, the fourth-largest U.S. bank, plunged 21 percent yesterday after saying it would support $494 million of Lehman credits held by its Evergreen Investments money market funds.
CNBC reported Morgan Stanley is in talks to possibly be acquired by China's Citic Group, citing an unidentified person. Beijing-based Citic Group is China's largest state-owned investment company. Citic Securities Co., 23.4 percent owned by Citic Group, in March abandoned a proposed $1 billion investment in Bear Stearns Cos. after the Wall Street brokerage was bought by JPMorgan & Chase Co.
Credit-default swaps on Morgan Stanley, which insure against a default of the company's debt, rose yesterday to levels typical of companies in distress. Sellers of credit-default swaps on Morgan Stanley demanded as much as 21 percentage points upfront and 5 percentage points a year today to protect the company's bonds for five years, according to broker Phoenix Partners Group. That means it would cost $2.1 million initially and $500,000 a year to protect $10 million in bonds.
Deutsche Bank AG has said it is taking steps to slow credit-default swap trades that expose it to the risk of failure among Wall Street firms, according to three investors told of the policy.
Lloyds TSB's takeover of HBOS to save Britain's biggest savings bank from collapse could see 1,000 branches closed and cost 40,000 jobs according to the Times.
In Australia this morning Macquarie Group Ltd., Australia's largest investment bank, plunged a record 23 percent on fears for it's safety in the face of a global financial meltdown.
CBOT futures closed higher Wednesday on a technical bounce from recent steep losses although the downwards trend remains firmly in place traders said.
December wheat futures contract settled up 35 3/4 cents, at $7.25 3/4 per bushel. Earlier, the contract dipped to $6.86, matching the lowest price for front-month wheat since August 2007.
Wheat traders shrugged off bearish news that Egypt bypassed U.S. grain at its latest tender and instead bought 205,000 tonnes of Russian and Ukrainian wheat.
The market was due for a rebound after pressure from rising global wheat supplies pushed the December contract down roughly 25 percent in less than a month, from its August 21 high of $9.59 1/2 a bushel.
CBOT corn futures for December delivery settled up 21 3/4 cents at $5.54 a bushel.
Soybeans for November delivery ended up 15 cents at $11.39 per bushel.
Traders described the bounce as "nothing to get excited about, we've come a long way down, it was just one of those things," one said.
Although the Fed appear to have come to the aid of AIG it is worth noting that they did so very reluctantly. Lehman was allowed to go to the wall. Bear Sterns got it right, if you're gonna go, be the first to go, that way you're more likely to get help.
How many more bullets are the Fed prepared to bite?
It seems very strange to talk about these things. Just a few years ago, the price of crude and the state of US investment banks & the mortgage market. What did that have to do with wheat or soybeans????
Nothing then & everything now it seems. Alt-A, what's that a keyboard shortcut? Fannie & Freddie, a well-known music hall act?
EU wheat futures closed around unchanged with Paris November milling wheat unch at EUR169.75/tonne and London November feed wheat down just GBP0.25 at GBP107.75/tonne.
An 11th hour bailout of ailing US insurance giant AIG by the Fed added some degree of stability to a very nervous financial market. This gave the grains market an element of calm.
Still, wholesale fund liquidation remains a concern, and it is difficult to see the markets rallying from here unless there is a fundamental change of heart.
Egypt bought Russian/Ukraine wheat in a tender, passing on French/German and US wheat. UK wheat was not even in the equation as the quality is too inferior.
With the EU having a larger than ever quantity of wheat to export this year this hardly augurs well for the coming season a trader commented.
Egypt passed on tenders of EU and US wheat Wednesday to buy 205,000MT of Russian/Ukraine wheat.
For some reason I can't get my head around the market seems somewhat surprised and disappointed about that.
Despite the so-called bailout of AIG by the Fed, US stocks plunged Wednesday with Morgan Stanley and Goldman Sachs leading the way, and AIG themselves hot on their heels.
The Standard & Poor's 500 Index lost 4.7 percent, extending its decline from an October record to 26 percent and erasing half its gain from the five-year bull market that began in 2002.
Goldman Sachs Group Inc. and Morgan Stanley, the only remaining independent brokerages on Wall Street, plunged their most ever. Morgan Stanley slid $6.95, or a record 24 percent, to a 10- year low of $21.75. Goldman tumbled $18.51, or 14 percent, to $114.50, its steepest drop ever and lowest price in almost three years.
AIG, the largest U.S. insurer by assets, lost $1.70, or 45 percent, to $2.05 and extended its decline over the past year to 97 percent, after the government said it will receive a 79.9 percent stake in return for an $85 billion loan that analysts said will be repaid by liquidating the company.
About $3.6 trillion of market value has been erased from global stocks this week, triggered by the largest-ever bankruptcy filing by Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm. Russia halted stock trading for a second day and poured $44 billion into its three biggest banks in a bid to halt the worst financial crisis in a decade.
CBOT owner CME has said it has allowed ailing AIG to offload some of its longs on grains & livestock markets via "block trades."
Block trades are held outside the public auction market. The idea being that a sudden large volume of sell or buy orders on the CBOT market could lead to violent price-swings, essentially limiting AIG's ability to operate effectively.
The emergency move appears to allow AIG, which was bailed out of potential bankruptcy on Tuesday by a $85 billion (47.5 billion pounds) Federal Reserve rescue package, to offload some of the positions it has built up by selling investment based on its co-owned Dow Jones-AIG Commodities Index, the second-largest of its type.
The DJ-AIG index of 19 major contracts had attracted investment of about $55 billion by the end of the second quarter, just before commodities markets tumbled by a third.
eCBOT futures closed higher on the overnights after the Fed bailout of ailing AIG provided some (short lived?) support for the financial markets.
Crude has recovered from it's biggest two-day fall in four years to stand around $3 higher.
Corn closed around 5-7c higher, soybeans up around 10-12c and wheat 12-18c firmer.
Early calls for this afternoon's session: Corn futures are expected to open 5 to 6 higher; soybeans 9 to 12 higher; wheat 12 to 17 higher.
Lloyds TSB is apparently in advanced merger talks with HBOS to create a UK retail banking giant worth £30bn.
A deal would end uncertainty about the strength of Halifax-Bank of Scotland after a run on its shares.
The government has said it will over-rule any concerns that competition authorities may raise.
It is understood that the new company won't be called LTSBHBOS as that would be silly and unfair to dyslexics, said a ST.HOBBLS spokesman.
Now that the EU wheat harvest has finally pretty much drawn to a conclusion I thought it might be an opportune time to analyse what the outcome is looking like for us and out near neighbours.
Final EU-27 output looks like being just short of 150mmt, around 30mmt up on 2007, as well as making the EU a keen exporter this also indicates that we will likley carryover an increased stock into the 2009/10 marketing year.
Still to conclude in parts of the north & west. Final output estimated 16.5-17.0mmt compared to 13.7mmt last year. Yields generally pretty good, early quality fine, but later harvested material only feed.
Latest estimates peg soft wheat production at 34.7mmt, up 22%. Quality pretty good.
Wheat production here is estimated 17.5% higher at 25mmt, with yields averaging around 7.5mt/ha. Quality mixed, steady rains throughout August making for more feed wheat than they would have hoped for.
Production boosted by late season rains. Total grain production expected around last season's record 22.3mmt. Traditionally the UK's largest export home taking around a third of all our exports last season.
Usually the EU's third largest producer. One of the few countries to see a production cut in 2008, with output estimated 8% lower at 23.2mmt. May need to import up to 1mmt wheat in 08/09.
Record plantings to take advantage of high prices towards the end of 2007 point to final output of 25mmt, more than double 2007's 10.3mmt. Quality poor, estimated at around 15% milling grade compared to 40-50% normally.
Winter wheat production 5.62mmt, up from 4.0mmt in 2007/08. Quality very good.
Harvested around 27mmt wheat, 13mmt more than last season and only 11% of it making top milling grade. Plans to export 20-22.5mmt wheat in the MY 2008/09, compared to just 3.7mmt in 2007/08.
Still harvesting and rather cagey about final output. Final crop somewhere between 60-70mmt compared to just under 50mmt in 2007/08. A large harvest and low quality in the European part of the country, plus a small harvest and high quality in the Urals. Exports already running at a record pace and likely to stay that way.
UK poultry processor Faccenda has closed its factory in Sutton Benger near Chippenham in Wiltshire. The facility employs over 400 staff.
The company announced its decision to close the plant in April blaming soaring feed and fuel costs.
Faccenda, at the time, said it would invest GBP 5 million at three other sites instead.
Managing director Ian Faccenda was quoted as saying: "We're operating in a very competitive market, where the cost of wheat and fuels has increased enormously in the past year. We have to make changes for the long-term health of our business.
"While this has been a difficult decision for us to take, by restructuring now, we're strengthening the business for the future."
RUSSIAN grain exports have reached 3.4m tonnes since the start of the new crop year in July, a record volume for the first two months of a season.
Russian wheat exports rose to 2.2m tonnes in August from 720,00 tonnes in July. Major purchasers in August were Egypt and Turkey, while Iran joined the group of leading buyers for the first time.
Russia started wheat exports to Kenya, Jordan, Tanzania, Tunisia, Morocco, Uganda, Malawi and Bangladesh.
Azerbaijan remained a major buyer of the country's grain due to the absence of Kazakh supplies.
Exports to Georgia, which in 2007-2008 was a big Russian wheat buyer, included several thousand tanks and armed personnel, but alas no wheat.
This isn't likely to be good news for British agriculture, as they won't be looking for the costs to come out of their own pockets will they?
Tesco announced a new low-cost range of products and price cuts on Wednesday, as it fights back against budget supermarket rivals that have eaten into its market share.
Tesco said the new range of 350 goods, called Discount Brands at Tesco, would span tea bags, biscuits, shampoos and washing up liquid, and was its biggest package of money-saving measures since the launch of its Value range 15 years ago.
It also pledged to invest more than 100 million pounds in cutting prices of "hundreds" of existing Tesco and branded products.
The move comes hours after arch-rival Asda, which is owned by U.S. group Wal-Mart Stores, announced plans to cut prices on more than 5,000 goods this autumn and escalates the battle between Britain's top grocers as they seek to gain a greater share of cash-strapped shoppers' purses.
Britons are curbing spending amid rising food and fuel costs, sliding house prices and mounting economic gloom, and growing numbers have been switching to shop at cheaper outlets.
Well, I've been saying for long enough that the figures don't stack up. The Ministry of Agriculture of Russia have now officially stated that this year's grain harvest in Russia will total 100-102 mln tonnes.
Last year, Russia harvested 81.8 mln tonnes of grain, as opposed to 78.6 mln tonnes in 2006. In 2008, Russia will harvest a record crop not seen since the beginning of 1990's.
This year's maize harvest also has broken a record and is expected to be 5.0-5.5 mln tonnes. Last year, the maize harvest totaled 4 mln tonnes compared to 3.7 mln tonnes in 2006.
Now, here's the interesting bit....
"As of September 16, Russia harvested 95.3 mln tonnes of grain and legumes throughout 36.1 mln ha. The remaining area totals nearly 10.2 mln ha and potential crops also total 15 mln tonnes."
Hang on a minute, there's 95mmt in the barn, off 78% of total planted acreage. Even if they only get the 15mmt stated (and the way things have been panning out you just know they'll be understating it), 95+15 is 110 isn't it? Not 100-102.
Meanwhile 95mmt off 36m ha is nearly 2.64mt/ha, IF they were to get that yield off the final 10m ha then that puts another 26mmt onto the harvest, giving us a total output of around 120mmt. OK, they won't harvest 100% of total planted area, yields on whats left might not be as good, but a final harvest of 110mmt looks highly achieve able.
And that's assuming that they are telling the truth about total planted acres!
Benchmark Jan ASX wheat closed A$12.50* lower at A$317.50 Wednesday unable to shake off pressure from sharply lower CBOT wheat futures in the wake of America's financial meltdown.
A strong USD and concerns about dryness in parts of Western Australia add some support, but like all the rest of these markets fundamentals are playing a secondary role to outside markets.
Grains are modestly higher overnight, but only partially recovering last night's heavy losses, as crude gained on an AIG rescue plan.
Crude is up around $3 after the Fed agreed to a plan to bail-out failing insurance firm AIG by lending it as much as $85 billion.
This has injected a degree of stability and allayed fears of increased US financial woes reducing demand for crude further.
Corn is around 2-5c higher, soybeans and wheat both around 10c firmer.
Crude is higher early Wednesday morning after bouncing from its biggest two day drop for nearly four years after the Fed agreed a rescue plan for ailing US insurance giant AIG.
This has added a little bit of much needed confidence back into the market, lowering the risk of a further economic slowdown in the U.S.
Oil climbed more than $3 a barrel on expectations saving AIG from collapse will reduce the chances of more economic turmoil that would limit demand for fuels.
The Federal Reserve Board, with support of the U.S. Treasury, invoked emergency powers to lend as much as $85 billion to AIG to save the firm from collapse.
All eyes this afternoon will be on the US Energy Dept stocks data figures released at 3.35pm London time.
With shutdowns in the Gulf of Mexico last week analysts expect crude inventories to have fallen around 3.5m barrels. Gas & distillate stocks probably also dropped, analysts say.
At 7.45am London time crude stood $2.97 higher at $94.12/barrel.
Watching Morgan Tsvangirai on the BBC news Tuesday night when he came out with that classic.
Didn't Neville Chamberlain once say that about Hitler?
And Kofi Annan about Saddam Hussein?
Or someone about Pol Pot when he was discussing his wheatfeed allocation?
Reserve Primary Fund, a US money-market mutual fund with $64.8 billion in assets as of Aug. 31, saw it's shares fall below $1 each Tuesday because of losses on debt issued by Lehman Brothers.
The fund held $785 million in Lehman Brothers commercial paper and medium-term notes which were revalued as worthless by the fund's board of directors effective at 4 p.m. New York time.
EU wheat futures closed lower again Tuesday in line with a general sell-off in commodities as the US financial problems deepen.
Paris November milling wheat fell EUR2.25 to EUR169.75/tonne. London November feed wheat dropped GBP1.50 to close at GBP108/tonne.
As the US stumbles from one financial crisis to another fundamental factors are playing a largely secondary role, traders said.
A sharply weaker tone to crude oil is also adding to market woes.
Soaring crude and a general commodities euphoria sent prices soaring to unprecedented levels, so I guess this is payback time.
Still, wheat prices managed to hold marginally above recent lows, unlike rapeseed which slipped further into the mire with November closing down EUR9.75 to end at EUR351/tonne, its lowest close since Oct 2007.
Corn futures closed at or near limit down on fund liquidation and deleveraging. Panic and fears in investors is having a wide spread affect as they try to liquidate assets to acquire cash currency. Crude oil is lower but has firmed slightly from early morning lows, the dollar is higher both lean on prices. Corn not affected by hurricanes is maturing and drying down modestly. Dec -29 3/4c at 532 1/4/bushel.
Soybeans futures experienced steep declines throughout the day. Domestic and global financial crisis is creating a broad base liquidation and affecting most grains. Weather is forecast to be drier and warmer for the next week. Tight supply of beans should underpin the market but fear may drive prices lower. Nov -55c at 11.24; Oct Meal -$16 at 320.50; Oct BO -248 at 43.60.
Wheat futures closed heavily lower. CBOT wheat is being pulled lower by slumping corn and bean prices amid the current financial dilemma. Wheat futures have been pushed lower recently by the forecast of a record large world wheat crop but the Australian Gov't reduced their crop estimate by 5% to 22.5 MT even though beneficial rains have been aiding the crop. In other news, Japan bought 55,000 tonnes of US wheat, EU wheat prices firm for quality product due to little supply of high grade wheat despite the large crop. Dec -37c at 6.90/bushel.
The Federal Reserve kept US interest rates son hold Tuesday, despite pressures from shaky financial markets and a financial tsunami on Wall Street.
The U.S. central bank's decision leaves the interbank overnight federal funds rate at 2 percent, where it has been since April.
Markets retreated after the Fed announced its decision at mid-afternoon.
Finally, after a volatile session which saw the Dow swing from a 174-point drop to a 100-point rally and back again, the Dow Jones Industrial Average settled up 86.39, or 0.8 percent, to 11,003.9.
Stocks eventually settled higher on speculation that the Federal Reserve will step in to rescue American International Group Inc. from collapse.
Cast your mind back a couple of months....
"Crude will hit $150/barrel by July 4th, possibly $200 by the end of the year," says Goldman.
Well dear old Goldman Sachs, the largest of the two remaining major independent U.S. investment banks, on Tuesday reported its worst drop in profits since going public in 1999.
The investment bank reported that its third-quarter profit plunged 71 percent to (just) $810 million.
Goldman and Morgan Stanley remain the only two major independent investment banks on Wall Street after this week's major shake-up of the investment banking industry.
Guess what, Morgan were also in the $150-$200/barrel club as well.
So let me see then, the writing is on the wall, we're losing money hand-over-fist, the only thing that might just bail us out of this is crude. Cue well timed "we owe it to our clients to let them know" announcements.
Shares of troubled American International Group Inc. are falling sharply as Wall ST opened Tuesday as investors grew increasingly pessimistic the world's largest insurer would find funding to avoid a liquidity crunch that could touch off even more global financial turmoil.
AIG shares were down $3.02, or 63 percent, to $1.74 in early trading Tuesday. Shares have traded as high as $70.13 during the past year.
Late Monday night, S&P, Moody's and Fitch all cut their ratings on AIG.
Having already bailed-out Bear Sterns and Fannie & Freddie the Fed is said to be baulking at the idea of doing likewise from AIG.
Having let Lehman Bros go to the wall over the weekend it would seem that the Fed are saying "enough is enough."
Goldman Sachs & JP Morgan are said to be in discussions with AIG over how much money it needs to help it stay afloat.
It's looking increasingly likely that the answer is...too much.
Liffe/Euronext grain and oilseed futures continued their decline Tuesday, dropping to levels close to or below yesterday's lows.
London wheat for November is GBP1.50 lower at GBP108/tonne, GBP0.40off yesterday's low.
Paris milling wheat Nov is EUR2.75 lower at EUR169.25/tonne, Nov rapeseed EUR5.75 lower at EUR355/tonne and Nov corn EUR2 lower at EUR156.50/tonne.
Worldwide economic woes are weighing heavily on commodities, with crude dipping below $92/barrel. That is dragging the grains market down with it regardless of fundamentals, said one trader.
Meanwhile as crude falls the economic viability of producing biodiesel from rapeseed continues to go down the plughole.
"The German biodiesel industry is already on it's knees, running at just 15% capacity, things are hardly going to improve now that crude is $55 off its highs," said one analyst.
"That's why we've seen the rapeseed market fall by around EUR100/tone since crude peaked at the beginning of July," he added.
Corn futures are expected to open 10 to 12 lower; soybeans 20 to 25 lower; wheat 7 to 10 lower.
Outside markets pressure the grains complex. A weaker dollar and last weeks bullish USDA report should help underpin the market.
Wheat benefits from a reduction in Australian output from ABARE. Last week's USDA report appeared to confirm that there will likely be quality issues with this years crop down under which should also help support US wheat.
The overnight eCBOT markets closed lower Tuesday on continued spill-over weakness from outside markets.
Crude oil fell below $92/barrel as meltdown in the US financial markets threatens to bring the rest of the global economy down with it.
"When America sneezes, the rest of the world catches a cold," said one trader.
However a modest late bounce in crude saw grains close off their session lows.
At 12 noon London time October crude was $93.17/barrel.
eCBOT corn closed 11-14c lower, with wheat around 7c easier and soybeans around 20c lower.
High cereal prices in 2007 were responsible for a spike in EU compound feed production to 149.8mmt, according to FEFAC, an increase of aroun 3.4% on 2006.
Farm animals in the EU consume around 470mmt of feed each year, around 150mmt of it compound feed.
The high price of cereals in 2007 encouraged mixed farmers to sell their grain and buy more compound feed. With grain prices sharply lower in 2008, some will rethink that strategy, FEFAC say.
The Australian Bureau of Agricultural and Resource Economics (ABARE) Tuesday cut it's forecast for Australian wheat production in the coming season to 22.5mmt from last month's estimate of 23.7mmt.
This is in line with other recent estimates. Last week Australian Crop Forecasters lowered its 2008/09 estimate to 22.6 million tonnes and the USDA dropped it's estimate from 25mmt to 22mmt.
The forecasts are still well above the last two seasons drought-ravaged crop which came in at just 10mmt in 2006/07 and 13mmt last year.
UK inflation rose to 4.7% last month, from 4.4 percent in July, the Office for National Statistics said Tuesday.
The figures underline the BoE's caution about cutting interest rates to revive a stuttering economy but market expectations of rate cuts have gone up sharply this week following trouble at banks.
However, with the price of crude oil having fallen out of bed recently, there is a good chance that inflation is now close to a peak, some analysts say.
Inflation will peak around 5% soon, said Bank of England Governor Mervyn King.
Unless the Bank's MPC believes that there is going to be second round effects from the rise in food and energy bills, there is every reason to expect inflation to fall sharply back towards its target over the coming year.
By 11.45am London time the pound was $1.7846, having peaked above $1.8100 yesterday.
Now that I think we can safely say that oil has peaked (at least for some considerable time) around $147/barrel, where do we go from here?
Suddenly a plethora of analysts are out citing $80/barrel or less. One I read this morning predicting $67/barrel.
It is interesting to note that the current demise of crude comes hot on the heels of Hurricane Gustav and Ike which were supposed to have played havoc with US supplies.
Or did they?
One analyst at Societe Generale says that the US DOE has deliberately been misleading over the amount of US capacity closed by the recent storms.
The DOE has repeatedly said some 3.6 million barrels a day of refining capacity is off-line as a result of the storms, equal to more than 20% of US capacity.
But according to this guy in the run-up to Gustav the US was running at 2.4m barrels/day under capacity anyway. In effect of the 3.6m barrels of "shut-down" total US capacity two thirds of it wasn't even being used!
So crude has fallen around $55/barrel despite Russia invading Georgia, a major Turkish pipeline being closed for nearly a month, two hurricanes disrupting US supplies and OPEC cutting production.
Imagine what effect those things would have had on the market back in June!
Goldman Sachs would certainly have had their dream of $150/barrel followed by $200/barrel come true.
Well let them use some of the billions they made by hyping the market up to the nth degree to bailout AIG I say.
OPEC's recent "cut" of 520,000 barrels/day wasn't really a cut at all when you consider that they were pumping at 790,000 bpd over quota anyway.
Demand has been reduced already, and it doesn't seem like getting cranked back up again anytime soon. It is interesting to note that petrol at the pumps here isn't any cheaper now at $92/barrel than it was at $115 a few weeks ago, but that's another story.
Certainly we aren't all suddenly going to start consuming more are we? We haven't seen any of the benefit of the most recent drop.
Diesel, which is what I use, peaked at around 133/litre locally to me. Crude has fallen from $147 to $92 since, thats 37%. A fall in the price of diesel at the pumps of the same magnitude would make it 84p a litre now not the 122p that it is.
The next thing to note will be exactly how low the price must go for the normally super-chilled Saudis to start to feel the pinch. Until that happens and we get a really serious drop in supply it looks like the only way is lower for crude, especially given the current global fallout.
Not renowned for standing by the letter of the contract Chinese, Indian and Pakistani buyers are said to be defaulting left, right and centre on Palm Oil contracts after prices have slumped to 15-month lows.
It makes you wonder who might be hit by similar tactics over here doesn't it?
Even somebody that is 100% back-to-back on everything is exposed to risk on this market if the buyers start walking away.
The Ukraine has harvested nearly 44 mln tonnes of grain, Juriy Melnik, the Minister of Agricultural Policy, has said.
Taking into account carryover, the total volume of grain available in MT 2008/09 will total 54.5 mln tonnes, he said.
Domestic grain needs will be 6.6 mln tonnes, the cattle breeding industry will require 14.7 mln tonnes, and exports will use 20 mln tonnes. The expected remainder will total 5.5 mln tonnes to carryover into MY2009/10, according to the Minister.
eCBOT grains are lower Tuesday, dragged down by the ailing stock market, the AIG and Lehman woes and sharply lower crude oil.
Reports that the Fed are baulking at bailing out AIG with a huge and risky loan and are encouraging it to seek help elsewhere, following on from yesterday's Lehman news has given the market a severe case of the jitters.
Goldman Sachs and JPMorgan are said to be working with AIG to determine how much the New York-based insurer needs.
Crude oil fell below $92/barrel overnight on fears of a world recession.
At 9.15am London time corn was around 16c lower, soybeans 31-32c lower and wheat down 11-12c.
The Fed may cut its target rate for overnight lending between banks by a quarter point to 1.75 percent later today, futures trading showed. Contracts on the Chicago Board of Trade put the odds on a rate cut at 68 percent, compared with zero odds a week ago.
AIG's credit ratings were downgraded by S&P and Moody's Monday, threatening efforts to raise emergency funds to keep the company afloat.
The ratings reductions occurred it was revealed that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.
AIG plunged 61 percent yesterday in New York and has declined 92% this year.
Rumours that Manchester United would come to the rescue of it's shirt sponsor by auctioning off one of Wes Brown's legs, have still to be officially confirmed.
Meanwhile Washington Mutual Inc., the biggest U.S. savings and loan, had its credit rating cut to junk by S&P because of the deteriorating housing market.
Washington Mutual are one of the main protagonists in the doomed Alt-A mortgage scam which will be the next big thing to add to the woes of the US housing market.
See US Housing Market Isn't Going To Get Better Anytime Soon for more info on that one.
Hewlett-Packard (HP), the world's largest computer company, says it plans to cut 24,600 jobs to help streamline its business.
Crude oil tumbled below $92 a barrel Tuesday, having its biggest two-day drop in almost four years, on concern that turmoil on Wall Street may weaken the global economy and reduce demand for fuels and raw materials.
The failure of Lehmans, the takeover of Merrill Lynch and the crisis at AIG sent U.S. stocks to their steepest drop since the September 2001 terrorist attacks Monday night.
"Total panic, is how one analyst described things as the market finally comes to the conclusion that the world IS going into recesssion, and demand for oil will be slashed under such circumstances.
Crude oil for October delivery fell as much as $4.17 to $91.54 a barrel. It was at $92.23 at 08:38 a.m. London time.
The FTSE 100 index closed down 212.5 points Monday at 5204.2 points.
In percentage terms that is "just" a "mere" 3.92% drop, which ranks it outside the Top 20 biggest one day falls.
But in monetary terms that's £50bn wiped off the top 100 British companies.
That is a hell of a lot more than was lost in the infamous Black Monday crash of 1987 when shares fell more than 12% in just one October day.
But the crisis may not be over by any stretch of the imagination - after London had closed Wall Street took another turn for the worst, dropping more than 300 points and back to its lows for the day.
State and Treasury officials met with a slew of financiers in New York Monday night for eleventh hour negotiations in an attempt to rescue ailing insurance giant AIG. Don't they sponsor Man Utd? Maybe the club could auction off one of Wes Brown's legs in an attempt to rescue the club sponsor?
Back home in London, HBOS, which at one point in the day had shed more than a third of its value, closed down 49.5p or 17.5% at 232.5p as traders speculated about whether it will be next to fall.
Corn futures opened sharply lower this morning but traded well off those lows by the end of the session. Crude oil closed down $5.87 to its lowest level since February at $95.34/barrel. Many uncertainties linger and volatility has increased for trading in many commodities. Heavy rains fell over the weekend throughout the Corn Belt and worries of flooding are boosting prices on potential damage to crops and delaying harvest. Weather forecasts are benign, with above normal temps seen across the central US over the next 6-10 day forecast period and should help dry some fields to prepare for harvest. Dec traded in a range -15 1/4 at the open to +10 3/4 before closing -1 1/4 at 5.62/bushel.
Soybeans futures closed lower but backed off from opening trade lows. Beans were initially pushed lower with concerns in the financial sector as funds might continue liquidating positions. Bearish NOPA crush report and lower crude oil weigh in on prices. However, recent heavy rains further delaying harvest in southern regions is helping to underpin the markets as supply remains tight. Weather is forecast to improve in the coming week and should help start or speed up harvest. Nov -23 at 11.79; Oct Meal +0.20 at 336.50; Oct BO -143 at 46.08/lb.
Wheat futures opened lower but closed higher, although well off session highs in a volatile session. Wheat saw a nice short covering rally after several previous sessions were lower. Upside potential may be limited due to estimates of a record size global wheat crop. Wheat is also receiving help from strength in the CBOT corn futures. Dec CHI +7 3/4 at 7.27/bushel, 13c off session highs.
EU wheat futures closed lower Monday, but off session lows, as CBOT wheat futures moved migher late in the day.
Paris November milling wheat finished EUR1.25 lower at EUR172/tonne, but up off a session low of EUR169.25/tonne.
London November feed wheat settled down GBP0.50 at GBP109.50/tonne having earlier hit a fresh 13-month-low of GBP107.60/tonne.
The downdraught from the continuing global financial meltdown weighed on wheat futures from the start, a trader said.
However, a modest recovery late in the day by CBOT wheat enabled prices to close above daily lows.
The downwards trend is still firmly intact and more losses can be expected in the weeks ahead if crude and other outside markets continue to decline.
Liffe/Euronext futures are lower Monday in line with a general sell-off in commodities and stocks.
London Nov feed wheat is £2 lower at £108/tonne and Paris Nov milling wheat EUR3.50 lower at EUR169.75/tonne.
Paris Nov rapeseed has crashed EUR10 lower at EUR358.75/tonne and Nov corn EUR3.75 lower at EUR156.75/tonne.
A general meltdown in the US financial system is spilling over into just about everything, a trader said.
Things certainly look very different to how they did 6-8 months ago don't they? The news on Lehman Bros and Merrill Lynch has provided the markets with another major kick in the cream crackers.
Well, the same people that were responsible for driving these markets up to ludicrously unprecedented and unsustainable levels are now getting the comeuppance. And I for one find it difficult to have too much sympathy.
"A lack of liquidity defines this financial crisis," French grains analysts Agritel said at the weekend.
Adding that "the funds are condemned to liquidate their positions in all markets, including raw materials."
Well, corn, soybeans, wheat and the rest all went through the roof largely ignoring the fundamentals. Who's to say that they won't fall through the floor ignoring them as well?
That certainly seems the case at the moment. The exceptionally tight nearby cash market in soybeans sent expiring September the equivalent of nearly four limit up moves Friday night.
September may have expired but the nearby market is just as tight today as it was on Friday.
But tight stocks and a bullish USDA report (at least for corn & soybeans) released Friday mean nothing when the funds are stampeding for the exit.
How can it be denied now that the invasion of massive volumes of spec money into the commodities markets has been responsible for the wild swings we have seen over the last twelve months?
So where do we go from here? Lower. The shake out in the US is far from over, and the knock-on effects for the grains market seems plain for all to see. We are only halfway through the pain, that's the way I see it.
Sure, the market will over-react on the downside, like it always does, but when is that going to be, and how much lower will it go in the mean time? The bull run up lasted for a couple of years. The last time corn traded below $3 (a previously "normal" level) was Oct 2006, ditto soybeans below $6. Wheat below $4 was Sept 2006. Incidentally the last time London wheat traded below £90 was also Oct 2006.
Will we ever see those levels again? Maybe, maybe not. I can certainly see a further 6-8 months of downwards pressure whilst the large world crops that have just been harvested need to find a home.
Look at rapemeal. You can't give it away. Everybody is bought right up to the max. Sure it's competitively priced relative to just about everything else but who wants it? Nobody. That situation doesn't look like changing this side of May 2009.
Once again, the cure for high prices WAS high prices.
eCBOT futures closed sharply lower Monday, after earlier posting some reasonable gains on follow-through from Friday's strong close.
Corn closed around 12-14c lower, soybeans 34c easier and wheat down around 6c.
A general broad-based sell-off in commodities and stocks following the collapse fo Lehman Bros over the weekend was largely behind the declines, traders said.
"We've got the exact opposite of what we had 6-8 months ago," said one trader.
"Then almost anything that was bullish was siezed upon to drive the markets higher. Now bullish news is ignored, or its affect lasts only a few hours before the bears take over."
October crude is $5.78 lower at $95.40/barrel as global recession fears grow.
Early calls for this afternoon's session: Corn is expected to open 12 to 15 lower; soybeans 30 to 35 lower; wheat 6 to 9 lower.
News that US investment Lehman Bros are to file for Chapter 11 bankruptcy sent shock waves around global stock markets Monday, with the FTSE100 down 4221 points, or 4.09%, to 5195.30 at 11.30am London time.
Banks and builders led the way with HBOS, Barclays, Taylor Wimpey, Royal Bank of Scotland, Barratt Developments and the Bradford & Bingley amongst the worst affected. HBOS was down over 100 points, or 36%, to 180.10, it was more than 730 pence at the start of the year.
Meanwhile, troubled US insurer American International Group has asked the Fed for a financial lifeline, according to news reports. In addition Merrill Lynch was sold "on the cheap" to Bank of America as the world's largest retail brokerage company sought refuge from fears it could be the next victim.
Malaysian crude palm oil futures tumbled 5.4 percent on Monday to hit a 15-month low as crude oil fell further below key $100 a barrel milestone, dragging down other vegetable oils, traders said.
And signs of weakening export demand shown by cargo surveyors weighed on prices which are now more than half of record levels of 4,486 ringgit hit in early March.
The benchmark November contract on the Bursa Malaysia Derivatives Exchange fell as much as 128 ringgit to 2,252 ringgit ($651.8) per tonne, a level unseen since June 13, 2007.
"Crude oil has been a main crutch for palm oil and that appears to be giving way as well," said a trader with a local commodities brokerage. "Biodiesel hopes are now a flash in the pan."
By the end of last week, grain exports from Ukraine, measured from the beginning of the 2008/2009 MY, have reached 5 mln tonnes, according to Jaroslaw Gadzalo, Deputy Minister of Agricultural Policy.
At the same time, Mr Gadzalo confirmed the previous forecast of total grain exports during 2008/09 MY, amounting to 20 mln tonnes.
Ukraine will harvest a record rapeseed crop in 2008, reaching nearly 2.9 mln tonnes, and export 2.5 mln tonnes in the marketing year 2008/09, according to the Ministry of Agricultural Policy of Ukraine.
To date, Ukraine has exported nearly 700.000 tonnes of the oilseed, the Ministry said.
The dollar dropped against the euro and the pound after Lehman Brothers Holdings Inc. filed for bankruptcy and traders speculated the Federal Reserve may need to cut interest rates to buoy financial markets.
The pound rose above $1.80 to $1.8127 before paring gains as Bank of America Corp. agreed to acquire Merrill Lynch & Co. and as investors sought the relative safety of U.S. Treasuries.
At 10.15am London time the pound was $$1.7986.
Against the euro the dollar declined to $1.4481, the lowest since Sept. 4, before trading at $1.4253 per euro at 10:10 a.m. in London, from $1.4224 in New York late last week. It touched $1.3882 on Thursday, the strongest since Sept. 2007.
Crude oil fell to a six-month low in New York Monday and gasoline tumbled amid signs that refineries along the Gulf of Mexico coast will soon resume operations after escaping major damage from Hurricane Ike.
Almost 20% of the U.S.'s oil refining capacity was shut last week, limiting fuel deliveries and prompting the Department of Energy to release 309,000 barrels from its strategic reserves. New York Mercantile Exchange electronic trading opened early to allow traders to respond to Ike.
At 10am London time crude oil for October delivery was $3.06 lower at $98.12 a barrel its lowest since February.
Its been a volatile overnight session on eCBOT this morning with corn trading up to 13c higher in follow-through buying from Friday's limit up move.
Concerns that Hurricane Ike will damage crops and delay harvesting also added support early in the session Monday.
However the news that Lehman Bros are to file for bankruptcy led to a general sell-off in commodities, sending corn, soybeans and wheat lower.
Corn is currently 7-8c lower, soybeans down 10-14c and wheat down 3-4c.
I wrote on Saturday morning that there could be some dramatic developments over the weekend, and I wasn't wrong!
Lehman Brothers, the fourth-largest U.S. investment bank, has succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.
Lehman was forced into bankruptcy after two suitors, Barclays Plc and Bank of America Corp., withdrew from takeover talks Sunday.
The move threatens to deal a further blow to the global financial system, as banks unwind their deals with Lehman.
Meanwehile Merrill Lynch, also stung by the credit crunch, has agreed to be taken over by Bank of America in a dramatic weekend of events for Wall Street.