Nogger's Blog

Sept Soybeans Post Largest One-Day Gain Ever

Expiring September soybeans posted an astonishing gain of 274c Friday, almost certainly the largest one-day gain of any CBOT soybean contract ever, and close to the equivalent of four limit up moves! (There are of course no limits on a contract in delivery).

The reason? The Sep contract expired Friday and shorts got forced into buying in at whatever price they could as the exceptionally tight spot cash market prevented them from delivering physical beans instead.

Hurricane rains have delayed the Mississippi Delta harvest meaning that there are very few physical soybeans around. Old-crop stocks have dwindled to a trickle and new-crop is running late, said one trader.

There were just 76 deliveries against expiring September.

Other contract months closed with gains in the region 25-27c on a bullishly construed USDA report.

US Housing Market Isn't Going To Get Better Anytime Soon

We've all read about the subprime disaster and the knock-on effect its had not just in the US but around the globe.

But now that all the bad news is hopefully out of the way surely the US housing market will soon recover, the economy improve and then we can all start to feel better?

Well, things might not be quite that simple. You've probably heard of Alt-A mortgages but maybe don't really know what they are. Why should you? Many of us in the UK didn't have a clue what Fannie & Freddie were twelve months ago either. They were just something we'd heard of. Fannie Mae, isn't that like a US burger chain or something? Fannie & Freddie, Benny & Jerry, ice-cream right?

Well my friends now we know that subprime mortgages are loans given to generally lower paid workers with poor credit ratings. A first step on the property ladder kind of thing.

Loan them whatever they want, we've got the house as security so we're covered, they pay us a bit over the odds, Fannie & Freddie are behind us. Whats to worry about?

Now that that particular pack of cards has collapsed whats next?

Alt-A thats what. Alt-A borrowers are the next step up the ladder from the sub-primers. They have better credit scores. But, and heres the rub, they are what we would call "self certification" mortgages.

Loan them whatever they want, we've got the house as security so we're covered, they pay us a bit over the odds, Fannie & Freddie are behind us. Whats to worry about?

Well you don't have to be Poirot to work the next bit out.

One estimate I've read suggests that 70% of Alt-A borrowers exagerrated their earnings when taking out their loans. And according to the Mortgage Asset Research Institute more than half of those who did tell a little porkie exaggerated their incomes by 50% or more!

How much are we talking about? Around 3 million US borrowers have Alt-A mortgages totalling $1 trillion, compared with $855 billion of subprime loans.

Of that $1 trillion, almost half of those loans were issued in 2006. Back then this type of mortgage was incredibly popular and incredibly easy to get. Many of these were interest free, or set at very low introductory rates for the first three years.

That means that starting in 2009 many Alt-A borrowers are going to be hit with increased mortgage payments once the "freebie" period expires. And we aren't talking about modest increases here, we are talking 4-8 percentage point increases.

Imagine how you would be affected if your mortgage rate went up 4-8 points in one hit. Repayments could double.

This is made all the more sobering armed with the knowledge that right now, BEFORE any increases kick in, almost 16% of secured Alt-A loans issued since January 2006 are already at least 60 days late.

Well, if they can't afford to make the repayments now they certainly better pray for a miracle by 2009.

Wachovia and Washington Mutual were big sellers of Alt-A loans, and had $122 billion and $53 billion, respectively, on their books at the end of the second quarter. Is it any wonder their stocks are under pressure now?

Its impossible to estimate how many write-offs there will be because until the old rates expire nobody has any idea of how well placed, or otherwise, an Alt-A borrower is going to be to meet the extra repayments.

But if 16% are in trouble now, before these kick in, afterwards its got to be what 40%, 50%, more??

Certainly it would appear that foreclosures are going to be around for a good while longer yet. And with a volume of houses like that coming onto the market its hard to imagine house prices recovering any time soon.

With this factor lurking on the horizon & US unemployment at 3.5m and rising, the recent strength of the dollar is somewhat surprising. Maybe it's rally has been overdone? Based on sterling's sudden rise Friday, 3.4 cents in one day it's largest appreciation against the dollar in one day for seven years, maybe the tide is turning?

EU Wheat Flat/Mixed As USDA Fails To Provide Direction

EU wheat futures closed flat around unchanged levels Friday, as the eagerly awaited USDA WASDE report failed to provide the market with some much-needed direction.

Paris Nov milling wheat closed EUR0.25 higher and London Nov feed wheat ended unchanged.

On the week Paris gained EUR0.75 and London lost £4/tonne as feed wheat continues to find few friends on the export market.

The USDA figures were bearish overall for wheat traders said with world production and ending stocks increased.

More bullish figures for soybeans and corn prevented wheat from adding to recent declines.

Still the trend remains firmly downwards, and low quality wheat, which is what the UK has aplenty, is friendless on the export arena.

CBOT Closing Comments Fri

CORN

Corn futures closed with impressive gains Friday after the release of a bullish USDA report. On Monday trading limits will expand to 45 cents after limit up gains in the Dec '08, May '09, and July '09 contracts. Corn started initially higher after USDA reduced production and was able to sustain and improve those gains as the crude oil and the dollar both collapsed. Even with the reductions in total corn production, this year's crop is still on track to be the 2nd largest on record. South Korea bought 55,000 tonnes of US corn and 225 contracts issued delivery notices against the September contract which expired at 12:00 CDT today. Sep +25c at 5.47/bushel.

SOYBEANS

Soybeans futures posted double digit gains in most contracts Friday. Some short positions found themselves on the wrong side of the September contract which was in delivery stage and had no trade limits. They got slaughtered with Sep closing up 274c, close to four limit moves! The recent tropical storms and delayed harvest have many end users in a bind that do not have the physical commodity on hand. For that reason cash prices and basis firmed yesterday and today adding to higher futures. Funds were estimated buyers of 3,000 beans, 1,000 meal, and 1,000 bean oil contracts. Soybean and soy product September contracts expired today. Deliveries against the Chicago Bean contract were slim at 76. Sep +274 at 14.90; Meal +.0 at 359.00; BO +15 at 47.15/lb.

WHEAT

Wheat futures closed lower despite impressive rallies in corn and soybeans. USDA is projecting a record large global wheat crop (676.3 MT) and continues to lean on prices. Tunisia bought 92,000 tonnes of US soft durum wheat. South Korea bought 22,700 tonnes of US wheat for their flour mills and US aided Pakistan with 50,000 tonnes of wheat. Funds sold an estimated 3,000 CBOT contracts adding pressure to price. 276 deliveries were posted against the CBOT September contract. KCBT reported 30 retenders and MGE reported 30 retenders. Sep CHI -3c at 7.03; KC -4c at 7.41; MPLS -23c at 7.71/bushel.

Going Down, First Floor: Investment Banks, Tissues And P45s

Shares in beleaguered US bank Lehman Brothers took another pasting again Friday as concerns grow over the fate of the company.

Confidence that the investment bank will survive as an independent entity is fading as speculation about a potential takeover intensifies.

Lehman announced the biggest loss in its history on Wednesday and investors remain unconvinced by the bank's plans to strengthen its finances.

Lehman shares fell 13.5% to close at $3.65 in New York after falling around 40% on Thursday.

The company has lost 80% of its market value since Monday. Six months ago the stock was trading at $48.65, and a year ago shares were $82.

Bank of America is being touted as a likely saviour, they're checking out their piggie banks over the weekend for what could be Bear Sterns 2 the Movie.

Bear were sold on the cheap over a weekend, Fannie and Freddie were bailed out last weekend, will Bank of America continue the trend this weekend?

Early Call/First Reactions Post USDA

Whilst yield cuts were expected, the USDA report looks bullish soybeans and corn with both production estmates coming in lower than the average trade expectation.

The wheat numbers were neutral to bearish but wheat will likely derive some benefit from spillover strength in beans and corn.

Early calls are 20-25c up on beans, 5c up on corn and flat to 2c firmer on wheat.

Session highs may be put in early here, at the end of the day the US production numbers were a bit bullish for soy & corn, but increases elsewhere are also significant.

Overall the wheat figures were bearish in my opinion. Despite a widely anticipated cut in Australian production of 3MMT world production was increased and ending stocks were pegged higher too.

USDA Report: Corn Snippets

This afternoon's eagerly awaited USDA crop report pegged 2008 US corn production lower than last month's estimate of 12.288 billion bushels, and also below the average trade estimate of 12.152 billion at 12.072 billion bushels.

Yields were cut 2.7 bu/acre to 152.3 bu/acre.

The numbers are far from a disaster as if realised production and yields would be the second highest on record.

Corn ending stocks of 1.018 bb, down from 1.133 bb in August, reflect the cut in production, partly offset by a 100 mb cut in feed use.

Ending stocks of this magnitude should cap any rallies from getting too carried away tonight.

USDA Report: Soybean Snippets

This afternoon's eagerly awaited USDA crop report pegged 2008 US soybean production lower than last month's estimate of 2.973 billion bushels, and also below the average trade estimate of 2.950 billion at 2.934 billion bushels, slicing half a bushel/acre off the yield estimate to 40 bu/acre.

The Brazilian crop was left unchanged at 62.50MMT and Argentine production upped a million to 50.50MMT. Chinese production was raised half a million to 16.5MMT.

USDA Report: Wheat Snippets

Today's USDA report pegged world wheat production up slightly from last months report at 610.87MMT.

World ending stocks were increased from 136.2MMT to 139.9MMT.

The EU-27 wheat crop was seen at 147.2MMT, up from 143.17MMT last month, and the Australian crop revised down to 22MMT from 25MMT.

US 2008 all wheat production was unchanged at 2.462 billion bushels.

Work-shy Argies

Work-shy Argy truckers are in negotiations with grain exporters in an effort to resolve the on-going dispute between the two sides.

After months of disruptions to grain supplies out of Argentina following the drawn-out dispute between farmers and the government over tax hikes more supply delays are the last thing exporters need.

Trucks are getting through the picket lines but traffic numbers have been reduced by about 20-25% local reports suggest.

Two Chinese Lysine Factories To Close

Ajinomoto Co. Ltd. has announced it is to close its lysine factory in Chengdu Sichuan, China.

The plant had a capacity of around 31,000 mt per annum of feed grade lysine.

It has yet to be confirmed if the plant will be permanently shutdown. High raw material costs combined with disappointing Lysine prices have prompted the decision to stop production, it said.

This facility was Ajinomoto's only facility for feedgrade lysine producion in China. The demand for lysine in China is estimated at around 250,000 mt per annum (approximately 25% of global demand).

In addition to this closure, it is also understood that another smaller Chinese Lysine facility (manufacturing 15,000 mt pa) will also cease production during September 2008 due to poor profitability.

Up To 32M Acres Of Farmland Lays Idle In Eastern Europe - FAO

The UN Food and Agriculture Organization (FAO) and the European Bank of Reconstruction and Development (EBRD) say that as much as 32.1 million acres of unused farmland lays idle in Eastern Europe and the Commonwealth of Independent States (CIS) – 12 of the 15 former Soviet republics.

Despite Russia and Ukraine producing bumper harvests of cereal crops this year due to high food prices, the region still possesses significant untapped agricultural potential, a senior United Nations (UN) food agency official said Thursday at the opening of a two-day meeting in Paris on agricultural developments in the region.

Rising food prices have led to rapid expansion of land used for agriculture in the two countries with an increase of 5.9 million acres to 83.5 million acres of farmland planted to wheat, according to the FAO.

In Russia alone, harvested area for wheat, course grains and rice is forecast at nearly 113.7 million acres for the 2008 harvest, which is up 6.4 million acres from 2007.

"This clearly shows that higher prices can be an opportunity for the farming community," Charles Riemenschneider, Director of FAO's Investment Centre, said in a UN press release.

According to FAO figures, wheat production in the European CIS countries is set to rise to more than 73 million metric tons in 2008 – up 13 percent from last year.

"In March we discussed opportunities for enhancing agricultural output, and we can see from these figures that benefits are already materializing that could make a real difference on world markets," Riemenschneider said in the press release.

"These countries have significant exportable cereal surpluses, but more long-term investment is needed to ensure that this supply response is sustainable," he said.

eCBOT Close

The overnight eCBOT market closed with strong gains as traders booked profits ahead of the USDA WASDE report due out at 13.30BST.

Beans closed 28-30c higher, corn up 6-7c and wheat 12-13c firmer.

The trade appears to be gambling on the USDA coming out with a lower crop estimate for soybeans.

Strength in beans spilled over into the other pits, and a modestly firmer crude oil market also helped add a bit of support.

Wheat was also aided by Rabobank lowering their Australian output estimate by 1MMT, ignoring Russia finding an extra 5MMT of grain to add to it's 2008 harvest.

All bets are off in an hour. Nogger will report back then with his own take on the USDA numbers and a late call on CBOT.

Russians Admit Grain Harvest To Hit 100MMT

Well I never. Looks like I'm not Ruud van Nistelrooy after all. Those cheeky chappies at the Kremlin were too busy invading Georgia to count how much grain they had this year. Now they've gone and found several million tonnes of grain that they'd completely forgotten about planting. But based on my calculations even 100MMT is still a bit conservative. Russians eh, you know when they're lying, their lips move....

Russia's grain harvest will reach 100 million tons this year according to the Institute for Agricultural Market Studies (IKAR).

Presenting the forecast at the Russian Grain Union's 14th international conference in Moscow on this week, IKAR general director Dmitry Rylko said the gross grain harvest this year will total 100 million tons. In particular, the wheat harvest will reach 60 million tons, while the barley harvest will amount to 20 million tons. "Corn production could even post a record compared to the time of Krushchev and total 6 million tons," Rylko said.

The situation, however, is complicated by several factors, namely "the extremely large share of coarse wheat in the overall harvest, the unevenness in the distribution of grain quality - a large harvest and low quality in the European part of the country plus a small harvest and high quality in the Urals - as well as a sharp worsening in competition on export markets," he said. Grain exports could reach an all-time high of 18.5 million tons this year, he said.

A total of 3.46 million tons of grain had already been exported as of July 1, a record-high for recent years.

Lehman Up For Sale

Just one day after Lehman Brothers assured Wall Street that it could survive on its own, the beleaguered investment bank, urged on by U.S. government officials, bowed to mounting pressure on Thursday and put itself up for sale.

As confidence in Lehman continued to drain away on Thursday, the bank, one of the oldest names on Wall Street, reached out to several potential buyers, including Bank of America and Barclays insiders say. Lehman hopes to strike a deal within days.

In each case, the suitors are seeking help from the Federal Reserve to help make an acquisition palatable. They want the Fed to guarantee a part of Lehman's troubled assets, these people said, similar to the way it backstopped the emergency sale of another foundering bank, Bear Stearns, in March.

But while the Treasury Department and Fed were working to broker an orderly sale of Lehman, it was unclear whether the Fed would stand behind any deal, particularly after the Bush administration took control of the nation's two largest mortgage finance companies only days ago.

Lehman's share price fell $3.03 on Thursday to $4.22, leaving it down nearly 94 percent this year.

Diageo Ireland To Build New EUR650M State-Of-The-Art Brewery

Diageo Ireland is today announcing that it has entered into agreements to acquire a 73-acre greenfield site in Leixlip, Co. Kildare with the intention to build a new state-of-the art brewery. The proposed site has important historical links to Arthur Guinness and his first brewery. This development represents the next stage of the Euro 650million capital investment in its brewing operations in Ireland announced by Diageo plc in May 2008.

It is anticipated that the new brewery will be completed by 2013 and will be called the ‘Arthur Guinness Brewery’. Once commissioned, the new brewery - in conjunction with the remodelled St. James’s Gate brewery - will transform Diageo Ireland’s current brewing operations into a two-brewery centre of excellence to support the growth and development of its domestic and global beer business.

In addition to being the optimum location for the new brewery’s operational requirements, the site has important historical and heritage links to Guinness. Arthur Guinness established his first brewery in Leixlip in 1755 before moving to St. James’s Gate in 1759. Most of the proposed site (c.50 acres) will be purchased from the Guinness family, direct descendents of Arthur Guinness.

UK: Grainfarmers And Centaur To Merge

Leading UK grain merchants Grainfarmers and Centaur Grain have announced plans to merge.

The merged business will be branded Openfield and will handle around 20% of the UK grain market, they say.

Full details can be found on Centaur's website:

http://www.centaurgrain.com/

UK Spring Barley Yields Up

UK spring barley yields are up by as much as 10 per cent this year according to the HGCA, although it’s too early to tell if quality has been badly affected by the bad weather this summer, they say.

Peter Hanson, barley specialist and trials consultant for the HGCA’s Recommended List said that he was not surprised that yields had jumped in this wet season. “As a barley breeder I always associate a wet year with spring barley doing well in terms of yields,” he said. “There has been no drought stress this season which has helped although it will probably be difficult to get good malting samples this year,” he added.

Hurricane Ike to Make Landfall in Texas Late Friday, Early Saturday

Hurricane Ike has become a large Category II hurricane over the central Gulf and is expected to remain a very dangerous storm as it tracks toward the Texas coast over the next 36-48 hours, according to weather research firm Planalytics.

Ike is currently forecast to make landfall south of Galveston Bay late Friday into Saturday morning and will bring hurricane force winds to the Galveston and Houston areas, according to Planalytics analysts.

Also expected with Ike will be a significant storm surge that may damage the Galveston Bay area.

Torrential rainfall can be expected from eastern Texas to the Ohio Valley as Ike moves inland and weakens during the upcoming weekend, analysts said. This heavy rain may bring large areas of flooding.

Ukraine Exports Record Volume Of Rapeseed In August

In August, rapeseed exports from Ukraine totalled a record 502,000 tonnes, an increase of 3.8 times compared to the previous month and up 65% compared to August 2007, according to IA APK-Inform`s data.

Figures showed that the Netherlands (148,000 tonnes), Germany (65,300 tonnes), Pakistan (63,200 tonnes), France (39,600 tonnes), Poland (35,600 tonnes) and Hungary (32,800 tonnes) were the main importers of the oilseed.

During the two months of 2008/09 MY, rapeseed exports totaled 634,000 tonnes, up 73% compared to the same period of 2007/08 MY.

Rabobank Cuts Australian Wheat Production 1MMT

Rabobank lowered their estimate for 2008 Australian wheat production today to a range of 19-23MMt from 20-24MMT.

Their estimate could be downgraded further if there is a deterioration in crop conditions between now and harvest, they said.

Benchmark ASX Jan wheat closed A$8 higher on the news.

There was also some book-squaring after recent heavy losses ahead of todays USDA S&D report.

The USDA to reduce its estimate for U.S. 2008-09 wheat ending stocks, raise its forecast for world wheat production and lower its estimate for Australian production from last months 25MMT.

Meanwhile storms raged through Queensland overnight generating wind gusts to 59 km/h and a temperature drop of eight degrees in 30 minutes at Longreach. Storms also swept through Brisbane’s west late in the afternoon, bringing heavy rain, localised flooding and small hail.

The storms developed rapidly as warm, moist air was pushed inland by humid northeasterly winds. Widespread thunderstorms should again develop on Saturday and Sunday afternoon across southern and western QLD before becoming isolated early next week.

Western Australia, which produces almost half the country's wheat, remains rather dry and is the main area of concern where ouput could be significantly reduced without beneficial rains soon.

Overnight grains steady ahead of USDA report

Overnight grains are steady this morning ahead of this afternoons USDA S&D report due at 13.30BST.

The Baltic Dry Index, a measure of shipping costs for commodities, fell yesterday to its lowest since March 2007, prompting ideas that lower freight costs will help demand for US commodities.

After prices have fallen sharply in recent sessions traders are booking some profits and squaring positions ahead of the USDA crop production figures.

Crude is a little firmer as Ike heads towards the US mainland which is also adding some modest support.

Soybeans are 11-15c higher, wheat 5-7c higher and corn flat to 2c firmer.

Crude Up As Ike Heads For Houston

Crude oil rose from a five-month low as Hurricane Ike headed toward a near-direct hit on Houston, the busiest U.S. refining center.

About 16 percent of U.S. processing capacity is being shut before Ike makes landfall tomorrow. The Gulf Coast region is home to 26 percent of U.S. oil production. Evacuations have shut 97 percent of Gulf crude production and 93 percent of natural gas output.

At 8am London time Oct crude was 65c higher at $101.52/barrel.

EU Wheat Futures Close Mixed

EU wheat futures closed mixed Thursday with London feed wheat mostly lower and Paris milling wheat higher.

Nov London feed wheat dropped to a 13 month low of £108 before closing 45p lower at £110/tonne.

Nov Paris wheat closed EUR2.75 higher at EUR175/tonne, buoyed by a weak euro vs the USD and yesterday's sale of French wheat to Egypt.

Tomorrows USDA report on world supply and demand report will likely determine price direction from hereon in traders said.

CBOT Closing Comments

CORN

Corn futures closed down a tick in the September contract Thursday afternoon. Trade was choppy early on but short covering push prices higher. The dollar continues its upward trend and posted higher gains for the day weighing in on prices. Weather remains bearish with no near term frost threats. Crude oil was lower also weighing in on prices. Trading was pretty quiet for much of the day as traders look forward to tomorrow's USDA report. Estimates are around 153.5 bushels/acre with a 12.15 billion bushel production but some skepticism exists as September estimates usually vary from the final yield in January. Sep corn contract expires tomorrow. Sep -1/4 at 5.22

SOYBEANS

Soybeans futures were mixed at the close with most contracts trading lower but September posted impressive gains as little if any new crop is being harvested and pipeline supplies remain tight. Beans have a much tighter ending stocks than corn or wheat and a nominal change could call for aggressive price swings after the crop report is released. Nearby September bean futures, meal, and bean oil expire tomorrow. Sep Beans +34c at 12.16; Meal +13.2 at 350.00; BO -69 at 47.00

WHEAT

Wheat futures closed higher in Chicago, Kansas City, and in Minneapolis. Wheat opened lower when the morning bell rang but soon climbed higher. Pressure from large global production and technical sell signals limited gains. Australian private firm estimated their wheat crop at 22.7MT down 1.8 MT from previous estimates, even though beneficial rains have been falling there over the last 10 days. Japan bought 107,000 tonnes of US wheat. Tunisia is sought to issue a tender for durum wheat tomorrow. The September contract expires at all three exchanges tomorrow. Sep +1/2 at 7.07; KC +1/4 at 7.46; MPLS +15 at 7.95

Lehman Reeling

The trouble at Lehman Brothers is rapidly becoming a race against time for the struggling Wall Street bank as its shares sank on Thursday.

Lehman's fortunes have dwindled as the firm, staggered by the biggest loss in its 158-year history, fights to regain confidence among investors.

Even after Lehman pledged Wednesday to shrink its operations in its most drastic step yet to shore up its financial position, its shares slid Thursday, falling almost 40 percent in mid-morning trading, to $4.33. On Wednesday the stock had closed down 7 percent to $7.25. Shares stood at $82 little over a year ago.

With each passing day, the pressure is growing for Lehman to secure a financial lifeline or at least arrest the precipitous decline in its stock, which has lost 55 percent of its value over the last three days.

USDA May Be Set To Deliver Knock Out Blow To Bulls

Ray Grabanski President of Progressive Ag certainly thinks so. He thinks that their Aug yield estimates were far too low. Take it away Raymondo......

Two weeks ago I talked about the potential for soybeans to run to new lows in the coming weeks as we moved towards harvest, and I took a fair amount of heat in chat rooms and emails from across the country as markets were in a mini-bull trend at the time.

But as President John Adams said two hundred years ago, "Facts are stubborn things!" Today we sit at new lows not only for soybeans, but also wheat (and can corn be far from there?). The corn and soybean crop had improved so much from our disastrous start into June that Pro Ag yield models were suggesting a near record large corn crop and record large soybean crop. Its difficult to rally a market with those kinds of facts behind it. While we had a brief bout of dryness in some substantial growing areas to end August, most of those problems are solved by Sept. 10 and so far there is no sign of a widespread killing frost for late developing crops. In a nutshell, there was only one week where either corn or soybeans had any significant deviations from a steady rise in yield potential since June, and its just tough for bulls to overcome those facts.

Add to the bulls problems that crude oil has dropped nearly 30%, dragging almost all other commodities with (note silver is worth almost half its highs a year ago!) including metals, grains, livestock, and virtually the entire CRB index full of commodities. About the only thing still worth more than it was at any time is fertilizer, and isn't it just a matter of time before the fertilizer bulls get their heads handed to them too?

Last month's USDA report was considered bearish, and markets rallied from it sharply. But the situation was so different last month than in September! First of all, corn prices had dropped nearly $3 into the report. Even though the report was negative (no one expected a 155 bu/acre report!), prices rallied after it because we had dropped too far, too fast and every informed trader was already short heading into the report. Virtually every other analyst (except Pro Ag) proclaimed 155 bu would be the largest estimate of the year - how could the crop turn around so quickly from the June disaster??? But turn around we did, as facts are indeed stubborn things. Pro Ag yield potential/estimates have risen from August to near 159 bu/acre, so we fully expect (as does Informa) that numbers will rise again from 155 bu/acre, forcing bulls to eat their bullish words since the August report. Indeed, if we get a late frost allowing ND, SD, IA, MN, and WI corn crops to mature (as is almost certainly going to be the case for soybeans), then we very well might have record large yields in these states. With corn prices up 30c or so yet from the August report, bulls are especially vulnerable in this report, especially since most believe USDA/fund buying will rescue them once again in September as they did in August.

But how can USDA deliver anything but a negative report in September??? They already dropped the soybean estimate in the August report (an ill conceived direction) while yield potential expanded, and now it appears to Pro Ag that USDA will now have to make large soybean yield hikes (1 bu/acre???) not only in the Sept report, but also likely in Oct. and Nov as well in order to get up to our current yield estimate of 43.35 bu/acre (a new record large yield). $10.50- $11 soybeans is beckoning to call, and it won't be a pleasant meeting for bulls! USDA could very well deliver the knockout punch to market bulls that they have been eluding since the Aug. 11 report. But as John Adams said centuries ago, facts are indeed stubborn things! And the fact is that the US corn and soybean crops are very good in 2008 - perhaps not record large (especially if a normal frost occurs), but good enough to add significantly to current carryout numbers. $4 corn and $10 beans may be waiting in the wings for market bottoms this fall. Pro Ag can turn bullish once these levels are hit, but today is certainly not the time to do so even with new recent lows in soybeans. Facts are indeed stubborn things which bulls (and bears) always must deal with. Once we deal with the 'facts' of a 159 bu corn crop and 43.3 bu/acre soybean crop, then perhaps the bulls can regain their upper hand but for now, the facts are in favor of the bears.

Obama Backs Ethanol Mandate

Democratic presidential nominee Barack Obama told farmers this week that he backs the federal requirement to use ethanol as a way to reduce reliance on oil imports.

The alternative fuel, distilled mostly from corn, is popular in farm country, particularly the U.S. Midwest. But sky-high grain prices and rising food prices have led to suggestions to relax the so-called renewable fuels standard.

Federal law calls for use of 9 billion gallons of ethanol as motor fuel this year.

A week ago, the Republican National Convention called for an end to ethanol mandates, in line with the views of its nominee, John McCain.

"I've long been a strong supporter of the RFS," Obama said during a brief telephone call to members of the National Farmers Union. "I am strongly committed to advancing biofuels as a key component of reducing our dependence on foreign oil."

Ukraine to barter wheat for Egyptian gas?

Egypt and Ukraine are currently negotiating to possibly barter wheat for natural gas, according to Egypt's state information agency.

Valeriy Grigorash, the head of the trade delegation attached to the Ukrainian embassy in Egypt, said plans call for Egyptian gas to be exported through Syria, Turkey and the Balkan Peninsula. At the same time, the government of Ukraine did not officially confirm this information.

Last week, Egypt bought 52,500 tonnes of Ukrainian wheat.

Dollar Rises to One-Year High Against Euro

The dollar rose to the highest level in a year against the euro Thursday on speculation that economic growth in Europe will be slower than in the U.S., prompting the region's central bank to lower interest rates.

The U.S. currency climbed for a second day as traders raised bets that the European Central Bank will cut borrowing costs before a government report tomorrow likely to show industrial production in the euro area shrank.

The U.S. currency climbed to $1.3895 per euro, the strongest since Sept. 18, 2007, before trading at $1.3929 as of 11:37 a.m. in London, from $1.3998 yesterday.

The pound fell against the dollar after Bank of England policy maker David Blanchflower said job losses will triple as the economy slows.

The British currency traded near a 2 1/2-year low against the dollar after Blanchflower said in testimony to lawmakers today unemployment in Europe's second-largest economy will rise to 60,000 a month, from its current level of 20,000.

The U.K. currency fell to $1.7489 as of 11:40 a.m. in London, the weakest since April 2006, from $1.7530 yesterday. Against the euro, the pound traded at 79.66 pence, from 79.88 pence yesterday.

Southern Australia To Get More Rain

Much needed rain will spread over southeastern Australia during the next few days, following previous widespread falls from late August.

The rain will develop on Sunday across inland NSW, Victoria and agricultural parts of SA, and persist on Monday before clearing on Tuesday. The heaviest falls will go to northeast and western Victoria and far southeast SA where over 30mm is possible. Other parts of southern Victoria and coastal SA can expect in excess of 15mm.

Strong winds will accompany the rain, particularly on Monday when widespread gales are possible, bringing damaging gust over 90 km/h.

The wet and windy weather will develop as a pair of strong cold fronts cross southeastern Australia, a pattern typical of early spring. The second front, due on Monday, should bring heavy alpine snow, enough to carry the ski season through to the October long weekend.

ProFarmer Peg Australian Wheat Output At 22.7MMT

ProFarmer Australia have reduced their Australian wheat production estimate. Output in 2008 may now be 22.7 million tons, down from an August estimate of 24.5 million tons, the Perth-based forecaster said today. That is still a significant increase on last year's drought-reduced crop of about 13 million tons.

CBOT Closing Comments

CORN

Corn futures closed lower Wednesday on speculative liquidation. Corn futures fell after little follow through support from Tuesday's late rally. No deliveries were posted against the September contract. Funds sold an estimated 4,000 contracts. Weather remains friendly to corn as it nears maturity; frost threats have been delayed from recent forecasts but there are mixed forecasts throughout the next 10-14 days. The US dollar Index firmed from yesterday's decline and pushed up next to 80 points, crude oil was also lower, both weighing in on prices. China is projecting record corn and soybean production adding pressure. Sep -7 at 5.22

SOYBEANS

Soybeans futures witnessed sharp declines Wednesday. Soybeans were unable to find any fresh news to lend support and gave away to continued fund liquidation. Funds were sellers of an estimated 3,000 bean contracts, 2,000 meal contracts, and 1,000 soybean oil contracts. 33 deliveries were posted against the September CBOT contract. Frost threats do have some traders on pins as beans may be more vulnerable than corn. Trade maybe looking to square up positions or seek further direction when USDA releases the monthly production estimates Friday. Sep Beans -27c at 11.81; Meal -4.4 at 336.80; BO -49 at 47.69

WHEAT

Wheat futures closed modestly lower after posting large losses. The wheat market has had little bullish fundamental news to help offset the recent collapse. Egypt passed the US up and bought 190,000 tonnes of Ukrainian, Russian, and French wheat. The bypass may be a result of the recent gains in the dollar. Funds sold 2,000 CBOT contracts. A total of 487 deliveries were posted against the CBOT Sep contract. Sep CHI -4c at 706; KC -8 at 7.46; MPLS -10 at 7.80

Agrenco Latest

As translated by the wonderful Babel Fish:

The investor of the Agrenco that to read the order of judicial recovery of the subsidiary Brazilians of the group will not understand what it was made of the money that delivered to the company, in 25 of October of the passed year, when the company listed action in the São Paulo Stock Exchange and got R$ 666 million. The document, that is opened to the public in the electronic address of the Commission of Movable Values (CVM), does not mention the occured capitalizaton in the last year - the greater already gotten by the company. The opening of process for Agrenco Brazil, Agrenco Services, Agrenco Administration and Agrenco Bioenergia was requested. The company suffers to difficulties since the start from this year and the situation if she aggravated after the arrest of the three controlling partners, in 20 of June, the Influenza Operation of Polícia Federal (PF). The executives, untied in July, are suspected of frauds, shunting line of resources of the company and fiscal tax evasion, among others. Since then, the company negociaumaporte of capital with six potentials interested in being with the operations. The negotiation process comes being lead for the bank of investments JP Morgan. The proper ones interested had asked for the recovery, with intention to protect the company of the creditors and, especially, the new resources that eventually they will invest in the company.

So that's cleared that lot up then.

Egyptian Wheat Tender Info

Egpyt have tendered for 55-60,000MT of wheat FOB.

Its interesting to note who tendered, and at what price, and from where:

US origin wheat was offered in a range of USD228-238 FOB.

French/German wheat was offered in a range of USD252.50-261 FOB.

Russian/Ukraine wheat was offered in a range of USD250-260 FOB.

Abu Dongol (who?) came in with the cheapest offers on US and Russian/Ukraine origin wheat. Their offer of Russian/Ukraine wheat was matched by Al Wehda United (I'm not making it up).

The cheapest offer on French wheat came from Invivo who offered 30,000MT at USD252.50. Cargill offered two parcels of French wheat 60,000MT and 40,000MT, both at USD253.

Abu Dongol 2, Al Wehda United 1 you might say?

Meanwhile here's the rest of the scores from the Egyptian Grain Tender Premier League:

Toepfer 0 Louis Dreyfus 0
Glencore 0 Soufflet 0
Bunge 0 Lecurer 0
Horus 0 Aston 0
Venus 0 Alexandria Grain 0

There is currently extra time being played in the match between Invivo and Cargill, but we'll bring you the final score as soon as we get it.

US Crude, Gas Stocks Fall

US Crude-oil and gasoline stocks dropped sharply for the second time last week while according to government data released Wednesday afternoon.

The drops were largely due to prolonged shutdowns after Hurricane Gustav barreled through the Gulf of Mexico, though most companies report their facilities experienced little damage.

Crude-oil inventories fell by 5.9 million barrels the Energy Department's Energy Information Administration said in its weekly report. Analysts had expected a drop of 3.9 million barrels.

Gasoline inventories slipped by 6.5 million barrels. Analysts expected stockpiles to fall by 4.7 million barrels.

Inventories of distillate fuel, which include diesel and heating oil, decreased by a less than anticipated 1.2 million barrels. Analysts had expected distillate stocks to slide by 2.3 million barrels.

At 4pm London time October crude was 52c lower at $102.70/barrel.

Lehman Bros: Too Big To Fail?

The fourth-largest investment bank in the US, Lehman Brothers, said Wednesday that it expected a loss of $3.9 billion in the third quarter after $5.6 billion in write-downs.

This follows on from the firms reported $2.8bn second quarter loss, its first negative quarterly result since its demerger from American Express.

Lehman's stock lost nearly half its value on Tuesday as investors feared it was running out of options to raise capital and shore up its ailing balance sheet.

The sub-prime mortgage market crisis that began unfolding more than a year ago has taken its toll on the bank's share price, which has steadily fallen from $82 in the summer of 2007 to below $8 today.

Now fears are growing that the bank will be unable to raise sufficient capital to ride out the storm, following the news that South Korea's state-run Korea Development Bank has walked away from negotiations to buy a stake in it.

The investment bank also said that it would spin off the majority of its remaining commercial real estate holdings into a new public company. And it confirmed plans to sell a majority of its investment management division in a move that it expects to generate $3 billion.

Lehman said Wednesday that it hoped to complete the spin-off of around $32 billion in commercial mortgage assets by early next year.

Analysts were immediately sceptical about how Lehman would assign assets to the new company. The planned spinoff reflected the poor state of the commercial mortgage markets, and that in the current market these were assets nobody wants to buy, they said.

Staff with Lehman have reason to fear for their jobs. The firm, which employs about 26,000 people, has already made more than 6,000 people redundant in the past 12 months.

USDA Crop Report Expectations

The following are pre-report trade expectations ahead of the September 12 USDA's Crop Production Report:

              Avg Est         Range         USDA Aug    USDA '07
Corn          12.152      11.855-12.406      12.288      13.074

Soybeans       2.950       2.818-3.035        2.973       2.585

Ukraine August Grain Exports At Record Pace

The Ukraine exported 2 mln tonnes of grain and oilseeds in August, compared to 1.7 mln tonnes in the previous month, which has set a new record for exports within the past eight seasons, according to IA APK-Inform.

The main exported crops were wheat - 875,900 tonnes (43% of all volume) and barley - 967,600 tonnes (48% of exports).

Thus, during the period of July and August 2008/09 MY, Ukraine exported 3.7 mln tonnes of grain, as opposed to 151,900 tonnes in the previous season.

eCBOT Close/Early Call

Overnight grains closed narrowly mixed on the eCBOT market with soybeans around 3c lower, corn 1-2c easier and wheat 2-4c higher.

Soybeans and corn fell as crude oil stayed under pressure despite OPEC announcing production cutbacks.

Wheat was slightly firmer in a rebound from recent losses as Egypt and Japan entered the tender market.

This afternoon's session could be a quiet one as many investors stay on the sidelines ahead of the U.S. Department of Agriculture's monthly report on Friday.

Early calls are: Corn futures are expected to open 1 to 2 lower; soybeans 1 to 3 lower; wheat 2 to 3 higher.

Ukraine Stitched Up Again, This Time With Contaminated Meat

The Belgian authorities are investigating a possible meat trafficking scandal between Western European countries and Ukraine, which has been going on since the beginning of 2008.

The authorities are suspecting that large quantities of surplus meat considered as “unfit for human consumption” were shipped to Ukraine with false export certificates claiming that the meat came from firms based in Germany, France, the Netherlands and Belgium.

The “unfit” meat was found to be transformed into hamburger patties and sausages for resale in the Western European market.

It is understood that some meat was seized from 32 freight train wagons near the Polish-Ukrainian border.

A Belgian inspection team has been working with the Ukrainian authorities since the last week of August.

Media reports from Belgium and France claim that 1,400 tons of “unfit” poultry meat were transformed and that four leading Western European meat producers originally shipped the produce into Ukraine.

Poor old Ukraine, bless. We encourage them to plant stacks of wheat and rapeseed which we subsequently don't want. Then, by way of kindness, we repay them by shipping them a load of contaminated meat. Cheers Ukraine.

Wheat: Here's Something That May Surprise You

What's the deal with wheat? It simply can't seem to buy a rally at the moment. From a chart perspective the trend is clearly bearish and any attempts at a rally should be sold. But where is a rally going to come from?

Lets take a closer look at the charts for the popular wheat contracts:

Australia ASX January, fallen from a high of A$392 on 21st Aug to a close of A$319/tonne this morning (losing 18.6% during this time). During that time the contract has closed higher in just one out of fifteen sessions.

US CBOT Sep, fallen from a high of $9.31/bushel on 21st Aug to a close of $7.11 1/2 last night (losing 23.5%). Closed higher two sessions out of the last thirteen

LIFFE Nov has declined from £128 on 21st Aug to a close of £111.75 last night (losing 12.7%). During this time its closed higher twice out of thirteen.

Paris Nov, down from EUR200.80/tonne on 21st Aug to last nights close of EUR168.75 (a loss of 16%), closing lower for fourteen sessions in a row.

Pedants will note that Australia has had one more session during this period as we already know their close for today. We and the US have had one less than Paris due to public holidays.

None of these markets has closed higher more than two sessions in a row during this time.

On the supply side the last major exporter to wrap up the northern hemisphere harvest is Russia.

Their crop is getting bigger by the day. Lets just say government estimates would appear to have been deliberately conservative. Their harvested crop is bigger now than official estimates as recently as a month ago for their entire production and they still have 30% to cut!

After that attention turns to the southern hemisphere.

In Argentina the primary growing state of Buenos Aires, which produces about 50% of their total, appears to be in good shape for now, but timely rains are a must even for them.

In Western Australia, which produces almost half total Oz production, conditions are average, certainly some moisture over the next few weeks would help the crop there enormously. In the East, Queensland, NSW and Victoria recent rains appear to have got the crop pretty much made.

Question marks over Australian & Argentine production will be more than comfortably matched by increased output from the Black Sea.

In the UK an abundance of low quality wheat may struggle to find too many export homes and prices must be low enough to attract feed compounder interest.

The most striking thing to me from the figures above, is that despite everything, UK wheat has actually fallen LESS during the last three weeks than wheat on any of the other futures markets.

Given that all the other contracts are milling wheats, and that the world is particularly awash with feed wheat that seems rather strange. Wheat sub-£100 anyone?

UK Wheat Harvest Struggles On In North East

The harvest struggles slowly on in the North East, especially Northumberland, North Yorkshire and Co Durham, where the heavy rainfall and flooding have meant that on many farms less than 50 per cent of the wheat has been harvested.

The situation is exacerbated by European Union machinery rules which ban farmers from using combine harvesters on wet land to protect soil quality.

Hilary Benn, the Rural Affairs Secretary, is now expected to allow special exemption for farmers to salvage what is left of their crops by using heavy machinery on the wet fields.

Mr Benn's exemption is expected to last for about three weeks.

Guy Gagen, chief arable adviser at the National Farmers' Union, said: "This is the most difficult harvest for at least 40 years. Farmers say it compares to 1968, which was very similar, with heavy rain throughout the summer. We just need a break in the weather. If we get that for five to seven days farmers can recover."

Simon Henderson, who farms 600 acres at Doddington, near Wooler, said the floods were "the worst seen in living memory." Mr Henderson said crops of potatoes, peas, carrots, wheat and barley were all under about 3ft of water.

BBC Video Nasty

China Expects Record Corn And Soybean Harvests

China is expected to have record corn and soybean harvests this year the China National Grain and Oils Information Centre (CNGOIC) said in its latest report.

Corn output is seen at 156 million tonnes, a rise of 2.75 percent from 2007, as
better weather improved yields it said.

The centre said that China, the world's largest soybean importer, was also expected to harvest a record 17.5 million tonnes of soybeans this year thanks to a larger acreage. This represents an increase of 36.7 percent from last year, it said.

Higher domestic output was seen to slow the growth of imports for next year, analysts said.

Irish Grain Farmers Accuse Merchants Of Price Fixing

Irish farmers have accused merchants of taking advantage of the atrocious harvest conditions in order to slash grain prices with levels as low as EUR130/t being offered for barley in the southeast.

The break-even figure for wheat and barley growers is estimated to be in the region of EUR155/t for the current harvest.

IFA grain committee chairman Colum McDonnell has claimed that merchants were acting in concert to undermine the market.

He said a number of key independent players in the sector had been working behind the scenes to persuade merchants to cut grain prices.

Presumably the IFA hasn't got access to the internet and isn't aware that London futures prices aren't £200/tonne anymore?

Or that the entire northern hemisphere is awash with feed grain?

Or are they just smarting that they held on when they should have sold, only to find lo & behold that they haven't got gold dust sitting in the barn, just high moisture feed wheat desperately in need of a dryer?

Don't you just love these boys, prices go to £200/tonne & they're still not happy!

Crude Rebounds As OPEC Cuts Production

Crude oil bounced higher this morning after hitting a five month low of $101.74 last night after a surprise decision by Opec to cut daily supplies by 520,000 barrels.

After a marathon meeting of the producers' cartel' which ended at 3am in Vienna, Chakib Khelil, president and Algerian's Energy Minister, said he did not expect the oil price to increase as a result of the cut to supplies.

Most analysts had expected no change in output.

It will be interesting to see if prices resume their downwards trend as the cartel is currently thought to be producing about 790,000 barrels per day (bpd) MORE than its official ceiling of 29.67 million bpd. A cut of 520,000 bpd would therefore merely bring Opec's output more in line with its official ceiling.

In light of the decision stocks data from the US due out later today will be scrutinised even more closely than normal.

At 9am London time October crude was $104.03/barrel.

Pound Near 2 1/2 Year Low, Economy Contracts

The pound traded near a 2 1/2-year low against the dollar as the National Institute for Economic and Social Research said the U.K. economy is contracting for the first time in at least a decade.

Gross domestic product in Europe's second-largest economy dropped 0.2 percent in the three months through August, and fell 0.1 percent in the quarter through July, the group, whose clients include the Bank of England and the U.K. Treasury, said today. The May-to-July estimate, revised today, was the first decline since Niesr began its measure in April 1996, it said.

Against the dollar, the pound traded at $1.7671 by 9:10 a.m. in London, from $1.7607 yesterday. It slipped to $1.7471 two days ago, the weakest since April 2006. The U.K. currency was at 80.16 pence per euro, from 80.27, after dropping to a record low of 81.88 on Sept. 4.

Australia Wheat Weather

Queensland, Victoria & NSW

Spring rains arrived early in north Queensland with some of the highest falls this early in the season in years.

Corsis and Daradgee near Innisfail had their heaviest rain this early in September in at least eight years by gaining 65mm and 58mm respectively in the 24 hours to nine o'clock this morning.

Further inland on the tablelands Atherton picked up 18mm, their highest daily September total in at least 14 years.

This recent rain was caused by moist southeasterly winds and cool air in the upper atmosphere. The cool air has moved out to sea causing rain to ease. Just a few showers are likely over the next day or so before clearing on the weekend.

September is normally a fairly dry month with Ingham averaging 39mm but so far this month more than 48mm has fallen. October is usually when the increased rainfall occurs. By December Ingham averages 197mm.

In NSW its been a cold start to spring with temperatures in the region 5-7 degrees below normal.

However, on Friday, a trough approaching from the west will force warm air from the interior across NSW, VIC and QLD, causing temperatures to reach up to 6 above average.

Western & Southern Australia

Over the past week a broad region of low pressure has been building over WA, the perfect trigger for convective storms and showers. Today, a front clipping southern WA has started to link up with the low pressure trough, moving it east into SA.

Moisture is also being drawn into the trough by mid and upper-level winds, allowing showers and thunder to develop. Most of this is falling over the SA central inland all the way to the southeast coasts.

Currently, only a maximum of 0.6mm of rain has been recorded anywhere in the state due to particularly dry surface winds. This trend is not expected to change much, with most places forecast to receive less than 1mm tomorrow.

Over the weekend, though, another, stronger trough is predicted to bring a little bit more of a wet relief.

Australian Wheat Crop Outlook Boosted by Rain

PrimeAg Australia Ltd., the farm owner that sold A$300 million ($241 million) in shares to buy properties in Australia last year, said recent rains boosted the outlook for its wheat crop.

The company's farms in Queensland and New South Wales states got between 20 millimeters (0.8 inch) and 70 millimeters of rain in the last week, Peter Corish, executive chairman, said Thursday in a statement.

PrimeAg planted 10,000 hectares (25,000 acres) of mostly wheat crops in May and June.

"The current wheat crop has been progressing to expectations, and we are finalizing our planning for what is now an increasingly promising wheat harvest," Corish said in the statement to the Australian stock exchange. "These rains will contribute substantially to realizing the full potential of these crops."

Benchmark Jan ASX wheat closed A$3 lower at A$318/tonne Thursday.

CBOT Closing Comments

CORN

Corn futures closed down slightly on Tuesday after posting losses near 20 cents in morning trade. Funds sold an estimated 4,000 contracts as they continue to depart from commodities. Threats of frost and lower dollar helped support corn. No contracts issued delivery against the September month. A frost within in the next 10 days is less likely, especially with more than adequate soil moisture. Sep -3c at 5.29/bushel.

SOY

Soybean futures had an extremely choppy day but closed higher. Soybeans opened down significantly but started to rally by midday and found enough buying interest to close higher. Funds bought an estimated 3,000 bean contracts, 2,000 meal contracts but sold 2,000 bean oil lots. Crude tumbled lower losing over $4/barrel to settle at $102, its lowest level since late March. Beans rallied on new forecasts for a potential frost as bean continue to lag behind last year's crop and also the five year average. Sep Beans +14c at 12.09; Meal +6.6 at 341.20; BO -35 at 48.18/lb.

WHEAT

Wheat futures closed lower as they were unable to rally back as hard like corn and soybeans. Funds sold an estimated 3,000 CBOT contracts. Trade will be eyeing the release of updates concerning Canada's crop estimates. Beneficial rains continue to fall in key growing areas in Australia as that crop is early reproductive states. EU prices fall to 14 month lows both are bearish to CBOT wheat futures. SRW basis still remains $2/bushel under the December contract. Japan bought 107,000 tonnes of US wheat helped limit some losses. Deliveries posted against the CBOT September contract totaled 540. Sep CHI -11c at 7.11; at KC -8c at 7.54; MPSL -13 at 7.90/bushel.

EU Wheat Falls To 14 Month Lows

EU wheat futures fell to 14-month lows Tuesday with Paris November milling wheat dropping to a low of EUR166.50/tonne before closing at EUR168.75/tonne.

London November feed wheat dropped GBP2.50 to end at GBP111.75/tonne.

A general sell-off in commodities contributed to the weaker tone traders said.

Feed wheat is particularly under pressure as there are more than ample supplies on the market from the Black Sea region and UK wheat quality continues to deteriorate.

In the UK rains continue to thwart the remaining wheat harvest with little or no progress was made over the past six days, with severe rain Friday and more rain Monday night, the NFU said. The rain is also delaying rapeseed plantings for next season's crop they said.

Paris-based November corn dropped EUR4.25 to end at EUR153.25/tonne. November rapeseed tumbled EUR8.25 to end at EUR364.25/tonne.

Paris Wheat Hits 14-Month Low; Rapeseed And Corn Near 24-Month Low

Paris milling wheat futures hit a 14-month low Tuesday amid a broad-based sell-off in commodities in general, traders said.

At 12.30BST, the benchmark November wheat contract was down EUR2.50 at EUR168.50/tonne after briefly hitting a low of EUR166.50 earlier.

Paris corn futures were sharply lower with new crop benchmark January down EUR3.50 at EUR155/tonne. The contract earlier hit a low of EUR153.50/tonne earlier, a level not paid in nearly two years.

Corn is under pressure as world wheat supplies, particularly feed wheat supplies, are growing by the day a trader said.

Euronext rapeseed futures were also sharply lower with November down EUR4.75 at 367.75/tonne after hitting a nearly 2-year low of 367.00 euros.

Sharply weaker US grains and a softer crude oil market overnight added to the bearish tone traders said.

CME Wheat Tinkering Just A Bit Of Window Dressing

The CME have, not surprisingly, "bottled it" big time in my opinion with their lightweight proposals to tinker with the CBOT wheat contract.

A bit of messing about with delivery points, storage rates and contract specifications is not going to help futures contracts converge with cash prices very much, if at all.

The loophole that allows non-commercials to take unlimited positions is still there. Plenty large enough to drive a bus through any time they like.

At the end of the day the CME want volume, pure and simple. The large spec funds provide it. More volume equals more revenue. What, swap market stability for record volumes? You must be mad! Why would they want to kill the golden goose when they can just have it resprayed?

eCBOT Close - Wheat hits one year low

eCBOT grains futures closed lower on the overnight session with beans ending around 25c lower, wheat down 15c and corn 10c lower.

Wheat hit a one year low as the dollar advanced, reducing demand for U.S. supplies, and as expectations of increased production weighed on prices.

Wheat declined as the dollar renewed its upwards momentum after the U.S. government took over Fannie Mae and Freddie Mac, boosting confidence in the world's largest economy. Corn and soybeans also fell as oil's decline eroded the appeal for the crops as alternative fuel.

U.S. wheat inspected for export fell 31 percent to 21.4 million bushels in the week ended Sept. 4 from a week earlier, the U.S. Department of Agriculture said yesterday.

Meanwhile global stockpiles will increase 18 percent to 136.2 million tons in the current marketing year, the USDA said recently.

The dollar traded at $1.4158 against the euro at 12:20 p.m. in London after touching $1.4047, the strongest since Oct 2007. Crude oil for October delivery fell as much as 1.5 percent to $104.77 a barrel and last traded at $105.23.

Early calls for this afternoon's CBOT session: Corn futures are expected to open 8 to 10 lower; soybeans 22 to 25 lower; wheat 10 to 15 lower.

London Wheat Is Falling Down

Just like London Bridge in the children's nursery rhyme London wheat keeps falling down, falling down. Unlike in the rhyme building it up with penny loaves isn't an option.

From a high of £165 at the end of February benchmark November feed wheat has fallen £52/tonne to £113/tonne today (currently down £1.25 from last night's close).

Global production numbers keep getting bigger with the French yesterday becoming the latest to increase their output estimates, citing a soft wheat crop 20% up on 2007.

And as the rain keeps falling in the UK, frustrating farmers with crops still left deteriorating in the field, it looks highly likely that what is left is only going to be feed grade.

Although we are well priced relative to French wheat, they have the quality that we don't.

With large portions of the wheat harvest also only fit for feed in competing export countries like the Ukraine and Russia it seems like feed wheat prices must fall further still.

The Ukraine have recently harvested a wheat crop of around 27mmt, 89% or 24.5mmt of it feed grade, thats an incredible three times the amount of feed wheat they produced in 2007.

Russia has harvested nearly 52mmt of wheat so far with 30% of the crop still to be cut, that potentially gives them a wheat crop of 74mmt this year, that would be 24mmt up on 2007. There are no official figures on what proportion of this years Russian crop is only feed grade but the percentage is said to be "higher than normal."

Deputy Agriculture Minister Andrey Slepnyov said in Moscow Tuesday they were monitoring grain exports and may impose limits on milling wheat exports as "there wasn't all that much milling wheat on the domestic market."

Clearly there isn't going to be a problem supplying any amount of feed wheat.

With a domestic feed requirement of just 14mmt the only problem the Russians have got is the logistics of shipping their huge surplus.

So, in the absence of any large export orders kicking around, it looks like UK wheat needs to price itself into compounders rations at significantly higher volumes.

Meanwhile milling wheats will continue to command hefty premiums over feed grade, penny loaves, forget 'em.

Crude weakens on Saudi comments, Ike

Crude weakened mid-morning Tuesday as Saudi Arabia's oil minister said supplies are sufficient to meet demand, raising speculation that OPEC will maintain production levels when it meets today.

Oil also declined as Hurricane Ike weakened to Category 1. Ike was moving to the west-northwest across southern Cuba at 13 mph and is forecast to enter the southeastern Gulf late tonight.

The oil market is "well balanced" and inventories are "healthy," Saudi Arabian Oil Minister Ali Al-Naimi said in Vienna when he arrived for today's meeting.

Whether the likes of Venezuela, Iran, Nigeria & Angola see things quite the same way as the Saudis remains to be seen.

At 10.40am October crude was $1.41 lower at $141.93/barrel.

French Grain Crop Revised Up 16.6% On Year

The French 08/09 grain crop is now seen 16.6% higher than 07/08 at 69.3MMT according to the French Ministry. This is up 400,000MT on it's last estimate made in July.

Soft wheat production is seen up more than 20% on 07/08 to 37.1MMT and its barley crop up 27% to 12MMT.

The 2008/09 corn crop is seen at 14.85MMT, up 2.2% on 07/08.

Russian Grain Harvest Latest - Official Sums Don't Add Up

As of September 8, Russia had harvested grain and legumes on 33 mln ha (71.3% of sowed areas) and the crop totaled 89 mln tonnes, an increase 21.3 mln tonnes compared to the same date of the previous year. The yield totaled 26.9 c/ha, up 4.8 c/ha compared to 2007, according to the Ministry of Agriculture of Russia.

18.7 mln ha of wheat have been harvested (70% of sowed areas) with the yield of 27.8 c/ha, up 3.6 c/ha compared to the previous year. The crop totaled 51.8 mln tonnes, an increase 11.1 mln tonnes compared to 2007. 7.8 mln ha of barley have been harvested (80.8% of sowed areas) with a yield of 27.2 c/ha, up 6.9 c/ha compared to 2007.

The official estimate of a total grain crop of 95mmt again has to look highly questionable with output standing at 89mmt off just 71.3% of planted area. If you do the sums 100% of planted area gives us an output of more like 125mmt.

Russian wheat production in 2007 was 49.4mmt according to the USDA, they've topped that already with 30% of the crop still to go at.

Overnight Grains Lower

The overnight eCBOT market is lower this morning on a resurgent dollar and lower crude oil markets.

Oil fell below USD105 in overnight trade on a belief that OPEC will not resolve to cut production in the wake of falling prices at its meeting in Vienna starting today.

The US bailout of troubled mortgage companies Fannie & Freddie is seen as beneficial to the US economy so the dollar has regained its upward momentum and is at $1.7588 against the pound.

The USDA left corn & soybean crop conditions unchanged in the good/excellent category overnight at 61% for corn and 57% for soybeans.

The US spring wheat harvest was 87% complete, down from 97% complete in 2007 and the 90% average.

At 8.50am London time eCBOT corn was 11-12c lower, with soybeans down 18-22c and wheat 10-18c lower.

October crude was 52c lower at $105.82/barrel.

UK Home Sales Slump To Lowest In 30 Years

The slump in the UK property market continued in August, with some estate agents selling fewer than one home per week in the past three months.

The Royal Institution of Chartered Surveyors (Rics) said sales were at their lowest level since its monthly survey started in 1978.

It said prices picked up slightly for the fourth month in a row, but were still sharply down on a year ago.

Rics said the continued shortage of mortgage funds was "stifling" buyers.

Australian Wheat Futures Close Lower Tuesday

Australian wheat futures extended their slide Tuesday with benchmark ASX Jan closing A$3 lower at A$322/tonne.

Futures were pressured lower by a weaker overnight close on CBOT wheat and an outlook for rain later in the week across Southern Australia.

A lack of export business and a large global crop replenishing stocks also added to the bearish tone.

A weaker A$ vs the USD was mildly supportive.

Oil Falls Below USD105

Crude fell below USD105 in overnight trade Tuesday morning resuming a near two-week slide as a resurgent U.S. dollar drove investors away from commodities and OPEC appeared set to sit tight on production policy.

Concerns over Hurricane Ike strengthening in the oil-rich Gulf of Mexico were countered by the greenback's surge to a one-year peak against a basket of currencies after the U.S. government's takeover of troubled mortgage financiers.

October crude fell as low as USD104.77/barrel and was at USD105.43 at 8am London time.

Meanwhile Texas oil tycoon T. Boone Pickens said on Monday he continued to believe that crude prices will not fall below $100 a barrel despite falling gasoline demand.

"I think it will hold there. If it does go below, it won't be for very long," Pickens said on the sidelines of a conference in Kansas City, where he was promoting a plan to use domestic natural gas resources to reduce dependence on foreign oil.

Pickens said he expected no moves by OPEC to limit production. The 13-member Organization of the Petroleum Exporting Countries (OPEC) is due to meet Tuesday and analysts were predicting that the group would hold its production ceiling steady.

CBOT Closing Comments

CORN

Corn futures closed slightly higher Monday. The dollar soared and is typically bearish to commodities but corn was supported by frost threats for late next week. Corn had several bearish news items to push it lower, increase in the dollar, no big gains in crude oil contracts, and lowers than expected export inspections for last week but elected not to. Traders may be waiting for USDA?s production report on Friday to be more active to give corn further direction. Corn condition ratings were left unchanged from last week in the good/excellent at 61%. Sep +1c at 5.33

SOYBEANS

Soybean futures closed modestly higher considering the 70 cent limits. Frost threats may be more bullish for beans rather than corn. Funds bought an estimated 3,000 bean contracts, 1,000 meal, and 2,000 bean oil contracts. USDA left beans unchanged from last week in the good/excellent rating of 57% with large declines in Ohio. Export inspections by USDA for last week were well below estimates of 6-11 million bushels at 1.407 million bushels. Very light delivers against the nearby contract was also supportive. Sep +14c at 11.94; Meal -6.4 334.60; BO +35 at 48.53

WHEAT

Wheat futures closed mixed with CBOT and KC posting losses and MPLS unchanged in the nearby contract. Funds sold an estimated 2,000 CBOT contracts as large global production continues to weigh in on prices. Export inspections last week totaled 21.407 million bushels and were inside of trade guess. Iraq continues to be a visible wheat buyer, issuing for another tender of 50,000 tonnes. Australia received beneficial rains over the weekend aiding that crop. Romania harvested their largest crop in 4 years of 7.75 million tonnes. Recent rains throughout much of the plains are beneficial for planted winter wheat. Sep CHI -7 at 7.22; KC -10 at 7.62; MPLS UNCH 8.03

EU Grain/Rapeseed Futures Mixed

EU wheat futures are mixed in a quiet start to the week Monday with London-based Nov feed wheat £0.60 higher at £114.60/tonne and Paris-based Nov milling wheat EUR1 lower at EUR171.50/tonne.

London wheat is a little firmer after another major rain event hit the British Isles across the weekend with around 25-30% of the wheat crop still in the ground, mostly in the far west and north-east.

Nov Paris rapeseed is EUR3.25 lower at EUR372.50/tonne and Nov Paris corn unchanged at EUR156/tonne.

eCBOT Close/Early Call

eCBOT grains closed mostly higher, but well off session highs set earlier in the morning after Hurricane Ike was downgraded from a Cat 3 to a Cat 2 Hurricane as it roared across Cuba.

Crude oil is around a dollar or so above Friday's five month low close of $106.23/barrel.

Wheat closed 1-3c higher on the overnight market, with corn around 3c firmer and soybeans 4-6c steadier.

A slightly weaker dollar also contributed to the firmer tone in overnight trade.

With the wheat harvest in Europe largely completed (with one or two notable exceptions!) attention is now focusing on southern hemisphere crops.

The jury is still out on the eventual size of the Australian crop with most estimates now ranging in the 20-24mmt area.

Private consultancy Australian Crop Forecasters will release its latest forecast of the Australian wheat crop on Wednesday. The estimate is likely to be revised modestly downwards from the firm's last forecast of 24.06 million tonnes, made in early August analysts say.

Some early harvesting has began in the north-eastern state of Queensland.

Argentina’s wheat crop is suffering through dry weather and in some places, cold weather damage.

Earliest calls for this afternoon's CBOT session: Corn futures are expected to open 1 to 3 higher; soybeans 3 to 7 higher; wheat 1 to 3 higher.

Ukraine to harvest 5.6-5.7 mln tonnes of sunflower in 2008 - Ag Ministry

The Ministry of Agricultural Policy of the Ukraine forecasts the recently begun 2008 sunflower harvest will reach 5.6-5.7 mln tonnes as opposed to nearly 4.2 mln tonnes last year.

In 2007, the sun seed crop totaled almost 4.2 mln tonnes, down 21.6% compared to 2006, according to the State Statistics Committee.

As of September 1, Ukraine had harvested sunflower throughout 69.700 ha, the crop totaled 89,300 tonnes with an average yield of 12.8 c/ha.

Pound's Rally Very Short-Lived

The pound staged one of the shortest rallies in history this morning, at on stage rising more than 4 cents from Thursday's 2 1/2 year low against the dollar of $1.7515 to $1.7973 as the dollar weakened in the aftermath of the Fannie & Freddie takeover.

However by mid-morning news that UK factory gate prices fell at their sharpest monthly rate in at least 22 years in August and raw material costs also dropped more than expected had soon taken the shine off sterling which stood at $1.7647 at 10.36am BST.

Ike Downgraded...For Now

Hurricane Ike weakened into a Category 2 storm on Monday after roaring ashore in northeastern Cuba the U.S. National Hurricane Center said.

Forecasters have said Ike could weaken to a Category 1 storm over Cuba but don't get carried away just yet....

It could then regain Category 3 strength once its back out to sea disrupting US oil and gas production facilities in the Gulf of Mexico.

Oct crude is up $1.43 at $107.66/barrel at 10.15 London time.

Associated British Foods - Pre Close Period Trading Update

Associated British Foods plc has issued a trading update prior to entering its close period for its full year results to 13 September 2008, which are scheduled to be announced on 4 November 2008.

Primark accounts for about a third of the group's profits and has 181 stores in Britain, Ireland and Spain. It has managed to lift sales in the last six months despite the deepening slowdown on the UK high street as UK shoppers bargain-hunt.

Shares in the company rose 10p to £8 in early trading.

Other salient points....

"In our interim management statement issued on 10 July 2008 we reported that trading for the group since the half year had been in line with our expectations. This has continued to be the case. Progress in adjusted earnings per share is expected for the full year. Good growth in adjusted operating profit driven by Primark, Grocery and Agriculture will more than offset the previously highlighted decline in profit from our EU sugar operations and the higher interest charge which is a consequence of higher average net debt for the group.

"The income statement will include the following pre-tax exceptional items. The full permanent renunciation of sugar quota for the UK and Poland, agreed with the European Commission as part of the final phase of the EU regime reform, was 206,000 tonnes. Compensation receivable, net of the write-off of the unamortised cost of quota purchased in 2006 and factory closure costs, will be a gain of £23m. The proposed rationalisation of our Australian meat operations was announced in July and will require a charge of some £70m. The tax effect of these items will be treated as exceptional and, following a change of tax law in the UK Finance Act 2008 which will phase out Industrial Buildings Allowances, a further exceptional tax charge, currently estimated at £17m, will be made to reflect the consequential increase in deferred tax.

"Expenditure on acquisitions in the year will amount to some £225m primarily comprising the Italian and German yeast businesses of Gilde Bakery Ingredients for AB Mauri, beet sugar factories in north east China and KR Castlemaine in Australia. Proceeds from the disposal of our former German yeast business and the UK emulsifier business amounted to £54m.

"Net debt for the group at the year end will be substantially higher than last year. This will reflect the continued significant level of capital investment to develop opportunities in our existing businesses, many of which are of a long-term nature, the acquisition of new businesses and the impact of much higher commodity prices on working capital.

Sugar & Agriculture

"As expected Sugar profit will be substantially lower than last year. This is primarily the consequence of reform of the EU sugar regime but also reflects depressed sugar prices in China as a result of a record crop. Illovo has continued to trade well with an expectation of higher volumes and the benefit of higher domestic and world sugar prices.

"The European Commission has confirmed that it has virtually achieved its target for reduction in EU sugar production for the marketing year starting October 2008. The final reform changes to sugar reference price, levies, beet prices and access for Least Developed Countries will become effective in October 2009 and have already been announced. The challenge for the industry looking forward is the recovery of high input costs including energy and beet.

"Progress is being made in the development of the beet business in north east China and the expansion projects in Illovo.

"Agriculture continued the excellent performance delivered in the first half. UK animal feeds performed well and Frontier’s strong position in grain trading and increased demand for farm inputs drove further sales growth."

Fannie and Freddie: Is The Patient Gonna Die Anyway?

Have the US Treasury rescued Fannie & Freddie or provided a short-term fix that effectively passes the buck onto the next President?

There seems to be plenty of people around this morning that appear to think the latter.

Fannie fell 59 percent and Freddie dropped 56 percent in early European trading today. Fannie dropped $4.06 to $2.98 at 9:56 a.m. in Frankfurt and Freddie slumped $2.86 to $2.24, shares in both companies were over $65 less than a year ago, meaning share values in both have fallen around 96% in less than twelve months.

"The new Congress and the next administration must decide what role government in general, and these entities in particular, should play in the housing market," Treasury Secretary Henry Paulson said yesterday in Washington. There is a consensus now that "they cannot continue in their current form," he added.

"It's a good half a plan, but its still just half a plan," said Joseph Mason, a finance professor at Louisiana State University, who cautioned that the government needed to outline its longer-range plan for the two companies and the credit markets to restore greater confidence to markets.

Australian Wheat Lower Monday

Australian wheat futures closed lower Monday with most active ASX January A$4 lower at A$325/tonne.

A sharply weaker CBOT close set the bearish tone which was added to by a weaker USD and rain in Southern Australia.

A deep trough brought welcome spring rain to South Australian farmers Saturday.

Falls of three to five millimetres were recorded across most districts in the 24hrs to 9am, with the top fall recorded six millimetres at Streaky bay in the West Agricultural District. In North Agricultural four millimetres was recorded at Two Wells which is their heaviest September fall for two years.

Heavier falls were recorded across the state today with Minlaton on the Yorke Peninsula receiving 21 millimetres, their heaviest fall in ten months. Rosedale recorded the next heaviest fall, receiving 11 millimetres in the six hours to 3pm.

Wind and showers will increase over southeastern Australia later this week as a series of intense fronts approaches the region, according to weatherzone.com.au

An active area of cold air in the upper atmosphere, known as a long wave trough, is moving towards the Great Australian Bight from the west. This will result in strengthened cold fronts and low pressure systems over the Australian longitudes for the next fortnight.

The unsettled weather will begin across South Australia on Wednesday, where a trough of low pressure will trigger patchy rain and isolated storms. This instability will then spread to NSW and Victoria later in the week, bringing falls of up to 10mm in some areas. The first storms of the season are likely in many areas.

Overnight grains

The overnight grains markets are firmer across the board in early trade Monday morning as the dollars rise falters and crude rises from a five month low Friday.

The dollar is down as investors weigh up the implications for the US economy of the weekend government bailout of mortgage lenders Fannie Mae and Freddie Mac.

Meanwhile crude is firmer as Hurricane Ike threatens US production platforms in the Gulf of Mexico, keeping around 80% of output there shut down.

Both factors are seen as supportive to grains and corn is up around 7-10c this morning, with soybeans around 16-17c higher and wheat up 10-12c.

Crude Rises On Ike, Fannie, Freddie

Crude oil is up from Friday's close at five month lows this morning as Hurricane ike delays some production from restarting in the Gulf of Mexico.

Prices also rose after the U.S. government seized Fannie Mae and Freddie Mac, backers of almost half the nation's home loans, slowing a rally in the dollar.

Crude oil for October delivery rose as much as $2.89, or 2.7 percent, to $109.12 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $107.8 at 08:17 a.m. in London.

Hurricane Gustav shut down almost all the US oil and gas output in the Gulf of Mexico and about 80 percent of US oil output and 70 percent of the gas remained shut Sunday with producers deciding not to re-open too hastily as Ike threatens to enter the area later in the week.

The Category 3 hurricane is projected to move west across Cuba and into the Gulf during the next two days on a path that may take it toward eastern Texas.

The dollar faltered from its recent rise as investors struggled to decide whether they are worried or relieved by the U.S. rescue of Freddie Mac and Fannie Mae.

The uncertainty in the market comes at just the right time for many OPEC members meeting in Vienna this week. In the current climate just the threat of cutbacks in production may be enough to bolster the falling oil price, at least for the time being.