Soros sounds alarm on oil ‘bubble’
FT -- Billionaire investor George Soros is to tell US lawmakers on Tuesday that “a bubble in the making” is under way in oil and other commodities and that commodity indices are not a legitimate asset class for institutional investors.
He is expected to tell a congressional committee that rising oil prices are the result of a number of fundamental changes and factors in the market, but that the relatively recent ability of investment institutions to invest in the futures market through index funds is exaggerating price rises and creating an oil market bubble.
“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance which led to the stock market crash of 1987,” Mr Soros will tell the Senate commerce committee, according to a draft text seen by the Financial Times.
“In both cases, the institutions are piling in on one side of the market and they have sufficient weight to unbalance it. If the trend were reversed and the institutions as a group headed for the exit as they did in 1987 there would be a crash.”
Overnight developments in the grains market
Corn futures are around 2c lower this morning after the USDA's planting progress & crop development report failed to throw up any shocks. The figure of 63% of the crop rated good/excellent was within to slightly above expectations with estimates ranging from 55% to 65%. Planting progress was seen at 95% complete.
Wheat is 4-5c easier, with the US crop generally regarded to be in good shape and harvesting about to start in Europe.
Beans are 4-5c firmer, having been 10c down earlier in the session. Emergence was a little low at 32% and the on-going Argentine farmers strike is adding short-term support. With corn only managing 95% complete however that would suggest that at this late stage much of that remaining 5% may well go into beans.
Trade in the grain market was partly subdued yesterday following a government investigation of U.S. futures trading, which may encourage some investors and speculators to reduce bets on rising commodities, and this week's meeting of world leaders on food security.
The World Food Security summit started today in Rome to address surging food costs, attracting about 35 government leaders, including Brazilian President Luiz Inacio Lula da Silva and French President Nicolas Sarkozy.
The Commodity Futures Trading Commission said May 29 it was investigating oil prices, which have almost doubled in the past year. The agency is also probing erratic cotton futures trading. Hedge funds and other large speculators cut net-long positions by 2.2 percent in Chicago corn futures in the week ended May 27, while soybean net longs fell 1.7 percent.
Crude is little changed at $127.20 and the pound also shows little change at $1.9670.
B&B: Broke & Borrowing?
(Times Online) -- Three weeks ago Rod Kent felt able to breathe a cautious sigh of relief. The chairman of Bradford & Bingley had secured the signatures of UBS and Citigroup on the underwriting of a £300million rights issue.
His denial a month earlier, ruling out just such a capital-raising, was embarrassing, of course, but at least now he had placed the bank on a firmer footing. Whatever happened, B&B would get its money, beef up its balance sheet and keep increasingly nervous banking supervisors at bay. The reputation of Mr Kent, who led the investment bank Close Brothers for 25 years, was still just about intact.
The relief was not to last, however. The board - and the underwriters UBS and Citigroup - had made the terrible mistake of basing their decisions on six-week-old management accounts, going only to the end of March. Only last week did they see the April numbers. The figures made grim reading, with the numbers of borrowers three months or more in arrears soaring to 8,333, and £1.1 billion of loans under threat. The net interest margin was narrowing, too, and there was the little matter of a £15 million mortgage fraud. To cap it all, Steve Crawshaw, the chief executive of six years, was stricken by a serious heart problem.
Meanwhile, the B&B share price had been falling day after day.
Full story here
USDA crop progress/condition report highlights
The USDA said Monday night that 95% of the corn crop was now in the ground as of Sunday. Up 7 points from last week's 88% and in line with expectations.
Corn is 74% emerged, well up on last week's 52% but down on 92% a year ago and 89% on the five year average.
The USDA say that 63% of the crop is rated in good/excellent condition, bang on expectations of 60-65% and well below last year's 78% figure.
Beans are pegged at 69% planted, slightly lower than the 70-75% range anticipated by the trade, and well down on 86% a year ago and 81% on average.
Beans emerged are 32%, half of this time a year ago.
Winter wheat crop condition is 47% good/excellent, unchanged on last week.
The report pretty much confirms opinion that this years crops are late into the ground, but will the trade view this as old news that is already factored into the market? We shall know in the morning.
Early call on Chicago
Corn futures are expected to open mostly unchanged to 1 lower; soybeans 3 to 7 lower; wheat 5 to 6 higher. Wheat traded a bit higher overnight on new export demand from the Middle East. Corn and soybeans were lower on weather considerations.
You can't drink oil and you can't eat gold
Though state coffers bulge in Saudi Arabia, Abu Dhabi, Qatar, and other countries in the region after to months of sky-high oil prices, soaring food prices have made many people there poorer than a year ago.
These desert nations have been hit especially hard because they have to import more than 80 per cent of the food needed for their rapidly growing populations.
To brake the runaway inflation that is fuelled by high food costs, Gulf rulers have a new strategy: They are buying unused agricultural land in poor countries like Pakistan, Thailand, and Sudan, and becoming large-scale farmers.
In mid-May, Bahrain's minister of industry and commerce, Hassan Fakhro, travelled to Thailand for talks on setting up a plantation there to grow Jasmine rice as an alternative to Basmati rice, which is very popular in Bahrain.
The Dubai-based private equity firm Abraaj Capital aims to work with the government of the United Arab Emirates (UAE) in buying up large tracts of land in Pakistan for the creation of major agribusinesses.
With the state acting as both food producer and trader, the UAE hopes to help lower food prices by eliminating profits by middlemen.
Saudi Arabia and the rich Gulf emirate of Qatar are the countries most interested in Sudan's fertile soil, much of which is unused or used unproductively.
Egypt, with less capital to invest but traditionally having close ties to Khartoum, has already staked a claim in northern Sudan. Cairo has struck a deal with the Sudanese government under President Omar al-Bashir to grow two million acres of wheat annually near Wadi Halfa, not far from the Egyptian border.
The agreement will save Egypt the expense of having to buy wheat overseas, for which it spends a large amount of its foreign-exchange earnings every year.
Big wet spreads to northern NSW
The big inundation that has brought flash flooding to South-East Queensland and good falls to the State's west, has now spread into northern NSW.
A severe weather warning for flash flooding has been issued by the Bureau of Meteorology for the NSW Northern Rivers, Mid North Coast and Northern Tablelands.
The rain has come from a low pressure trough just to the north of Brisbane, which has generated some heavy rainfall this morning.
Since 9am the north coast agricultural areas have received good falls, with Casino recording 15mm and Lismore 17mm, while further west Moree has received 20mm, Mungindi 18mm and Collarenabri 19mm.
According to the Bureau the low will drift southwards and increasingly affect the north east of NSW on Tuesday, with areas of heavy rain expected.
A further southwards movement on Wednesday will see the band of heavy rain ease from the north and shift into central parts with further heavy falls, though there might be a slight overall easing trend.
Whilst the rain will be heaviest along the coast, the Bureau says some locally good rains are likely to extend westwards onto the ranges and adjacent slopes, with lighter falls further west.
The cloud feature approaching the Bight represents another upper level feature that is likely to reinforce the weather pattern later in the week maintaining the rainfall potential, at least over eastern parts, through into the weekend.
Overnight developments in the grains markets
Beans are around 10c lower this morning, dragged down by soyoil which is 30-50 points lower on weaker crude. The CFTC's investigation into speculative manipulation in the crude markets, has also spread to cotton (see Saturday's post on this blog).
This could bring further spec liquidation in crude this week pressuring soy & corn. In addition ideas that the CFTC may intorduce some new rules governing spec "investments" across a broad range of commodities including grains may also cap gains until the waters have cleared.
Corn is a couple of cents lower and wheat around unchanged. As well as planting progress, the USDA will issue it's first crop condition report of the season after the close tonight. Trade ideas are that corn good/excellent will be nowhere near the 70% average for this early in the season.
Crude is $126.95/barrel and the pound is down to $1.96 with the Bradford & Bingley woes rekindling concerns over the health of the housing and financial sectors.
