Crude Closes At Five Month Low Friday
Crude oil for October delivery fell $1.66 to settle at $106.23 a barrel Friday, the lowest close since April 4. Oil has now dropped for six straight days, the longest stretch since April 30, 2007.
Dollar strength and rising US unemployment numbers were to blame traders say.
OPEC meet in Vienna on Sept 9th to discuss possible reductions in output in an effort to shore up prices threatening to break through $100/barrel.
Meanwhile Hurricane Hanna has posed no threat to US operations in the Gulf of Mexico, all eyes now turn to Cat 3 Hurricane Ike which may enter the region midweek.
Another US Bank Collapses Friday
The Silver State Bank of Henderson, Nevada was closed by US regulators Friday, the 11th US bank to collapse this year amid a surge in soured real-estate loans stemming from the worst housing slump since the Depression.
Silver State, with $2 billion in assets and $1.7 billion in deposits, was shut by the Nevada Financial Institutions Division and the Federal Deposit Insurance Corp., the FDIC said Friday.
Shares in Silver State have fallen 97% in the last year.
Fannie and Freddie Bailout
In a move not dissimilar to a Premier League manager getting a vote of confidence from the board days before getting the sack, reports emerged late Friday that the US government WILL put troubled mortgage lenders Fannie Mae and Freddie Mac under federal control.
Fannie & Freddie own or guarantee almost half of the country's $12 trillion in outstanding home mortgage debt.
At $5.2 trillion in mortgage securities, even a mere 1% loss from foreclosures wipes $50 billion off the bottom line for Fannie & Freddie.
The CEO's of both companies were told Friday that they and their boards would be replaced and shareholders value diluted, but the companies would be able to continue functioning with the government standing behind their debt, according to the New York Times.
Shares in both companies dropped in after-hours trading late Friday with Fannie shares falling 16.9 percent to $5.85, whilst Freddie's shares fell 7 percent to $4.74.
Shares in both companies traded at over $65 a year ago.
CME Proposes Changes To CBOT Wheat Contract
In a half-hearted sop to appease traders and farmers upset about the recent lack of convergence between CBOT wheat futures and cash wheat the CME announced Friday that it was proposing to change the terms of the CBOT wheat contract.
CME, parent of the CBOT, has proposed to industry regulator the Commodity Futures Trading Commission that storage rates be increased. It also seeks to add delivery points and lower the amount of vomitoxin in delivered supplies so that futures and cash prices come together, or converge at futures expiration it said.
The price difference between the futures and cash markets has now widened to more than $2 a bushel at some U.S. Midwest locations. That spread has historically been much smaller.
Many grain traders had hoped for the exchange to impose "forced load-out," compelling buyers or "longs" of futures contracts to take physical delivery. Those ideas continue to be floated, along with options to downsize the enormous influence of Wall Street investment money.
Traders note that "passive" investors such as commodity index funds, which typically buy and hold futures, currently hold a net long, or bought, position in CBOT wheat futures representing nearly 50 percent of the open interest in the contract.
The exchange is recommending storage rates be increased to 8 cents per bushel per month from 5 cents for the NEXT July-November period, ie July 2009 onwards.
CME is also proposing expanding delivery points to include Midwest rail and barge terminals. Current delivery points are Toledo, Ohio, Chicago-area terminals and St. Louis.
Additionally, the CME proposed lowering the maximum allowable vomitoxin in soft red winter wheat delivered against the contract to 2 parts per million, from 3 ppm, starting with the September 2011 contract.
The spec funds will be quaking in their boots won't they?
Informa And Allendale Released Markedly Different Production Forecasts
An exceptionally wet start to the growing season followed by largely ideal weather conditions ever since still has the trade scratching its head over final corn & soybean output in the US.
This was highlighted Friday with the release of two very different production estimates from highly regarded firms Informa and Allendale.
Consulting firm Informa Economics forecast the U.S. corn crop this year at 12.406 billion bushels, and soy production at 3.035 billion bushels.
Commodities brokerage and research firm Allendale Inc forecast U.S. corn production this year at 12.090 billion bushels and soybeans at 2.818 billion bushels.
Allendale's annual survey of farmers in 20 states conducted August 15 to 29 this year was lower than Informa's corn estimate by 316 million bushels, and 217 million less for soybeans.
In August, the U.S. Agriculture Department forecast corn production at 12.288 billion bushels and the soybean crop at 2.973 billion. USDA will update its estimate on September 12.
CBOT Closing Comments
CORN
Corn futures closed sharply lower Friday. Commodity prices had a mostly down week as nearby corn futures lost 36 cents since last week. Funds weighed in on prices as they were sellers of an estimated 8,000 contracts. Funds are still liquidating and open interest fell nearly 4,500 contracts on Thursday. Weather remains bearish, rains help finish most crop plants and frost threats are not in the forecast for the next week, both pushed prices lower. USDA released export sales early this morning: 200,200 tonnes for 07/08 and 389,400 for 08/09. 251 deliveries were issued against the September contract. Informa pegged this years crop at 12.406 billion bushels compared to the USDA's August number of 12.288 billion. Sep closed -17c at 5.31/bushel.
SOYBEANS
Soybean futures closed down sharply on spillover selling pressure from other grains and outside markets. Soybeans were off for the week as well, losing $1.56 in nearby September since last Friday. Funds were heavy sellers Friday selling an estimated 8,00-9,000 contracts of beans. Rains in most Corn Belt regions benefited pod filling and is weighing in on prices. South Korea bought 110,000 tonnes for 08/09 delivery. Informa pegged 2008 total production 3.035 billion bushels compared to the USDA's August number of 2.973 billion. Fundamentals may not be trading too much in commodities as large index funds are packing up and taking money off the table. Sep beans closed -54 at 11.80; Meal -14.40 at 341.00; Oil -135 at 48.18c/lb.
WHEAT
Wheat futures lost over 25 cents in nearby September contracts at CBOT, KCBOT, and MGEX. Long Liquidation and technical selling was responsible for the collapse in wheat Friday. Funds sold an estimated 4,000 contracts in CHI. CBOT wheat has extremely wide basis for the last couple of months. Carry in the market has allowed traders to continuously roll contracts holding that basis wide with large supplies. CME Group is now recommending changes to those contracts such as: higher storage rates, increased delivery points and lower vomitoxin levels. The September contract was pressured by large deliveries issued (1,230). Sep CHI -25c at 7.29; KC -27c at 7.73; MPLS -31c at 8.03/bushel.
EU Wheat Sets Fresh 13-Month Lows
EU wheat futures set fresh 13-month lows Friday before settling with London Nov feed wheat £2.75 lower at £114/tonne and Paris Nov milling wheat EUR4.50 at EUR172.50/tonne.
On the week Paris Nov has fallen EUR13.50/tonne and London Nov £6/tonne.
Paris Nov corn closed Friday EUR5 lower at for a loss of EUR20.20/tonne on the week. Paris rapeseed closed EUR3.50 lower for a loss of EUR20.25/tonne on the week.
The dullest August on record, combined with the fifth wettest summer ever, have conspired to make this year’s campaign in the UK one of the most difficult in recent memory.
Quality remains a big issue for what wheat (generally estimated to be 30-40% of the crop) has still to be cut.
Whilst much of our crop is still in the field, final output is still uncertain, but estimates are creeping higher with some figures as high as 18mmt. This means that the UK is likely to have an exportable surplus of 3.5-4.0mmt this season
The French corn harvest will soon be starting and that is adding pressure to feed wheat and barley.
Whilst UK wheat is competitively priced relative to French wheat the six million dollar question is do foreign buyers want the kind of quality that we've got?
Stores are full and driers are working flat out to get moisture levels down from 19-20 percent and more.
With fuel costs where they are wheat at 19% moisture is costing more than £10/tonne to get it down to the required level of 15%, said one trader.
However what grain has been cut seems generally to be yielding fantastically well. This season's barley crop has been called “the best ever, in terms of yield and quality” with yields of 2.8mt/acre compared with an average winter barley yield of 2.5mt/acre and spring barley at 2.1mt/acre.
USDA Weekly Export Sales Report
The USDA released their weekly export sales report, a day later than usual due to the Labour Day holiday, at 1.30BST today. Here's a note of how the numbers stacked up(vs trade expectations):
Wheat 436,600MT (100-350,000MT)
Corn 589,600MT (400-800,000MT)
Soybeans 280,500MT (200-550,000MT)
Soymeal 147,700MT (15-125,000MT)
Soyoil 7,900MT (0-15,000MT)
