Associated Press
Japan and Sweden: A tale of 2 gov’t bailouts
By YURI KAGEYAMA and LOUISE NORDSTROM 09.27.08, 3:55 PM ET
Loans turn sour after years of excessive lending. Big financial institutions collapse. Fears grow about an economic meltdown. The government announces a massive bailout.
The story of the current U.S. financial crisis is in many ways similar to what happened in Sweden and Japan in the 1990s. In both cases, the governments intervened - with very different results.
A look at the financial crises abroad:
SWEDEN
THE PROBLEM: Sweden plunged into crisis after a frenzy of risky lending into an overheated real estate market, spurred by deregulation in the mid-1980s. When the bubble burst in 1991, the effects reverberated throughout the economy. According to Statistics Sweden, the country’s gross domestic product fell as much as 4.4 percent between 1991 and 1993, nearly 60,000 companies filed for bankruptcy and housing prices plunged 19 percent.
ACTION: Sweden spent billions on blanket guarantees for creditors and depositors. It also bought two failing banks, Nordbanken and Gota Bank, and set up a special asset management company to assume bad loans and the collateral behind them. The measures cost the government an estimated 65 billion kronor, or roughly around $10 billion at the time.
RESOLUTION: Much of the government’s costs were recouped when the assets were sold. The government still owns nearly 20 percent of Nordea Bank AB, the successor to Nordbanken - a stake that is now up for sale, worth around 45.3 billion kronor ($6.9 billion) at the current share price.
LESSON FOR U.S.: The Swedish government acted quickly and decisively. It also took over institutions and companies. Bipartisan cooperation was another foundation: The center-right government and the leftist opposition joined forces to stem the crisis. That, along with transparency, was key to winning public support.
JAPAN
THE PROBLEM: Japanese financial institutions bet that real estate prices would continue to rise in the 1990s. Reality hit when the inflated value of assets plunged, and borrowers were unable to repay loans. Money became more difficult and expensive to obtain. In 1997, Sanyo Securities Co. and Hokkaido Takushoku Bank went bankrupt. Then Yamaichi Securities Co., a “Big Four” brokerage, also collapsed, stunning the nation. Delayed action and the lack of transparency in Japan’s financial system exacerbated the problem as many financial institutions hid the bad debts.
ACTION: Banks started writing off their bad debts in the mid-1990s. The Japanese bailout began in earnest in 1999 when the government set up a special organization, the Resolution and Collection Corp., to handle the disposal of nonperforming loans. The net public outlay to clean up the bad debt mess was 18 trillion yen ($168 billion), according to the Financial Services Agency.
RESOLUTION: The Japanese government recouped a sizable amount of its bailout funds by reselling collateral, most often land, and other assets. The abysmal times in Japan during the 1990s are now known as the “lost decade.” Even though the economy is better now, the Japan’s stock market still hasn’t returned to its peak before the bubble burst. And Japan still has about $9 billion worth of property held as collateral that needs to be sold.
LESSON FOR U.S.: Japan waited too long before resorting to a bailout using taxpayers’ money to write off the mountain of bad loans on banks’ balance sheets, experts say.
Hello from our home in Venice. So nice to wake up this morning to classical music and strong Italian coffee overlooking the grand canal. As the vaparetto whisk by I am reading about the fact that the bailout plan seems to be getting ready to be approved. Anyway, I will be posting new blog entries here everyday this week and catching up from the last few days now that I am done speaking at the Taranto Economic forum in the South of Italy…So be sure to check back frequently, we have a lot of work to do and I will also be sharing the sights and sounds of Venice. All the best and Ciao form Venezia.
There is no doubt that if you had a week like mine you really needed this last weekend. What an emotional roller-coaster. I spent a lot of time catching up on sleep and adjusting to the 8 hour time difference here at my home in Estonia, while trying to trade and work back in NY, it’s never easy. All and all though I already feel healthier, food is better, don’t eat as much anyway, and more exercise since we walk a lot here. Alex is having a good time too as her loving grandparents feel she can do no wrong (wait until she is here a few weeks).
Anyway, it should be another interesting week in the markets and it most certainly won’t be dull. Soybeans are already taking off, S&P is still holding up strong, but for how long is anyone’s guess and at the same time silver is rallying. Hopefully those who decided to continue to hold onto their December 2008 gold will grab profits and roll into 2009 silver like we have in GCA.
I guess they have some really deep master plan over there at RTA, first thing they should do is get someone who knows how to trade commodities, that’s step one.
Anyway, let’s look at some news tidbits that are impacting some of our positions. I am off to Tallinn (the capital of Estonia) today with Katrin and then I leave for Miilan where she will join me at the end of the week before we go to Venice for along overdue vacation. Now let’s look at the news.
he shadow banking system is unravelling
By Nouriel Roubini
Published: September 21 2008 17:57 | Last updated: September 21 2008 17:57
Last week saw the demise of the shadow banking system that has been created over the past 20 years. Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders.
Like banks, most members of this system borrow very short-term and in liquid ways, are more highly leveraged than banks (the exception being money market funds) and lend and invest into more illiquid and long-term instruments. Like banks, they carry the risk that an otherwise solvent but liquid institution may be subject to a selffulfilling and destructive run on its liquid liabilities.
But unlike banks, which are sheltered from the risk of a run – via deposit insurance and central banks’ lender-of-last-resort liquidity – most members of the shadow system did not have access to these firewalls that prevent runs.
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The North Woods’ Very Spry Centenarian—Producing The ‘Quality-Of-Life Metal’
By Dick Phelps
17 Sep 2008 at 05:06 PM GMT-04:00
Silver is now well beyond its historic photographic market; it’s a metal driven by enhanced consumer lifestyles and rising standards of living. One company well situated to capitalize on it is primary silver-producer Hecla Mining Co. RI first heard directly from its CEO, Phil Baker, at the Denver Gold Forum last week.
COEUR d’ALENE, Idaho (ResourceInvestor.com) — After the Denver Gold Forum meeting the author then went up to Hecla’s Lucky Friday mine, in the famous Coeur d’Alene Mining District (a.k.a. Silver Valley) of Idaho where Baker gave RI a comprehensive tour. He capped RI’s exclusive interview saying, “Due to its unique characteristics, silver is growing more rapidly than other metals; I’d rather be in silver than any other metal.”
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Weather still threatens soybean crop, quality
9/19/2008, 1:26 PM CDT
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When the USDA recently lowered its soybean production estimate one percent to 2.93 billion bushels on 40 bushels per acre yield, Iowa State University (ISU) Soybean Extension Agronomist Palle Pedersen responded that those figures seem like a more accurate look at this year’s soybean crop. Unfortunately, he says, there are concerns that figure is still too high.
Pedersen says this year’s soybean crop will depend on several variables over the next several weeks, including weather. “For that reason we are monitoring the seven- and 10-day forecasts very carefully right now,” he says in an Iowa Soybean Association report.
“Under certain conditions, the crop could still improve,” Pedersen says. “Sunshine and warm temperatures will help soybeans mature. If we don’t get an early frost, we may be in good shape. But if we get an early or average frost, that will cost bushels, no doubt about it.”
Ok my next post will be from Milan, have a great trading week! Stay Safe, Kevin
p.s I got some ad from some publisher this weekend about how to make under $10 or something, probably pretty accurate, remember you get what you pay for. Take care
Top Producer Audio Analysis: USDA September Cattle on Feed Report
9/19/2008
AgWeb Editors
Top Producer brings you exclusive audio analysis of USDA’s September Cattle on Feed report. Listen to University of Missouri livestock economist Ron Plain give his analysis of the August cattle numbers. Steve Kay of Cattle Buyers Weekly will return in October.
Whew! Well I guess there might come a point where too much volatility is not such a good thing, but for us options traders I am loving every minute of this action! With GCA, as with RTA in the past, I recommend options for a number of reasons, but being able to play in a volatile world like this is certainly one of them. Where else can you have a $300 gold call rally to $1,800+ in a matter of a few days?
It just goes to show long term options provide staying power in wide volatile trading environments and give you an opportunity to stay in the game so to speak. With gold’s nearly $110 one day rally today (including tonight’s move) it puts us in an amazing position to exit the $1,000 gold calls that were recommended when I was editor of RTA. For everyone that participated in that recommendation I wanted to follow up as a courtesy with my thoughts on how to handle the trade at this point.
Now this is not an official trade recommendation and it is only my opinion on the trade.
In this time of extreme volatility it is important not to be greedy…as you know, when I was at the helm of RTA I always stressed being smart and not to look any gift horses in the mouth…Well a $90 move in gold is a gift and will allow us to grab second half profits on our gold after very solid profits on the first half. I highly suggest grabbing these profits and closing this gold position. If you did take my suggestion (and then later Matt Insley’s) to cover the short leg of the spread then that’s excellent. However if you did not cover the short leg, that is ok too. Regardless I suggest you grab the remaining profits on the entire gold spread and/or the long gold call.
The $1,000 call for December settled at over $1,800 and the spread settled at more than $550. Gold is up even more as speak – another $50 an ounce over settlement (making a $110 plus move!). This should open this trade up to some serious price spikes tomorrow morning and I advise that you price this option out first thing and place a fair price inside the bid and offer. Both the straight call and the spread should be much higher in the morning based on tonight’s move, but you never know what happens from the time you hit the pillow and the time the sun rises.
Therefore don’t panic but look to get out at a fair price first thing in the morning. This will free up new capital for more solid trades in GCA and take advantage of this volatility while it is still there for the taking.
Our 2009 silver spreads are recovering ground nicely too and since that is such a long term trade this volatility is a good reminder of why spreads are sometimes the best strategy for longer dated plays.
Lastly, while RTA remains without an official editor at the helm I will continue to advise on those former positions in RTA until I help you close them. Simply that is just the right thing to do in my book. I have no idea when they will actually start having someone qualified manage that portfolio but I certainly hope it is someone who does not ‘pretend’ to be qualified to handle markets that are this extreme.
As for GCA, I have another trade I am working on now for our portfolio and please stay alert. I may be in Europe but that just puts me 8 hours ahead of many of you, not all but most.
Please let me know where you are getting filled by emailing me at kevinkerr@futurespress.com . Also, I am leaving Sweden today for Estonia so please keep checking my blog for more updates, photos, and even video.
All the best,
Kevin
Disclaimer: Risk of loss exists in all trading. Futures Press, Inc., Kevin Kerr or its principals do not assume responsibility for errors or omissions that may occur in this report. It is the subscriber’s responsibility to verify all information through appropriate channels prior to executing any recommendations.
So here we are in Stockholm, our gateway to Europe this trip. What a lovely city it is and what a welcome rest it has provided. For those of you who have been with me for a few years, you know that my family and I also have a home in Estonia, where my wife is from. In case you don’t know, Estonia is a small Baltic country with a big heart. A former reluctant member of the Soviet Empire, let’s not hope it will be again anytime soon.
Anyway, my wife Katrin and our daughter Alexandra left New York and flew here to Stockholm arriving Tuesday about an hour early, gotta love tailwinds. We break up the trip to Estonia because otherwise it is so long that by the time you arrive you simply want to go into a coma for a week…So instead of medically induced sleep we opt to visit a new country each time we go and spend a couple of days, this time it’s Sweden.
Now I am going to tell you..and again, for those of you who know me you have seen Alexandra grow into a little girl when she was only a wish in her parents eyes, but boy she is a handful today.
It always takes some phsycological prep on my part before we leave, and the packing requires the skills of a NASA specialist. Somehow though, we always manage. I often am in awe of my former publisher Bill Bonner, his travel schedule makes mine look like a trip to 7-11 yet the man is always finely dressed and a mood to match. I don’t think he is flying in his own jet but he just has no signs of today’s modern air travel, it’s amazing.
So I will skip all the details but we arrived here in Stockholm and headed to our hotel, First Hotel Reisen. A lovely inn, right on the water and our room the Chapman Suite seems to have just enough space to accomodate Alexandra’s need to run. If you have never been to Europe then you need to know that typically rooms are smaller and so a suite is more like a big room wit lots of art and breakable things… SO it’s really a catch 22….Need more space but risk more breakable things, who needs reality TV when you have a 2 year old.
Ok so now after a walk around lovely Old Town here in stockholm and a fine meal, I sit down in fornt of the trading screen and see gold and silver are doing their duty. A true flight to quality, treasuries with a zero yield and the stock market tanking…Great news for our metals positions Silver in GCA and my old gold trade over in RTA which you still should have half of. I expected a pop back up but not like this… Now we took great profits on that first half and we may well on the second half too.
Now tomorrow we leave for our home in Estonia and I will be watching the markets closely and so should you. These are volatile times indeed…Use caution. Best, Kevin G’night from Sweden
p.s. I will be issuing an alert on my former gold trade in my previous publication Resource Trader Alert….Check here or if you’re a GCA member you will get an alert shortly this evening.
Now, also for you GCA members, here is some good news for our cattle position…Read on..
Form Ag Web
Beef Exports Outpace Imports - First Time Since Pre-BSE Era
9/17/2008
The U.S. beef industry achieved an important benchmark in July, as the value of beef exports for the first seven months of 2008 surpassed imports for the first time since the discovery of BSE closed most global markets to U.S. beef in December 2003, according to U.S. Meat Export Federation (USMEF).
Global beef and beef variety meat exports totaled 98,972 metric tons (218.2 million pounds) in July, valued at $363 million – increasing more than 10% over the June 2008 total, and reaching 97% of the July 2003 export value. These results pushed the total value of exports for January-July 2008 to $1.94 billion - an increase of 37 percent over last year and more than $165 million above the value of beef imports into the United States during the same period. By comparison, U.S. beef exports during the first seven months of 2007 fell nearly $700 million short of imports - which have declined by 16% from the same period a year ago.
“Regaining our status as a net value exporter of beef is an important goal of the U.S. beef industry, and a critical component of the Beef Industry Long Range Plan,” said U.S. Meat Export Federation (USMEF) President and CEO Philip Seng. “These results represent a dramatic turnaround from a year ago, and show that we are certainly headed in the right direction.”
Mexico remains the top destination for U.S. beef, with record-high exports totaling 40,930 metric tons (90.2 million pounds) in July valued at almost $147 million. From January through July, exports to Mexico have increased by 19% in volume and 23% in value over last year. Beef exports to other top markets during this seven-month period also are running far ahead of last year’s pace, including Canada (up 37% by volume and 42% by value), Japan (up about 70% in both volume and value), Taiwan (up 37% in volume and 40% in value) and Vietnam (up 590% in volume and 769% in value).
Russia also is emerging as one of the driving forces behind the growth of beef and beef variety meat exports, with a July total of 7,649 metric tons (16.9 million pounds) valued at $17.6 million. This pushes the January-July export totals for Russia to 18,843 metric tons (41.5 million pounds) valued at $42.6 million.
Beef exports to South Korea are beginning to gain traction, totaling 1,617 metric tons (3.5 million pounds) in July, valued at $6.35 million. This is good news for cattle producers, as the Korean market reopening is having a significant impact on short rib prices. At about $2.70 per pound, short ribs are priced about 35 percent higher than a year ago. The chuck cut-out – which also is largely driven by export demand – is priced more than 25 percent higher than at this time last year.
Citing growing strength in Asian markets, USDA boosted its forecast for beef exports last week - raising its outlook for the remainder of 2008 as well as for 2009. Factoring in last week’s increase, USDA now forecasts 2008 beef exports to finish 28 percent higher than last year, and to increase by an additional 12 percent in 2009.
Sugar to Climb Near 24-Year High on India, Brazil (Update1)
By Shruti Date Singh and Thomas Kutty Abraham
Sept. 15 (Bloomberg) — No matter what happens in the global economy, sugar demand is about to top production for the first time since 2006, the year prices reached a 24-year peak.
India, the second-biggest grower, will reduce supplies 16 percent next year, shifting to more profitable crops. Brazil, the largest producer, expects to use 57 percent of its cane for ethanol this year, up from 54 percent. Refiners in Europe will process 15 percent less because a 2004 trade ruling bars growers from exporting surpluses.
“The fundamentals for next year are better than in the last 12 months and are the best for market values in the last three seasons,” said Sergey Gudoshnikov, a senior economist for the London-based International Sugar Organization, which represents countries producing 82 percent of the world’s sugar.
The shortfall may make sugar one of the only commodities to continue rallying even as the slowing global economy reduces demand for raw materials from aluminum to oil. Sugar use isn’t affected by price swings in developed countries, while people are eating more sweeteners in China and India, the largest consumer, according to London-based ED&F Man Holdings Ltd.
Sugar on ICE Futures U.S. in New York may jump 28 percent to 18 cents a pound next year from 14.06 cents on Sept. 12, said analyst Jonathan Kingsman in Lausanne, Switzerland, whose firm Kingsman SA advises banks, hedge funds and Fortune 500 companies on commodity purchases. Kona Haque, a commodity strategist at Macquarie Bank Ltd. in London, said the price may reach 20 cents, and Jean Bourlot, a managing director and head of agricultural trading at Morgan Stanley, said it may double in 18 months.
The sweetener traded at 14 cents today in New York.
Commodity Bear Market
The S&P GSCI Index of 24 commodities, after six straight years of gains, plunged 28 percent from a record on July 3 and slipped into a bear market as global economic growth slowed. Natural gas, silver, crude oil and corn lead the declines.
In the meantime, “crop competition, booming ethanol demand and declining sugar beet areas globally signal higher prices,” London-based Bourlot said in a Sept. 11 telephone interview.
The last time the world consumed more sugar than it produced was in 2006, when the cane crop in Thailand was down for a third straight year and record energy prices boosted demand for alternative fuels. Futures reached 19.73 cents a pound on Feb. 3, 2006, the highest since April 1981.
In the following months, production surged in Brazil and India, sending global sugar inventories to the highest ever. The ISO estimates stockpiles will reach a record 69.2 million metric tons in the year that ends Sept. 30. Sugar prices dropped 20 percent in 2006 and 7.9 percent last year.
Record Inventories
Stockpiles will fall 5.8 percent to 65.2 million tons in the year ending Sept. 30, 2009, the first decline since 2006, according to ISO forecasts. Still, they will be 18 percent higher than in 2006.
“I just don’t think sugar has any business being up over 14 cents,” said Judy Ganes-Chase, a former Merrill Lynch & Co. commodity analyst who runs a consulting firm in Katonah, New York. “We still need to work through that massive glut. The market is more fundamentally justified in the 9-to-11-cent range than the 12-to-14-cent range” for 2009, she said.
Kingsman said the rally will fail if the price of ethanol from sugar cane declines and if the Brazilian currency’s weakness against the dollar encourages exports onto world markets. The ISO says prices may be affected by factors unrelated to supply and demand, from energy use, to food policy and shifts by investors away from commodities.
Production Deficit
Global consumption will increase 2.3 percent to 165.5 million metric tons in the next year, and production will drop 4.4 percent to 161.6 million tons, spurring a shortfall of 3.9 million tons, the ISO said. Czarnikow Group Ltd., a London-based brokerage and consulting firm that has been in the business since 1861, puts the deficit at 3.3 million tons.
Higher prices may boost profits at Brazil’s Cosan SA Industria e Comercio, the world’s biggest sugar-cane processor, and at Bajaj Hindusthan Ltd., India’s largest producer. Costs may rise for buyers such as Nestle SA, the biggest food company.
One reason analysts forecast inventory declines is more of the crop is being used to make ethanol rather than sweetener.
Piracicaba, Brazil-based Cosan is stepping up production of the fuel and expects sugar to stay above 14 cents a pound next year, Chief Financial Officer Paulo Diniz said Sept. 12 on a conference call. The rebounding dollar and rising sugar prices may make Cosan profitable next year, after three straight quarters of losses, Vice Chairman Pedro Mizutani said. Brazil’s real lost all this year’s gains against the U.S. currency.
India Crop Decline
The biggest change in sugar supplies during the coming year will likely be in India. Output will plunge 16 percent to 23.9 million tons from 28.5 million tons as farmers plant more wheat, and a late monsoon may reduce yields in Maharashtra state, the country’s biggest producer, according to the ISO.
“The effective withdrawal of India from the export market is a significant bull factor,” Kingsman said.
India’s exports may plunge more than 78 percent to less than 1 million tons in the coming year, said S.L. Jain, director general of the Indian Sugar Mills Association in New Delhi.
Shree Renuka Sugars Ltd., India’s biggest refiner, bought 30,000 tons of raw sugar from Brazil for arrival in October, Managing Director Narendra Murkumbi said Aug. 27. The Mumbai- based company’s purchase was the first from an overseas supplier in more than two years.
“We may import more raw sugar after December,” Murkumbi said. “Domestic raw material is not available and buying from the spot market in Brazil is more attractive.”
European Output
European production will fall 15 percent to 22.5 million tons in the year starting Oct. 1 from 26.5 million, according to Ratzeburg, Germany-based F.O. Licht, a soft-commodity market researcher. The European Union will produce 14 million tons, about 20 percent less than this year, after the World Trade Organization ruled the 27-nation bloc can’t sell its surplus on the world market because it unfairly profited from subsidies.
Europe will help provide “a more bullish impetus for world sugar prices,” Licht said Sept. 9. “That’s a new phenomenon.”
The U.S., the world’s fifth-biggest sugar producer, will refine 3.5 percent less of the sweetener than previously expected in the year that starts next month, and the decline doesn’t fully reflect the damage caused to crops by Hurricane Gustav, the Agriculture Department said Sept. 12.
Brazil will produce 32.8 million tons of sugar this year, according to the Agriculture Ministry’s crop-forecasting agency. While the estimate is higher than last year’s 31.3 million tons, it’s less than in April as mills turn more cane into fuel.
Ethanol Use
Global ethanol consumption will rise 34 percent to about 65.2 billion liters in 2008, mostly because of the U.S. and Brazil, the biggest producers and users of the alternative fuel, according to the ISO. Crude-oil futures closed at $101.18 a barrel on Sept. 12, up 27 percent from a year earlier, though down from a record $147.27 on July 11. Gasoline closed at $2.7696 a gallon, up 37 percent from a year earlier.
Abah Ofon, a commodities analyst at Standard Chartered Bank in Dubai, said in a Sept. 3 e-mail ethanol demand will boost sugar to an average of 16.2 cents in the second quarter of 2009.
“There’s greater noise in the U.S. about the perceived inflationary impact of corn ethanol,” Ofon said. “There’s going to be a more serious debate on opening up the U.S. market.”
U.S. Tariffs
The U.S., which mainly uses corn to produce ethanol, imposes a tariff of 54 cents a gallon on imports from Brazil.
Senator Dianne Feinstein, a Democrat from California, introduced legislation in June that would avoid penalizing foreign suppliers, including Brazil, and enable U.S. refiners to purchase ethanol no matter where it’s made.
“The demand for inexpensive and climate-friendly ethanol continues to grow as oil and gas prices remain sky-high,” Feinstein said in a statement e-mailed to Bloomberg News.
In July, when the Reuters/Jefferies CRB index dropped 10 percent, “sugar prices bucked the broader commodity direction,” Goldman Sachs Group Inc. said in an Aug. 7 report. “We anticipate recovering crude-oil prices and tighter sugar supply/demand expectations to support” the market, said Goldman, which has a 12-month forecast of 15 cents a pound.
To contact the reporters on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net; Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
The latest USDA crop numbers are out today and the market is a far cry from just a few months ago. A look at the latest numbers with Kevin Kerr, commodity trader and editor, Global Commodities Alert.
Ike damages 80 percent of homes on Grand Turk
36 minutes ago
PROVIDENCIALES, Turks and Caicos (AP) — The Turks and Caicos premier says Hurricane Ike has damaged 80 percent of the homes on Grand Turk island.
Michael Misick tells The Associated Press by phone that Grand Turk took almost a direct hit and that hundreds of people have lost their roofs. He says people are cowering in closets and under stairwells and are “just holding on for life. They got hit really, really bad,” he says.
There are no reports of deaths or injuries, but authorities are now trying to rescue people and get them into shelters.
Ike is now raking Haiti and barreling toward the Bahamas and Cuba as a powerful Category 4 storm.
Misick said Sunday that he will fly to Grand Turk once the weather subsides.
Here’s a sampling of what some folks are saying about farming conditions:
from Ag Web:
9/5 - Huntington County, Indiana: The big rain event on Thursday missed us completely. We got enough to wet the pavement, but not enough to register in the rain gauge. Since August 1, I have received .35″ and the last 3 weeks of July were not much better. The corn is firing 2/3 of the way up the stalk and the beans are dying on the high ground, turning on the average ground and green in the low ground in the same field. I am very worried about the beans. I would guess that there will be few 40 bushel fields around us. I have a 12 variety corn plot and did the Pro Farmer yield formula in it and it went from 150 to 215, but that is in a good section of one of my best fields. I will be surprised if I average 150 over all the fields.
9/5 - East Central Indiana: It appears we are just about safe from frost damage. Most crops will be dead by any frost date due to lack of rain. I traveled through NE Indiana yesterday and it was just as bad if not worse. Talked to some that said Ohio is worse. All that green and yellow on DTN radar for the last 14 hours has added up to .16.
9/5 - West Central Missouri: We started picking some wet corn Monday. Moisture was between 21% and 25%, planted late first week of April, dryland. Average yields around 150 bpa. The rain helped some late planted corn and beans. Overall corn looks good, some yellow spots in the fields where N was lost. The rain is just holding us up now. Irrigated corn looks really good.
9/5 - Central Arkansas: Rainfall totals the last 3 days range from 6 to 11 inches. No where for the water to go. Many rivers expected to reach or slightly exceed flood stage within the next week. Very little crop harvested to date, maybe 10% of the corn where it is normally in the 60% range. Flooding delayed planting this year and now flooding will take out some of what was planted. Been a tough year down “south.”
9/5 - Wright County, Minnesota: The corn crop is wilting and dying in the field. We need rain badly although it is probably too late for this years crop. It is drier here than the drought monitor shows.
9/5 - Jasper County, Missouri (Southwest Corner): Corn harvest underway. Looks like yield could range from 145-200 plus on dryland corn. Most corn was way late. Early crop looks excellent. Beans have a ways to go but have had optimal growing conditions. Sunflowers excellent too. I think we’ve had at least 55 in of rain this year but know how you guys feel were it isn’t raining. Everything burnt up 2 years ago. Amway gotta look forward to higher inputs and lower price
So just a quick update from here at the epicenter of commodities trading, Chicago. I will be on the floor of the CBOT most of the day and trying to get updates on the grains and other markets. The rain in the Midwest is easing some immediate concerns but overall I think the crop is going to support higher prices. A note on the most recent alert from the folks at RTA. Now I suggested about 2 weeks ago here on my blog to cover the short side of both the gold and bean oil, bean oil was a no brainer but gold did add some more significant cost, but not much. Glad they have now advised people to cover those short legs. Problem is whomever is writing the issues now didn’t really explain it well. As I visit with many of the brokers here in Chicago many of them told me that they got a ton of calls asking how this all works and the ramifications of covering the short legs.
I saw my friend Bob Miller at Foremost Trading yesterday and his sons Scott and Mark and he explained it very well to his clients…exactly as RTA should have but didn’t of course. Associate Editors are not traders, I am sorry but you can’t replace years of trading experience by making a few phone calls, that’s pretty obvious. Anyway, all that aside, covering the short legs of the spreads is exactly what should be done. Here is Bob’s explanation on the pro’s and con’s of covering the short legs, it spells it out very well. This is provided as a courtesy as i have nothing to do with RTA anymore and I know many of you are confused with the way Agora Financial has handled this and why they don’t have a new trader, so check here form time to time and you can get my opinion on these trades until their closed. Better yet join us over at GCA and I will be following all these markets there.
From Bob Miller for my former RTA readers…
RTA Alert: ½ Bean Oil spread and ½ of the Gold spread (legging out) exit fill report. 9-3-08 update.
This email is for those who are Trading the RTA newsletter with us at Foremost Trading. Excuse the “bulk nature” of this email, however by this method I can let you know what has happened with the order(s) received from RTA newsletter.
Hello RTA Traders.
Today we received this RTA alert which read…
Urgent Trading Alert – Buy-to-Close Gold and Soybean Oil
Action to take: call your commodity options broker and say “I have two orders for you, First I want to buy-to-close the short leg (the 1050 call) of the December 2008 Gold (GCZ8) call spread at 310pts ($310) or better Good Till Cancelled (GTC).
Second, I want to buy-to-close the short leg (the 70 call) of the December 2008 Soybean Oil (BOZ8) call spread at 40pts ($240) or better Good Till Cancelled (GTC).”
We received this RTA trade alert and acted on it with a fill in the gold at the trade alert price of 310. The bean oil alert fill was at a average price of about 32.
I am sending this email to you that the bean oil trade and sending again this same email to those of you that have the gold spread. So if you receive this only once or if you receive it twice you will understand why.
Here are some pointers that I want to make about these trades…
When a bull call spread is entered, the trade has a maximum potential. The full profit potential is the value of the difference between the strike prices minus the cost of the spread. This maximum potential is only possible if the underlying futures contract is at or above the higher strike price of the option spread. The reason for a bull call spread like the gold or soybean oil spread trade is very simple. The outright option is too expensive. Hence a spread that is affordable. The price you pay for this is a maximum profit cap.
With today’s exit of ½ of the spread we now have a new picture. Here are some of the issues (costs and benefits) if exiting ½ of the trade that was issued today.
First. By exiting the short side of the spread you now have locked in much of the profit on the short side of the spread. That’s good.
Second. This did have a cost. On the bean oil the cost was about $190 per spread. That’s the price paid to exit the short today on the Bean oil 70 call. On the Gold it was $310 to exit the short 1050 call. This cost is an additional expense to the original trade. For this cost you now have a additional benefit which is…
Third. By exiting the short side of the spread like we did today, the maximum profit potential has now been removed. Now I have to tell you that even though the maximum profit potential has been lifted, we need to be realistic. These original spread trades that have now become an outright long call option have a long way to go to recover the open loss that they have. This brings me to the next benefit of exiting the short side of the spread trade as we did today.
Fourth. When the spread is in place, the spread difference moves at a slower rate. When the market is dropping or when the market is rallying. By exiting the short side of the trade which we took in a nice profit today on that half of the spread, we now have a better chance to recover the open loss that we have on the remaining half of the spread trade. Exiting the short side of the spread is like lifting the anchor on a boat. The option price can now move much more rapidly on any up move in the Gold and Soybean oil market.
We have nearly three months left before expiration of these options. Anything can happen. Hopefully the market will bless this remaining half of the trade.
Have a good evening,
Bob Miller
I want to also remind you that you can always change any of the instructions that you have with me at any time on the Auto Trade application of handling of your orders.
Please note. I try to be very accurate with the details of reporting to you. This email is not the official trade report to you. The official report is your brokerage statement from our clearing firm. That is sent by email the next day. You should have this tomorrow morning. If you should get a statement and you are not sure about the details of the trade, or you do not get a statement from the clearing firm on this trade please email me. I will look into it and reply as soon as I can.
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