Excellent article on why China is leaps and bounds ahead in gathering commodities…Please click the link to read the entire story

Commodities Corner
China muscles deeper into global commodity markets

Last Update: 7:00 AM ET Oct 30, 2009
China’s building muscle in the commodities markets, active in countries from Canada and Australia to Venezuela, Brazil and Africa — all with the aim of securing supplies of natural resources for its growing population and rapidly expanding economy. It’s a strategy that, for better or rose, has effectively raised the competition bar for the rest of us. …Read the rest of the story http://www.marketwatch.com/news/story/china-muscles-deeper-global-commodity/story.aspx?guid=%7BA5BA274E%2D0E2A%2D4E6F%2D8BC2%2D1ECA716B3137%7D&siteid=nwhfriend

Below is an excellent story off of Bloomberg this morning about commodities gaining momentum as a new asset class…

By Rich Miller

“Oct. 29 (Bloomberg) — An eight-month, 68 percent rally in global stocks failed to convince investors and analysts that it’s time to take on more risk or dispel their concerns about U.S. economic policies and its banking system.

Only 31 percent of respondents to a poll of investors and analysts who are Bloomberg subscribers in the U.S., Europe and Asia see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey, the Bloomberg Global Poll, say they are still hunkering down. U.S. investors are even more cautious, with more than 50 percent saying they are in a defensive crouch.

“The doubt and the pessimism just won’t go away,” says James Paulsen, who helps oversee $375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “They’re still so shell-shocked by what they went through despite the improvement in the market and the economy.”

Stock markets have slid in the past week after bounding higher since March as the economic outlook improved. The MSCI AC World Index of emerging and developed markets has risen by 68 percent since March. It fell 0.4 percent as of 1:30 p.m. in Tokyo, an eighth day of declines.

The S&P 500 index, which has gained 54 percent since March, closed below its 50-day moving average level for the first time since July yesterday after a 2 percent drop.

Worldwide, investors and analysts now view the U.S. as the weak link in the global economy, with its markets seen as among the riskiest by a plurality of those surveyed. One in four respondents expects an unemployment rate of 11 percent or more a year from now, compared with a U.S. administration forecast of 9.7 percent. The jobless rate now is 9.8 percent, a 26-year high.

Dollar’s Decline

The skepticism about the U.S. is taking a toll on the dollar, with a plurality of respondents saying it will weaken against most other currencies in the next year, the yen being the major exception among the 11 currencies tested. Thirty-seven percent say the dollar should not continue as the world’s reserve currency in 10 years. The yen fetched 90.32 per dollar as of 1:45 p.m. in Tokyo from 90.75 in New York.

The poll is based on interviews conducted Oct. 23-27 with a random sample of 1,452 Bloomberg subscribers, representing decision makers in markets, finance and economics on six continents. It has a margin of error of plus or minus 2.6 percentage points.

“The stock market has had quite a run since July when more Bloomberg customers thought the Standard & Poor’s 500 index would rally than predicted a downturn,” says J. Ann Selzer, president of Selzer & Co., the Des Moines, Iowa-based firm that conducted the polls. “That rally may have dampened views of what to expect next. They may also think that there are better markets now for investments than the U.S.”

Emerging Markets

Respondents see China, Brazil and India as the markets with the most potential, and commodities as the asset of choice, replacing stocks as the most desirable investment class in last quarter’s survey. Real estate and bonds are out of favor, with 40 percent saying bonds will have the worst returns over the next year.

“Asia is the best place to put money as there are not mountains of consumer debt, bad mortgage lending, trade deficits or high unemployment,” says Peter J. Emblin, a fund executive at Thai Strategic Capital Management Co. in Bangkok who took part in the poll.

Investors and analysts in Asia are the most bullish, while those in the U.S. are the most cautious. A majority of Asian investors expect their country’s benchmark stock index to rise while a plurality of U.S. and European respondents thought their benchmarks would fall in the next six months.

Equity Rebound

“A lot of people have been surprised by the speed of the equity rebound,” says Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York, adding that the rally has probably been fueled by buying from hedge funds and traders. “It caught them off guard and they don’t believe it.”

Fund manager Paulsen thinks the stock markets rose largely because of the disappearance of panicked sellers. “I don’t think the market has gone up because of heavy buying. You only need a little bit of buying when there are no sellers.”

Asia’s optimism is understandable. The region is leading the global economy out of the worst recession since World War II, according to the Washington-based International Monetary Fund. The IMF said on Oct. 1 that the world economy will expand 3.1 percent next year after shrinking 1.1 percent this year, with China growing by 9 percent and India by 6.4 percent.

Global investors and analysts agree that the world economy is on the mend. Almost 75 percent describe the global economy as stable or improving, up from just over 60 percent in July.

Higher Rates

The worldwide recovery is seen as pushing up long-term interest rates, with 55 percent of those surveyed forecasting higher rates in their respective countries in the next six months. As a result, only 9 percent surveyed thought bonds were the best place to invest over the next year, half the number who favored bonds in July.

More than half of respondents see the yield on the 10-year Treasury note rising in the next half year, up from 47 percent in the July poll. In Asia, where some of the biggest holders of Treasury securities are located, led by China with almost $800 billion, investors are less convinced that yields will rise. Forty-five percent of those surveyed in the region think that. The yield on the 10-year note was little changed at 3.41 percent as of 1:45 p.m. in Tokyo today.

Commodities are expected to benefit from an Asian-led worldwide economic expansion, according to the survey. More than one in three investors say commodities will offer the highest return over the next year. Oil, gold, copper, corn and soybean prices are all seen rising in the next six months.

$100 Oil

“It’s an emerging-market story,” says Matthew Johnson, director of interest rate strategy for UBS AG in Sydney and a poll participant. “It’s all about inelastic supply and fast- growing demand.” He sees oil prices rising to $100 per barrel in the coming months from around $77 now.

China garnered the most votes from investors when they were asked to pick which one or two markets would offer the best opportunities over the next year. Brazil came in second, followed by India.

By contrast, a majority of investors worldwide are pessimistic about the investment climate in the U.S. and the European Union, according to the poll, though the gloom about Europe was less pronounced than it was in July.

Downside Risk

“The U.S. market has the most downside risk in the coming year,” says Marty Beskow, a poll participant and portfolio manager for Blue Water Capital Advisors in Duluth, Minnesota, formed in January. “Although the U.S. may experience a quarter or more of growth, the driver is not real demand but rather stimulus from the Federal Reserve and government spending that is unsustainable.”

Investors have turned more pessimistic about the U.S. government’s economic plan since the last poll, with more than 60 percent saying they feel that way, compared with 55 percent in July. Almost 20 percent expect U.S. banks to be in worse shape a year from now, about double the number who felt that way in July. Two in three say the banks will improve over the next year but will still have problems.

Billionaire investor George Soros said on Oct. 5 in Istanbul that the U.S. recovery will be sluggish as “basically bankrupt” financial companies and indebted consumers impede it.

Worldwide, investors see large budget deficits as the biggest threat to the U.S. economy over the next year. The deficit hit a record $1.4 trillion in the year ended Sept. 30.

Persistently high unemployment is seen as the next biggest threat. More than three-quarters of respondents expect the U.S. unemployment rate to be 9.5 percent or more a year from now.

Tax Increases

Unlike investors elsewhere, those in the U.S. see higher taxes as the biggest danger. “The increase in taxes is going to slow the growth rate of our economy to below 2 percent for the next 25 years,” says Gary Singleterry, who participated in the poll and is president of Singleterry Mansley Asset Management in Summit, New Jersey, which manages about $200 million.

Three-quarters of U.S. investors think the dollar should remain the world’s reserve currency over the next decade. No more than half their counterparts in Europe and Asia feel that way.

“I heard a story the other day from an old French lady who was in her 100’s when she died,” says Ben Watson, director of quantitative analytics for RBS Group (Australia) Pty Limited in Sydney and a poll participant. “In the 1920’s she remembers the U.S. being an emerging market very much like China is today. The 19th century was the European century, the 20th was the American century and the 21st will be China’s century.”

CLICK LINK Below to listen

kevinkerr_27102009

Watch Here

http://watch.bnn.ca/headline/october-2009/headline-october-26-2009/#clip227638

Plus this just in from the FT

“Higher prices on the menu for ‘breakfast’ commodities”
By Javier Blas
Published: October 27 2009 02:00 | Last updated: October 27 2009 02:00
“The food crisis has moved from lunch and dinner to breakfast.

Tea, cocoa, sugar and coffee prices have hit multi-decade highs over the last few weeks, while the cost of orange juice has also risen sharply. Among “breakfast” commodities, only milk prices remain low.

Tea is at an all-time high; cocoa has reached a 30-year high; sugar, a 28½-year high, and coffee is near a 11-year high. Orange juice has risen to its highest levels in 15 months. The sharp increases in the prices of these soft commodities contrasts with relatively depressed prices for agricultural commodities including wheat, rice, soyabean and corn.

“The price divergence is a good indicator that fundamentals are at play, rather than just speculative investments lifting the cost of all food commodities,” says Emmanuel Jayet, head of agricultural commodities research at Société Générale in Paris. Supply disruptions, rather than stronger demand for food, are driving the rally in soft commodities, analysts and traders say.

“Soft commodities are united by the fact that their production is concentrated in developing countries,” says Nicholas Snowdon, a soft commodities analyst at Barclays Capital in London, adding that developing countries – mostly in the tropical areas of the world – are more prone to output troubles due to weather, conflicts, credit shortages or the inability of farmers to respond to rising prices.

Further, production of soft commodities is concentrated in a small group of countries, making it more likely that supply disruptions have had a larger impact on prices. Cocoa is a prime example, with the Ivory Coast and Ghana accounting for 60 per cent of the world’s output.

By contrast, Mr Snowdon adds: “Agricultural commodities’ production is concentrated in developed countries, and widely spread among the US, Canada, the European Union or Australia.” In those regions, farmers respond quickly to rising prices, expanding their acreage and using more inputs to boost yields.

Kona Haque, a commodities strategist at Macquarie in London, cites consumption as a unifying factor. “Demand for soft commodities has not been affected by the economic crisis as much as other commodities,” she says.

However, not everyone agrees that the rally has a common background. Tobin Gorey, an agricultural commodities strategist at JPMorgan in London, says that the simultaneous rally is a coincidence, pointing out that tea, cocoa, sugar, coffee and orange juice have performed “differently over different times”.

Whatever the drivers behind the surge in prices, investors have been attracted by the synchronised rally, bringing speculative investors to what is usually a relatively small corner of the commodities market, traditionally handled by trading houses, brokers and merchants.

“We are seeing buying from the investor community,” says Mr Gorey.

In tea, the bull market has its root in crop damage in the main exporting countries from simultaneous droughts. Production in Kenya, Sri Lanka and India has dropped on average by 10-20 per cent this year, sending tea prices to an all-time high.

The benchmark bestquality broken pekoe, or BP1, surged to $5.02 a kilogram in mid-October, a record and up 70 per cent from January. Unlike other soft commodities, tea does not trade in a futures exchange and the business is based on physical deals, meaning that most financial investors are not profiting from the rally. The surge in cocoa prices has a main cause: the Ivory Coast, which delivers 40 per cent of the world’s cocoa, had a poor harvest this season and, in spite of favourable weather, traders fear that the country’s ageing trees will deliver an even smaller crop in the 2009-10 crop year that started this month.

Cocoa consumption has outpaced supply for the past three seasons and another bad crop in the Ivory Coast could prolong the deficit for a fourth consecutive year, the longest period of supply shortfalls since the shortages of between 1965 and 1969.

Last week, New York’s cocoa prices hit $3,412 a tonne, up 28 per cent this year, and their highest level since February 1980.

The sugar rally is the result of a large supply deficit due to disappointing crops in Brazil and India, the world’s top producers. In India, the world’s largest consumer of sugar, the driest monsoon since 1972 due to the El Niño weather phenomenon has damaged the cane crop. Meanwhile, El Niño has brought rains to what is normally the dry season in Brazil, which accounts for 60 per cent of the world’s sugar exports. Raw sugar prices in New York rose to a 28½-year high above 25 cents per pound last month and since then the cost of the sweetener has hovered around 23-25 cents.

While tea, cocoa and sugar have strong fundamentals driving price rises, the supply and demand equilibrium on coffee and orange juice is somewhat more balanced. Even so, prices are on the rise.

In the case of coffee, production losses in Colombia and fears of a low crop in Brazil have supported the market. New York’s arabica coffee hit 145.40 cents a pound last week, up 30 per cent so far this year.

Orange juice had been supported by output losses in Brazil and Florida, the world’s top producers, due to cold weather and the spread of the so-called greening disease which forces farmers to uproot trees. “Once infected, there is no cure for a tree with citrus greening disease,” warns the US Department of Agriculture.

New York’s frozen concentrated orange juice futures hit a 15-month high of $1.1820 per pound last week, up 72.4 per cent since January.”

Copyright The Financial Times Limited 2009

From my friends at Indiana Grain Co.

China to Continue Stockpiling Grain
Posted: 10/21/09
By: tomgrisafi

China will continue to purchase grains and soybeans from farmers in 2010, raising its minimum purchase prices for some crops in an effort to protect farmers’ interests and stabilize grain output, the country’s State Council said on Monday in a statement published on the central government’s Web site.

Minimum prices for rice will be increased accordingly, and the government will continue to purchase corn, soybeans and rapeseed from farmers to protect their interests, it said.
The government did not say at what prices it will stockpile soybeans. Last year’s soybean purchases were made at above-market prices and helped lead to a surge in lower priced imports.
Traders told Reuters News Service the government was likely to offer prices higher than last year.

China’s national grain stocks have been growing since the 2008 harvests due to the government’s large volume of purchases, and as a result, grain prices so far this year have been mostly decided by the government’s policies.

Kevin talks with BNN-TV Canada on Grains, Gold, and the Weak Dollar! LIVE from the NASDAQ Oct. 14th, 2009

To view click the link below…

http://watch.bnn.ca/trading-day/october-2009/trading-day-october-14-2009/#clip223711

From Reuters

The northern states of the Midwest were all below freezing this morning. The USDA’s Crop Progress report will be released later this afternoon. December corn was lower for most of the day, but ended up a half-cent at $3.817.

After the close, the USDA said that:
13% of the corn crop was harvested, down from the five-year average of 35%.
23% of the soybean crop was harvested, down from the five-year average of 57%.
12% of the cotton crop was harvested, down from the five-year average of 29%.
64% of the winter wheat crop was planted, roughly on schedule.

Courtesy Agweb.com

Economist: Crop Concerns, Strong Demand Support Corn and Bean Prices

10/14/2009

AgWeb.com Editors

On-going crop concerns could add to recent price strength in both corn and soybeans, and higher prices should probably move pricing strategies to less storage and more harvest-time pricing, according to University of Illinois Economist Darrel Good.

December 2009 corn futures have increased by about $.65 per bushel form the early September low. November 2009 soybean futures have rallied more than $1.00 per bushel from the low of earlier this month.

“These higher corn and soybean prices have come in the face of larger USDA crop forecasts,” Good said.

In the Crop Production report released on October 9, the USDA forecast the 2009 corn harvest at 13.018 billion bushels, based on conditions around the first of October. That forecast is 63 million bushels larger than the September forecast, reflecting the potential for a record U.S. average yield of 164.2 bushels per acre.

The yield forecast is 2.3 bushels above the September forecast, but the projection of harvested acreage was reduced by 713,000 acres. Acreage forecasts were reduced for a number of states, but the largest reductions were for Illinois (300,000) and Nebraska (250,000). The forecast of harvested acreage was increased for Kansas (270,000) and Texas (150,000). The largest month-over-month increase in state average yield forecasts was for Nebraska, up 9 bushels.

For soybeans, the 2009 harvest is now forecast at 3.25 billion bushels, about 5 million larger than the September forecast. The U.S. average yield is forecast at 42.4 bushels, 0.1 bushel above the September forecast. The projection of harvested acreage was reduced by 148,000 acres. The largest changes were in Illinois (up 300,000 acres) and Iowa (down 200,000 acres).

“The U.S. corn yield forecast is about equal to the average of a forecast based on crop condition ratings and a forecast based on growing season weather. The U.S. soybean yield forecast is still lower than the forecast based on crop condition ratings and the forecast based on growing season weather,” Good said.

In a more “typical” year, yield forecasts of both corn and soybeans might be expected to increase in November.

“This, however, is not a typical year. Freezing temperatures this past weekend likely ended the growing season for late maturing crops in northern and western growing areas before full yield potential was reached. In addition, more widespread incidence of disease in both crops may reduce yield and quality potential. The November forecasts of yields are now more likely to decline rather than increase,” Good said.

In addition to concerns about the size of the crops, prices have been influenced by strong demand in some sectors.

“For corn, the ethanol industry has experienced a substantial economic recovery. The economics of blending ethanol are very favorable, increasing the demand for and price of ethanol. Even with higher corn prices, ethanol production has moved solidly back into the black,” Good said.

“The USDA did not increase the forecast of corn use for ethanol during the current marketing year, but many analysts believe there is potential for use to exceed the projection of 4.2 billion bushels. Part of that optimism may stem from the potential to export some ethanol.”

The USDA did lower the projection of 2009-10 marketing year corn exports by 50 million bushels, but increased the feed and residual component by 50 million bushels.

“The year-over-year increase of 169 million bushels in feed and residual use appears generous in the face of declining livestock numbers and a large increase in distiller’s grain production, even with reduction in feed use of other grains. Still, year-ending stocks of 1.672 billion bushels are not large and could be less if the crop is smaller and ethanol use larger than projected,” Good said.

For soybeans, the demand strength has been in the export sector. The USDA now projects 2009-10 marketing year exports at a record 1.305 billion bushels, 25 million above both the September projection and actual exports of last year.

“Soybean export sales have been very large to date. As of October 1, the USDA reported soybean exports plus outstanding sales at 758 million bushels, 350 million more than commitments of a year earlier. China accounts for 61 percent of export sales to date. Like corn, the projection of year-ending stocks of U.S. soybeans, at 230 million bushels, is not large and could be less if the crop is smaller than currently projected,” Good said.

News release provided by University of Illinois.