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February 22, 2012


Latest CME Group Prices

Corn (May12) 641.25
Wheat (May12) 645.75
Soybeans (May12) 1278.75
Soybean Meal (May12) 333.8
Soybean Oil (May12) 54.61
Oats (May12) 312.25
Rough Rice (May12) 1416
Lean Hogs (Apr12) 89.825
Live Cattle (Apr12) 131.125
Feeder Cattle (Mar12) 158.6
Lumber (May12) 279.7
Ethanol (Jul12) 2.305
*Data as of 2:30 CT Source: Dow Jones & SIX Telekurs


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In This Newsletter

Mosaic Increases Dividend, Sees Much Larger Company In 5 Years

India’s Wheat Exports Likely To Pick Up Only After June

China’s Draft Grain Law Takes Tough Tone On GM Crops, Deep Processing

Archer Daniels Midland To Expand Partnership With Asia-Based Wilmar

One Million Tons Russian Agri-exports Delayed By Sea Freeze

USDA To Seek More Comments On New Dow Biotech Corn

Mosaic Reaches Settlement To Allow Mining At Key Florida Site


Thursday’s Calendar

8:30 a.m.
Feb 18 Unemployment Insurance Weekly Claims Report – Initial Claims Weekly Jobless Claims (expected 355K), Net Change (expected +7K), Cont Jobless Claims (prior week) (previous 3426000), Net Chg (prior week) (previous -100K)
9:30 a.m.
International Monetary Fund – IMF External Relations regular press briefing
9:45 a.m.
Bloomberg Consumer Comfort Index (previous -39.8)
10:00 a.m.
Jan Mass Layoffs
10:00 a.m.
4Q U.S. Quarterly House Price Index
10:00 a.m.
Feb 11 DJ-BTMU U.S. Business Barometer (previous +0.3%), (52 Wk) (previous +0.8%)
10:00 a.m.
Dec U.S. Monthly House Price Index (previous 183.8), House Price Index (MoM) (expected 0.1), (YoY) (previous -1.8%)
10:30 a.m.
Feb 17 EIA Weekly Natural Gas Storage Report Total Working Gas in Storage (previous 2761B), (Net Change) (previous -127B)
11:00 a.m.
Feb 17 EIA Weekly Petroleum Status Report Crude Oil Stocks (expected 339.08M), (Net Change) (expected +0.3M), Gasoline Stocks (previous 232.18M), (Net Change) (expected +0.3M), Distillate Stocks (previous 143.72M), (Net Change) (expected -0.8M), Refinery Usage (expected 84.1%), Total Products Supplied (previous 18.66M), Total Products Supplied (Net Change) (previous +1.04M)
11:00 a.m.
Feb Federal Reserve Bank of Kansas City Survey of Tenth District Manufacturing Manufacturing Activity Index (previous 13), (6 Mon) (previous 28), Maufacturing Composite Index (previous 7), 6-Month Composite Expectations Index (previous 12)
4:30 p.m.
Feb 22 Federal Discount Window Borrowings Primary Credit Borrowings (previous 0), W/E Daily Avg (previous 7M), Discount Window Borrowings (previous 8B), W/E Daily Avg (previous 8.04B)
4:30 p.m.
Feb 22 Foreign Central Bank Holdings Foreign US Debt Holdings (previous 3.46T), US Foreign Agency Holdings (previous 733.61B), Foreign Treasury Holdings (previous 2.72T)
4:30 p.m.
Feb 13 Money Stock Measures
European Commission – EU Internal Market and Services Commissioner continues Washington, DC visit



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Market Recap


US corn futures end higher as traders unwind corn-soybean spread trades that had weighed on prices recently. Soybeans’ gain versus corn has recently prompted some traders to worry farmers would plant less corn this spring, although others say the crop will be large regardless. Traders note firm cash prices and talk of increased exports also supported corn, though the market remain in a tight range. CBOT March corn ends up 8 3/4c at $6.38 1/4 a bushel.


US wheat futures climb amid strength in corn and optimism about export demand. Analysts say wheat was supported by corn, which climbed in a correction of the corn/soybean spread. Firm export-basis levels are also considered supportive, and traders are watching possible disruptions to Black Sea supplies due to cold that could boost US exports. Still, traders say world wheat supplies are abundant and that the market’s upside is limited. CBOT March wheat ends up 11 1/2c at $6.44 1/2 per bushel while March KCBT climbs 8c to $6.85 and MGEX March adds 1 1/2c to $8.18 1/4.



US soybean futures end higher, managing to rebound from early losses as late gains in corn and wheat drag soybeans higher. Spread unwinding was featured throughout the day, with traders taking profits of long soybean/short corn and wheat contracts keeping pressure from soybeans for most of the day, analysts say. Traders are reducing some risk ahead of Thursday’s USDA Outlook Forum, where it will release their first projections for the 2012-13 marketing year. After the spread trading ran its course, a strong technical picture and solid export demand allowed soybeans to bounce with a late rally in corn and wheat, analysts add. March CBOT soybeans ended up 1 1/4c at $12.72 1/4/bushel.

Soybean Meal/Oil

Soy product futures bounce, garnering strength from a late session recovery in soybeans. Soyoil led the advances in the products, supported not only by soybeans, but solid demand and general price strength in crude oil futures, analysts say. CBOT March soyoil ended up 0.16c at 54.22c/pound, and March soymeal ended up $1.10 to $331.30/short ton.


Oat futures ended lower, declining in the absence of fresh fundamental support. Oats for March delivery finished down 1 1/4 cent at $3.19 1/4 a bushel.

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US rice futures end slightly higher, in a modest rebound following four straight days of losses. Weak demand hangs over the market, which like other grains has been range-bound recently. Uncertainty about US planted acreage underpins. CBOT March rice ends up 9c to $13.92 per hundredweight.

Pork Complex

Lean hog futures were broadly higher as traders were cheered by firm cash prices and somewhat bullish technicals. CME Feb hogs closed up 0.6%, to 90.32c/lb, rising through the closely watched 200-day moving average. The settlement above 90 cents was the highest since October for the front-month contract. Although pork prices have been relatively listless since mid-December, prices for hogs and cash markets have remained firm, and avoided the sharp corrections characteristic of crumbling fundamentals.


Live-cattle futures continued their bullish march, reaching another record amid historical cash-cattle values and surging wholesale-beef prices. CME February live-cattle futures close up 0.4% at $1.2935/pound after earlier getting to $1.2977, a new intraday high for the spot contract. Meanwhile, March feeder cattle fell 0.1% to $1.5842. Beef prices were up midday, extending a 2-week run that’s pushed some prices to records. Traders are also gearing up for Friday’s cattle-on-feed report from the USDA, which is expected to confirm tightening coming supplies.


CME lumber futures rally to 1-week highs amid indications of improving demand that led to some short-covering. Existing-home-sales data released just ahead of the pit-session opening provided mild support as sales in January were up for the third time in 4 months. Improving sales of panel products such as oriented strand board and plywood also point to better demand overall, says one broker. March lumber closed up $4.50 per 1,000 board feet at $264.30 while May jumped 3% to $279.70. Cash prices ranged from $265-270.


Ethanol futures finished higher, climbing in unison with higher corn futures. Ethanol for March delivery ended up 0.8% to $2.201 per gallon.

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Top | Headlines



Mosaic Increases Dividend, Sees Much Larger Company In 5 Years

Mosaic Co. will more than double its shareholder dividends for 2012, Chief Executive Jim Prokopanko said.

The move will increase the annual dividend to 50 cents, up from 20 cents, Prokopanko told investors at an analyst day presentation in Florida. The increase will begin with the next declared dividend, he said.

Prokopanko also laid out a longer-term outlook for the company, saying that investors should expect Mosaic “to be a much larger organization” in five years.

Mosaic is the world’s largest phosphate fertilizer producer by volume and one of the largest potash producers. Executives emphasized that the company’s growth will come from expansion of existing sites, particularly for potash, rather than new mines.

Widespread planned expansions across the industry have prompted some investor concern about whether the market would end up with too much capacity. But Prokopanko said that new mine projects “are not a safe bet” and that unfavorable economics will likely prevent some of them from being completed. At the same time, he said, continued population growth and improving diets will continue to fuel fertilizer demand.

Mosaic plans to expand its annual potash capacity by 50% by 2021, to 16.5 million tons.

Meanwhile, Prokopanko noted a “changing landscape” in phosphate, with some of Mosaic’s competitors increasingly limited by their access to resources. He said he expects larger, stronger competitors to emerge in the industry as a result of consolidation.

“Over the next five years, expect us to deploy our balance sheet in ways that greatly enhance shareholder value,” Prokopanko added.

The company resolved one of the key issues surrounding its own phosphate supply this week, announcing Tuesday that it had settled a lawsuit with the Sierra Club that will allow Mosaic to proceed with the expansion of a Florida mine. Investors had expected the issue would take months, if not years, to resolve.

Mosaic was split off from Minnesota agribusiness company Cargill Inc., which had owned a two-thirds stake in Mosaic, last spring. Prokopanko has said the split gives the company more flexibility to pursue its own growth strategy.

Mosaic shares are up 3.5% to $58.92 in very high volume. The stock is up 16.8% so far this year.
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India’s Wheat Exports Likely To Pick Up Only After June

India’s wheat exports will likely start in earnest around mid-year, after state-run agencies complete purchases for government inventories, as most farmers would prefer to sell their output at an attractive government-mandated minimum purchase price, a level that exporters can’t compete with, trade executives said.

Traders will likely hold back from making purchases until the government completes its stock-building program, as buying at levels near the government price would reduce the competitiveness exports on the world market, said a senior Mumbai-based trader of an international commodities trading company.

India raised the minimum purchase price for wheat by about 15% to INR1,285 per 100 kilograms (around $260 a ton) in October to increase planting interest just ahead of the sowing of crops. Meanwhile, Indian wheat is being quoted for export around $268-$270 a ton, free on board.

The government is targeting a 12.6% increase in wheat purchases, to 31.89 million metric tons during the fiscal year that starts April 1, which will likely put it on track to complete its buying by the end of June.

India has exported limited supplies of wheat since an export ban was lifted in September, as local prices have been quoted on par with or higher than international rates. Between 450,000 and 500,000 tons of wheat has been shipped from the country to date.

Most of the shipments have been to the Middle East, with a small quantity having also been shipped to neighboring Bangladesh. Around 15,000 metric tons of wheat was being loaded on to a vessel at India’s western port of Mundra for shipment to the Middle East, two senior trade executives said.

Industry officials are optimistic that supplies will be available for export on the back of a record crop forecast for the crop year that ends June 30.

M.K. Dattaraj, former president of the Roller Flour Millers Federation of India, said prices will probably fall below the minimum purchase price in the second half of the year, adding that it is “too early” to forecast the amount of wheat that will be available for export.

The government has forecast 2011-12 wheat output at a record 88.31 million tons, but officials have said the figure could exceed 90 million tons thanks to favorable weather.

Some of the country’s early wheat has started arriving in markets in the western province of Gujarat–no more than 300 tons to 400 tons daily, industry participants said.

The wheat harvest in the country’s breadbasket northern region usually begins in April.
Top | Next

China’s Draft Grain Law Takes Tough Tone On GM Crops, Deep Processing

China published a draft grain law proposing tough management of genetically modified grains and the “deep grain processing” industry.

The proposed law underscores the challenges posed by plans to approve large-scale planting of GM crops while also remaining sensitive to uncertainties surrounding technologies that are redefining agriculture.

China has been slow to approve GM grains, but also cognizent of the need to leverage new agricultural techniques to improve yields amid a tight domestic supply-and-demand balance.

The Legislative Affairs Office of the State Council, China’s cabinet, said in a statement on its website that it will solicit public opinion on the draft, without specifying when the new law will become effective.

“No units or individuals shall apply GM technologies to the main grain crops [wheat, rice and corn] without authorization,” the draft law said.

In 2009, the Ministry of Agriculture gave safety approval for some GM strains of rice and corn, permitting test plots and paving the way for commercial production.

Projects involving deep processing–the use of grains for purposes other than direct consumption, most commonly associated with production of alcohol and starch–of corn, wheat and rice as raw materials must seek government approval, according to the draft law.

The government will limit the volume of grains consumed by deep processors when necessary, it said.

Deep processors process around a third of China’s total corn output.
Top | Next

Archer Daniels Midland To Expand Partnership With Asia-Based Wilmar

Archer Daniels Midland Co. said it has reached an agreement with Singapore-based Wilmar International Ltd. to expand the companies’ existing partnership.

ADM, which owns a 16% stake in Wilmar, said the companies would extend their partnership to fertilizer, ocean freight and tropical oil refining in Europe. The two companies, which trade and process grains and oilseeds, have signed a memorandum of understanding, ADM executives said at an investor presentation Tuesday afternoon.

ADM’s partnership with Wilmar has given it access to the market in China, where the two companies built a network of soybean-crushing plants. ADM, based in Decatur, Ill., said the companies’ relationship started in the mid-1990s.

“We have an excellent relationship with Wilmar’s leadership, and we see Wilmar as a key partner, especially in our strategy to serve growing Asian demand for agricultural products,” ADM CEO Patricia Woertz said.

The companies will now collaborate globally on fertilizer purchasing and distribution, and they will work to improve ocean freight fleet management, with both companies contributing two ships to the effort.

In tropical oils, the companies will work together to better use plant capacity in Europe, ADM said.

Woertz also told investors that a company job-reduction program, announced in January, would cut 4% of the company’s global work force, up from an initial estimate of 3%. The company will take a one-time charge at the upper end of the previously announced range of $50 million to $75 million, Woertz said.

She added that pre-tax savings from the job cuts would reach $125 million annually, up from a previous estimate of $100 million, and that the company would start to realize benefits in the fourth quarter.

The cuts will make ADM a “much more creative, lean, nimble organization,” Woertz said.

ADM is completing its job cuts in the U.S., which have included layoffs and early retirements, this week, while other cuts globally will proceed over the next several months. The number of total job cuts is expected to exceed 1,200.
Top | Next

One Million Tons Russian Agri-exports Delayed By Sea Freeze

Russian exports, of around 1 million metric tons of agricultural commodities, primarily grains such as wheat, have been delayed in the past month because freezing temperatures at ports in the south have prevented ships from reaching berths, shipping executives and traders said.

Some ships already loaded with grains are also unable to leave for their destinations, they said.

“The figure includes the grain stuck in both shipping vessels which are already loaded and the volume lying in the port warehouses,” Talibov Said, president of South Sea Port near Azov, said on the sidelines of an international grains conference here.

Russia is one of the world’s largest exporter of grains and oilseeds, and almost all its shipments take place from the southern ports. The delay in exports is one of the reasons for firming up of global prices in recent months.

Usually parts of rivers are frozen for a while in winter but it is unusual for Azov Sea waters near southern ports to turn into ice, said a Moscow-based cargo surveyor.

The smaller ports around Azov cater to importers in Turkey, Israel, the Middle East and European Union with cargoes of up to 5,000 tons each. The South Sea Port alone handles cargoes of around 50,000 tons monthly, at present mostly wheat.

Many ships are unable to reach berths, and exporters are resorting to force majeure, said Karina Nor-Arevian, head of South Sea Port’s legal department.

The weather is expected to improve only after mid-March, when the usual grain-loading operations can resume, Nor-Arevian said. There are at least six ports in and around the city of Azov in southern Russia’s Rostov district, with a total annual cargo handling capacity of close to 5 million metric tons, where operations have gone off-gear, she said.

Cargo surveyors said four ice-breakers are performing the steering operations of the vessels from Azov, Rostov, Taganrog and Yeisk ports, where the backlog is unlikely to be cleared before April.

In the past nearly eight months, Russia has exported close to 20 million tons of grains, at a monthly average of almost 2.5 million tons, but shipments are unlikely to be more than 5 million tons in the rest of the marketing year that ends June 30, or a tad above 1 million tons a month, Arkadiy Zlochevsky, president of the Russian Grain Union said.

The weather isn’t quite favorable for exports but a slowdown is natural during this time of the year, Zlochevsky said.

The supply disruption is temporary, the grain is still there and the backlog will be cleared eventually, Jay O’Neil, senior agricultural economist with Kansas State University said.

The Black Sea is open and deep sea ports of Tuapse and Novorossiysk are operational though there were delays earlier this month, the Moscow-based cargo surveyor said.
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Talking Points

USDA To Seek More Comments On New Dow Biotech Corn

The U.S. Department of Agriculture will extend by two months its public comment period for a new genetically modified corn by Dow Chemical Co. that is opposed by environmental groups.

Officials with the Center for Food Safety, one of the groups opposing the new corn trait that would give plants tolerance to the herbicide 2,4-D, said the USDA planned to file the extension.

Dow’s subsidiary, Dow AgroSciences, has touted the trait as part of its Enlist weed-control system. It has developed the system as seed producers and farmers seek alternatives to glyphosate, a herbicide that is losing its effectiveness against weeds in the southern U.S. and, increasingly, the Midwest. Weed resistance to glyphosate has been a growing issue for Monsanto Co., which developed a genetically modified corn that withstands glyphosate and markets it under the Roundup Ready brand.

But environmental groups have argued that 2,4-D, an older herbicide more widely used before glyphosate became popular, is much more toxic. The resurgence of 2,4-D might be a temporary solution to weed resistance, but it causes more environmental damage, said Bill Freese, science policy analyst for the Center for Food Safety. He noted that researchers have also found weeds already developing resistance to 2,4-D.

“It’s really not a solution,” he said. “It’s going to exacerbate the problem.”

The USDA’s Animal and Plant Health Inspection Service will extend the comment period on the trait, which was scheduled to end Monday, until April 27.

Officials with Dow AgroSciences and the USDA could not be reached for comment late Tuesday.

Dow announced in December that the Food and Drug Administration found Enlist to be in compliance with regulatory issues under its authority.
Top | Next

Mosaic Reaches Settlement To Allow Mining At Key Florida Site

Mosaic Co. has settled a dispute with the Sierra Club that will allow mining at a key Florida phosphate mine, the company announced Tuesday.

The fertilizer company said the settlement will resolve the pending federal court proceedings “in their entirety.”

The Sierra Club and local environmental groups had sued to stop an 11,000-acre expansion of the South Fort Meade mine, southwest of Orlando, which represents nearly a third of the company’s phosphate mining capacity. Minnesota-based Mosaic, which had said the expansion was crucial to the mine’s continued operation, had secured permits from the U.S. Army Corps of Engineers, but the environmental groups successfully sought an injunction to halt expansion pending further review.

The issue has loomed over the company for the past year and a half.

“This settlement provides certainty around our South Fort Meade mine and we look forward to bringing it back to full production,” Richard Mack, Mosaic executive vice president and general counsel, said in a statement.

Many investors had expected the dispute to drag out months if not years, in the process increasing the company’s production costs as it sought out other sources of phosphate rock. In a Tuesday note to clients, Goldman Sachs said that “wetlands mining permission could be years away,” although it expected the company would ultimately win permission.

As part of the agreement, which still requires court approval, the Sierra Club will drop its challenge to the permit. In exchange, the company will take several steps to conserve certain land tracts in the area, including a horse ranch.

The company will donate the 4,200-acre horse ranch, which it bought at a December auction, either to the state or a non-profit organization for permanent conservation. Mosaic will also donate $2 million to operate the ranch as a state park.
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