Monday, December 14, 2009

Morning Note...

Futures +55bps this morning as Abu Dhabi bails out Dubai World with $10B, C announces it will repay $20B of TARP funding, and M&A heats up with XOM announcing it will buy XTO for $31B.  Additionally, Oil and the USD are both indicated lower, which is giving a slight boost to equities.  Sovereign Risk issues have generally faded for the moment, given Dubai World’s bailout.  Further, Greece’s PM Papandreou is expected to announce his plan for the Greek economy and it appears risk of default there has passed as well.  Looking ahead, we’re officially on “Fed watch” as the FOMC kicks off a two-day meeting tomorrow and will make their statement on Wednesday.  Bernanke – in a recent speech – prefaced the expectation that interest rates will remain low for an extended period of time.  So while volumes may be light and action tepid ahead of the Fed, don’t expect much out of the announcement.  In fact, it’s worth noting that despite all the economic releases and sovereign risk talk last week, markets remained essentially unchanged.  This confirms the much-talked-about theme that many investors have packed it in for the year.  The S&P remains range-bound between 1085 and 1115, and this week we’ll probably gravitate to the high-open-interest 1100-strike as Friday’s quadruple witching approaches.   The S&P quarterly rebalance is Friday, and BUYS with over one day’s volume are V, SAI, FSP, ROST, CLF, CDR, WBS, GNCMA, MRCY, HUB/B and SELLS with over one day’s volume are CHP, CVG, MBI, DYN, TKR, AHT, KELYA, KBH. 

Note that President Obama’s White House meeting with the country’s 12 largest banks kicks off today.  They are scheduled to discuss industry regulations and plans to boost lending.  As I mentioned last week, a boost in lending would most likely increase the velocity of money and thus could cause inflationary pressures ahead.  On December 17th, the Senate Banking Committee will vote on Bernanke’s reappointment and on December 18th Obama will travel to Copenhagen’s Climate Change Conference.  Both might generate headlines.  ADBE reports tomorrow, ORCL reports Thursday.  FDX, NIKE, PALM & RIMM also report Thursday.  Economic data ahead includes PPI, Empire Manufacturing, Industrial Production, and Capacity Utilization tomorrow; Mortgage Apps, CPI, Housing Starts, Building Permits, and the FOMC announcement are Wednesday; and Jobless Claims, LEI, and the Philly Fed are Thursday.  Interesting article on food shortages this morning that may have been overlooked – see the quote section below for the full text.

If you are wondering why parking in our building is tight this morning, or why there are a preponderance of accountant-types milling around the building lobby, FUBC has assumed all the deposits of Republic Federal Bank through a purchase and assumption agreement with the FDIC.

Barron’s positive DTV, COH, AXA, IVZ.  BBY earnings tomorrow could give a read into consumer sentiment.  AMR higher on “open skies” pact with Japan.  CAMD to be acquired by ON Semi for $4.70/sh.  PIPR ups FNSR.  FBRC ups ITW.  WSJ reports that EU regulators “welcome” ORCL proposal on JAVA bid.  CSFB ups MJN.  STFL ups NYB.  PM added to Conviction Buy List at GSCO.  BCAP ups RSH.  GSCO ups TKC.  BARD ups V/MA and V to replace CIEN in S&P500.  BCAP ups NFX.  GSCO ups VIP.  OPCO ups SBIB.  BARD ups ALV, LFUS.  UBSS ups EXPD.  BCAP cuts PMCS.  GSCO cuts TNE. KBWI cuts KML.  UBSS cuts PCH, PCL.  WELA cuts POR, THOR.  The US Dept of Energy announces plans to give out or lend more that $40B to companies working on “clean technology.”  (Check out the PBW etf for a way to play this; full disclosure:  I have been long for a few months…)

Asia mixed overnight.  Europe nearly 1% higher across the board.  Oil -40bps.  Gold +32bps.  USD – 13bps. 

Brightpoint News

Brightpoint PreMarket (yest close/premkt/% change/volume):

S&P 500 PreMarket (last/% change prior close/volume): 
XTO ENERGY INC            49.07    +18.27%           2788964
SUN MICROSYSTEMS     9.17      +9.69%             25090023
CHESAPEAKE ENERG       24.90    +8.12%             1316878
RANGE RESOURCES        46.55    +7.31%             30470
TERADYNE INC               10.24    +6.44%             30531
MICROCHIP TECH           30.00    +6.19%             200
SOUTHWESTRN ENGY     43.65    +5.31%             6956
DEVON ENERGY CO         67.25    +5.26%             120312
EOG RESOURCES           90.10    +4.71%             45115
CITIGROUP INC              3.77      -4.56%              103628571
ANADARKO PETROLE      60.35    +4.07%             52053
CABOT OIL & GAS          39.90    +4.07%             1079
DYNEGY INC-A                2.05      +4.06%             132296

Today’s Trivia:  In roughly what year was the toothbrush invented?

Yesterday's Answer:  Io, one of the moons of Jupiter, is our solar system’s most volcanically active body…

Best Quotes:  “Fastest Food Inflation Since Riots Means Milk Up 39% (Update1)
2009-12-14 09:05:07.912 GMT

By Alan Bjerga, Madelene Pearson and Yi Tian
     Dec. 14 (Bloomberg) -- Falling production in commodities from rice to milk is bad news for just about everyone except investors.
     Rice may surge 63 percent to $1,038 a metric ton from $638 on Philippine imports and a shortage in India, a Bloomberg survey of importers, exporters and analysts showed. The U.S. government says nonfat dry milk may jump 39 percent next year, and JPMorgan Chase & Co. forecasts a 25 percent gain for sugar. Global food costs jumped 7 percent in November, the most since February 2008, four months before reaching a record, according to the United Nations Food and Agriculture Organization.
     Farm prices this year lagged behind copper futures that doubled and oil’s 57 percent increase. A recovery from the worst recession since World War II would spur food demand and boost costs for buyers of commodities including milk processor Dean Foods Co. while increasing the number of hungry people that the UN says now exceeds 1 billion.
     “Agricultural commodities will be a great investment in the next three to five years,” said Oliver Kratz, who manages $10 billion as head of Global Thematic Strategy investments at Deutsche Bank AG’s DB Advisors in New York, including $3 billion in agriculture. For those who can’t afford to pay more for food, there’s the “painful” risk of hunger, he said.
     Expanding populations and higher incomes are boosting consumption in China and India. China’s milk demand is recovering after domestic supplies were tainted with melamine, a chemical used in making plastics that killed at least six babies and sickened almost 300,000 children. Droughts in India and Argentina and typhoons in the Philippines have reduced output.

                         Food-Price Risk

     “Inventories are extremely low in a number of grains markets,” Barclays Capital said Dec. 10. “The prospect of a further bout of food-price inflation in 2010 cannot be ruled out since many of the factors that contributed to higher prices in 2007 and 2008 are still a feature.”
     Stockpiles of corn and rice will drop before the 2010 harvest for the first time in three years, U.S. Department of Agriculture data show. The International Sugar Organization forecasts a second straight global supply deficit in the year through September 2010, and the USDA predicts stores of the sweetener will drop to the lowest level since 1995.

                          Pork, Poultry

     Wholesale-pork prices in the U.S. are up 27 percent this year, heading for the first annual gain since 2004, as farmers hurt by two years of losses cut the domestic breeding herd to the smallest level since the USDA started collecting the data in 1964. Chicken output is sliding in the U.S., where the number of eggs placed into incubators each week is headed to the lowest quarterly average since 2002.
     “The tendency for food prices is up, it’s not down,” Unilever Chief Executive Officer Paul Polman said Dec. 11 in a Bloomberg Television interview in Copenhagen. Rotterdam- and London-based Unilever, the largest consumer-product company after Procter & Gamble Co. in Cincinnati, makes Lipton tea, Hellmann’s mayonnaise and Bertolli sauces. “We need to be sure that we have the food supply, that we don’t waste, and that we continue to get increasingly efficient means to get that food to the consumers,” Polman said.
     The risk of accelerating prices may be muted by “healthy” gains in inventories, including wheat, according to the FAO. Supplies in warehouses are enough to meet about 23 percent of global demand, compared with 19 percent two years ago, the FAO said last week. Inventories are “far more comfortable” than during last year’s crisis, the UN agency said.

                      More Wheat Supply

     Global wheat stockpiles on May 31 are expected to jump 17 percent to an eight-year high of 190.9 million metric tons, after production last year reached a record 682 million tons, the USDA said Dec. 10.
     Food costs jumped to a record in June 2008 as wheat, corn, rice, oats, soybeans, animal feed and cooking oil reached the highest prices ever. Indonesia, Argentina and India restricted trade to protect supplies, according to the UN. Shortages sparked about 60 riots from Haiti to the Philippines before the global credit crisis and recession sent prices plunging.
     Global economic recovery means there is “increasing pressure on food prices to rise,” Nomura International Plc said in a report. “Volatility in price and supply are with us for the predictable future,” according to Josette Sheeran, the executive director of the UN’s World Food Program. “Risk is the new normal when it comes to food.”

                      Economic Growth Seen

     The global economy will expand 3.1 percent in 2010 as more than $2 trillion in stimulus combined with demand in Asia pulls the world out the recession, the Washington-based International Monetary Fund said on Oct. 1.
     The U.S. will expand 2.6 percent next year, compared with a contraction of 2.5 percent in 2009, according to the median of estimates from 83 economists in a Bloomberg survey. China’s growth will accelerate to 9.4 percent next year from 8.5 percent in 2009, a Bloomberg survey of 31 economists showed.
     Some food supplies already are falling. Global production of rice, the staple for more than half the world, has lagged behind demand in four of the past eight years, USDA data show. Rising consumption is expected to erode stockpiles by 41 percent to 85.9 million tons in the 2009-2010 marketing year, down from a record 146.7 million in 2001-2002, the USDA forecasts.
     Rice may exceed $1,000 a ton as dry El Nino weather, caused by a warming of sea waters in the equatorial Pacific Ocean, shrinks output and the Philippines and India boost imports, according to Sarunyu Jeamsinkul, the deputy managing director at Asia Golden Rice Ltd. in Thailand, the largest exporting nation.

                       Rice, Corn, Soybeans

     The Thai rice price may soar to last year’s record of $1,038 a ton, according to the highest estimate in a Bloomberg survey last month of 10 importers, exporters and analysts in Vietnam, Thailand, India, Singapore and Pakistan.
     Goldman Sachs Group Inc. said Dec. 3 that corn and soybeans will rally through 2011. Corn will reach $4.75 a bushel next year and $5 in 2011 on higher demand for fuels made from the grain, the bank said. Soybeans may reach $11 a bushel in the next 12 months and average $12 a bushel in 2011, Goldman said. Decatur, Illinois-based Archer Daniels Midland Co., the second-largest U.S. producer of corn-based ethanol behind Poet LLC, reported a 53 percent drop in quarterly profit last month on tighter supplies of soybeans it processes into animal feed and cooking oil.
     In the sweeteners and starches business, Archer Daniels Midland’s profit more than tripled to $194 million, partly because of higher selling prices and reduced costs for corn, which fell from last year’s record. Archer Daniels gained 14 percent since the end of June to $30.49 in New York trading.

                          Milk Supplies

     U.S. manufacturers’ stockpiles of nonfat dry milk fell to 90.1 million pounds on Oct. 31, 47 percent lower than a year earlier and less than half of what they were in June, the USDA said Dec. 4. Domestic production this year is down 8.2 percent, including a 27 percent drop in October, as farmers culled dairy herds to end a surplus, government data show.
     The price of nonfat dry milk, used in baking products and baby formula, will rise to an average of $1.275 a pound next year from 92 cents, and cheese will increase 28 percent, the USDA said on Dec. 10. Processed and fluid milk will jump 31 percent to $16.75 per 100 pounds, the USDA said.
     “We’ve been through the boom and then the bust, and it looks like we’re going to have another boom,” said Michael Harvey, an international analyst at Melbourne-based Dairy Australia, a trade group.
     Milk output will fall 4 percent in Australia in 2009-2010.
New Zealand’s production slipped 2 percent in the first three months of its season, and Brazil’s supply dropped 4 percent to 5 percent through July, Dairy Australia said in a report.

                        Westpac Forecast

     Milk-powder prices may gain more than 20 percent to exceed $4,000 a ton early next year, said Westpac Banking Corp., Australia’s second-largest bank. Whole milk powder for February delivery rose to a 16-month high of $3,523 a ton at auction, Fonterra, the world’s largest dairy exporter, said on Dec. 2.
     Dean Foods, the largest U.S. milk processor, said Nov. 2 that fourth-quarter profit may fall more than analysts expected, to at least 36 cents a share, because of rising raw-milk costs. Chief Executive Officer Gregg Engles told investors that prices, which will climb through next year, probably won’t surpass the records set in 2007 and 2008. Since Oct. 30, shares of Dallas- based Dean are down 5.4 percent at $17.25 in New York.
     Global sugar supplies will remain “tight” for the first half of 2010, JPMorgan Chase said. There’s a “material risk” that prices for March and May will jump 28 percent to 30 cents a pound, Tobin Gorey, the bank’s global commodity strategist, wrote in a report dated Dec. 10. Sugar for March delivery in New York increased 6.6 percent last week to close at 24 cents a pound on Dec. 11.

                        Palm Oil, Food Output

     Palm oil, the world’s most-used cooking oil, may soar to 3,000 ringgit ($882) a ton by March as El Nino parches crops in Asia, said Dorab Mistry, director of Godrej International Ltd., one of India’s biggest edible-oil buyers, on Dec. 4. Palm-oil futures for February delivery closed at 2,530 ringgit on Dec. 11 in Kuala Lumpur. Production may drop next year, he said.
     Food output will need to rise 70 percent in the next four decades as the global population expands to 9.1 billion in 2050 from 6.8 billion, the FAO estimates. Seven nations in sub- Saharan Africa, the world’s most famine-prone region, will see per-capita income fall next year, according to the UN, fueling an increase in hunger, which the organization now estimates affects 1.02 billion people.
     “The politicians had best be able to at least feed their populations or they’re going to have uprisings,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which manages $220 billion. “One of the first things, other than clean water and a toilet, that people want when their per capita income rises is food.”

For Related News and Information:
Top commodity stories: CTOP
Agricultural supply & demand AGSD
Top agricultural stories: TOP AGR
Agricultural supply, demand data: GCSD Farm-product prices, data: AGGP

--BBERG story

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