The Right to Choose: EPA Ethanol Mandate in Context

Much of the American agriculture industry has been adamantly opposed to the EPA’s recent decision to cut the amount of ethanol that must be added to the nation’s fuel supply – by about 3 billion gallons in 2014. Although such a decision will most likely hurt demand for ethanol, and ultimately the price of corn, as roughly 40 percent of our nation’s corn crop goes to fuel use, it is the right thing to do.

But don’t take my word for it.

American farmer Cory Ritter impassionedly explains in his blog that, at the end of the day, the customer should have the choice to purchase fuel with ethanol or not. The ability to choose is a fiercely held American value, so why take that away? As Cory points out, he is more than happy to grow non-GMO soybeans on his farm for a $2 premium per bushel. If customers want ethanol, or non-GMO soybean for that matter, they deserve the right to purchase those products.

The custom in the U.S. on Thanksgiving is to reflect on the past year and think about what one is thankful for. This year I’m thankful for the ability to choose. I wouldn’t have it any other way.

Cory Ritter’s blog post: Are You Angry Over Choices?

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Wednesday Links: Don’t Expect Inflation with Thanksgiving Dinner

Some pre-holiday reading…

The relationship between Brent crude and heating oil (The Short Side of Long)

The spread between WTI crude and Brent crude widens with Libya unrest (WSJ)

The traditional Thanksgiving dinner is cheaper this year than last (Business Insider)

SocGen predicts corn will hit $5 a bushel in 2014 on higher demand (Agrimoney)

Despite snow in Texas, China cotton auction weighs on prices (WSJ)

Has the global economy hit the end of the end of the world? (Business Insider)

Have a wonderful Thanksgiving!

Tuesday Links: Silver on the Brink of Crashing

Interesting reads for a Tuesday…

A nice mix of rain and sun boost Ivory Coast’s main cocoa crop (Reuters)

Silver is looking to crash (TheArmoTrader)

S&P 500 up 60% of the time in 2013 (Avondale Asset Management)

Heavy rains push U.S. cotton to three-month high (Bloomberg)

Reflect on the U.S. grain harvest with the last crop progress report of the year (Agriculture.com)

The NatGasPro on Stocktwits is a great source for fundamental information on natural gas (@NatGasPro)

The new economy: luxury brands thrive as down-market retailers struggle (Crossing Wall Street)

Brrrr…How High Can Natural Gas Rise on Cold U.S. Weather?

With below-normal temperatures forecast for the Northeast and Midwest for Thanksgiving Week, folks will be cranking up the heat more than usual for their annual festivities. With that anticipated rising demand, the January Henry Hub natural gas contract, the largest by volume, is riding a three-day win streak while the front-month December contract tests multi-month resistance levels around $3.8-$3.9 per million Btu.

After decisively breaking below $4 in June, the front-month contract has tested and failed to rise back above $3.9 three times. Looking at the chart below, natural gas:

  • Hit its usual summer peak in mid-July at $3.835 and then sold off
  • Failed to break through its July high in mid-September
  • Touched a multi-month high of $3.869 in mid-October but missed printing $3.9 for the third time.
Natural Gas: Is It Peaking or Will It Break Out?

Natural Gas: Is It Peaking or Will It Break Out? (Click to Enlarge)

Will natural gas finally breakthrough for a run at $4?

From a fundamental standpoint, the bullish arguments are in place. With colder-than-normal weather heading into December, traders may be anticipating an overall cold U.S. winter and are bidding up prices. According to the United States Energy Information Administration, about half of U.S. households use gas for heating.

On the supply side, oilfield services company, Baker Hughes, believes the total U.S. natural gas rig count will decrease 10 percent to 340 total in the fourth quarter this year. Longer term, Baker Hughes counted more than 900 rigs in September 2011 but that number has dwindled with falling prices.

Should natural gas fail to breakout, the January contract may provide a nice short-term sell opportunity especially if the weather starts warming up. Otherwise, the bulls may find themselves with a very happy holiday season.

For more… Liquefied Natural Gas: A Case for Rising Prices

Sunday Links: 10 Reasons To Get Super Bullish Right Now And Buy Everything Like Kanye

Some light reading to start your week off right…

Cartoon: 12 years a Wal-Mart employee (Reformed Broker)

10 reasons to get super bullish right now and buy everything like Kanye (Stocktwits)

Banning trans-fat may reduce soybean demand(Journal Star)

The Chinese demand question keeps cotton bulls sidelined (WSJ)

Paulson won’t add to gold position, tells clients (Bloomberg)

Will the Iran nuclear deal impact oil prices? The market will soon tell (Business Insider)

Abundant Supplies of Shale Oil Hold Down NYMEX Crude Prices

Much like how oil lubricates the engine of your car, oil is the single most important input for lubricating the global economic engine. As such, a host of fundamental factors can influence its price, making crude oil arguably one of the most complex commodities to trade. Even ex-traders from the supposed masters of the universe, Goldman Sachs, were torched trading the spread between Brent and West Texas Intermediate in October. Thinking it would shrink, it rose as oil shale production in the U.S. defied expectations and headlines in the Middle East pushed up Brent prices among many other factors I have no clue about.

Further pressuring WTI crude prices, last month the U.S. surpassed Saudi Arabia as the world’s largest producer of hydrocarbon products. Saudi Arabia and Russia still produce 3 million barrels more crude than the United States; but in the long-term, the U.S. will pass both in crude production after 2020 continuing until around 2030. That is if you believe the current projections for the amount of recoverable oil still in the ground.

Presently, at least, oil is overflowing in Cushing, Oklahoma, the WTI futures contract deliver point, as the United States Energy Information Administration noted that crude stockpiles have risen for nine straight weeks.

Perfectly illustrating American’s oil production renaissance is this nighttime satellite image of Earth taken last year, below, highlighting the immense size and scale of the North Dakota shale boom. In most cases, the bright orbs represent dense population centers where lights are the brightest, such as Denver or Los Angeles. Not so in the northwestern corner of North Dakota. That bright (circled) spot represents the drilling operations at the Bakken Formation composed mostly of natural gas burn-off.

North Dakota Shale Oil & Gas Wells Light Up the Night Sky

North Dakota Shale Oil & Gas Wells Light Up the Night Sky

High Prices Cure Themselves

In the previous decade, oil was a one-way bet as prices rose from 2002 to 2008, rising from $20 a barrel to more than $147. But as is often the case, the best cure for high prices is… high prices. The oil industry introduced new techniques to tap into oil that was previously cost prohibitive to drill and now no one is quite sure how much unconventional oil can be produced and for how long.

Looking at the big picture, crude oil, at least the WTI variety, is bearish and prices are reflecting this sentiment. After peaking at $112 on August 28, WTI crude has shaved off nearly $18 in the front month contract. The unrelenting flow of supply has overshadowed all other factors, including an improving economy, changes to the ethanol mandate and on-going turmoil in the Middle East, as demonstrated by the orderly downtrend in the three-month daily chart, below.

Crude Oil Prices in the U.S. are sinking under record supply

Crude Oil Prices in the U.S. are sinking under record supply

WTI Crude to the $80s?

In the past two weeks NYMEX oil has consolidated between $93 and $96 per barrel. Following the old adage that prices follow the path of least resistance, once can reasonably assume a continuation of a drown trend. If that happens, prices must pass through long-term support at $92 and $90 before breaking into the $80s. Barring any sort of supply shock or an airstrike on Iran, WTI prices will remain under pressure for the time being.

Thursday Links: Desperate to Taper

Links that caught my eye today…

High-profile hedge funders like timber (Reformed Broker)

Farmers face “considerable” loses with projected 2014 crop insurance prices (Cattle Network)

Global chocolate sales expected to reach highest levels since 2008 (WSJ)

Is China’s growth acceleration nearing an end? (Business Insider)

Fed Watch: desperate to taper (Tim Duy)

Great blog for all the latest Wall Street scams (Broke and Broker)

A-Rod just won’t go away (ESPN)