Thursday, August 30, 2012

Jim Rogers Says Commodities will Come Roaring Back

Some have wrongly believed that the end of the commodity super cycle is over, but Jim Rogers isn't one of them, as he says the recent downturn is only a temporary setback, and because supplies remain constrained, the upward move in prices will continue for some time.

Rogers stated in an interview with Mineweb, that "this is nothing more than a blip. The bull market will continue until a lot of supply comes on stream and the problems since 2008 ensure not a lot of supply is coming on stream."

Why it's different this time around as far as the length of the commodity bull market, is historically companies are starting to bring more supply online after about 8 or 9 years of higher prices. This time around, because of the crises in 2008, that temporarily halted much of the expected boost in production, resulting in a slow down in supply of commodities.

Rogers said concerning expansion of commodities companies, that "All these guys are delaying or suspending or cancelling new supply which is bullish. Until the supply comes we're not going to have an end to the bull market and, certainly in agriculture, my goodness, inventories are near historic lows, we have serious shortages of everything in agriculture developing, including farmers."

As for China, which is the major impetus behind commodity demand, Rogers sees them possibly loosening up their money supply, suggesting more demand for commodities, although he says that "China has loosened up too early every time in the last decade, which is why the real estate bubble has continued and it's gotten worse. So it looks as though China is going to loosen up again and in my view they're going to loosen up again too early this time around, and you'll probably have a continuation of the same old thing - more inflation and perhaps excesses in real estate again."

Concerning where investors should place their money in regard to commodities, Rogers concluded they should look for those commodities which have fallen the most in price for the place to begin.

Yingli (YGE) (CVE) (WPX) (OILT) (NRP) (PWE) (QRE) Ratings Changes and Initiations

Yingli Green Energy Hold. Co. Ltd. (YGE), Cenovus Energy (CVE), WPX Energy (WPX), Oiltanking Partners (OILT), Natural Resource (NRP), Penn West Energy Trust (PWE) and QR Energy LP (QRE) had ratings changed or initiated on them.

Barclays Capital upgraded Cenovus Energy (CVE) from an "Equal Weight" rating to an "Overweight" rating. They have a price target of $41.00 on the company.

Barclays Capital upgraded WPX ENERGY INC (WPX) from an "Equal Weight" rating to an "Overweight" rating. They have a price target of $18.00 on the company.

Bank of America (BAC) downgraded Oiltanking Partners (OILT) from a "Buy" rating to a "Neutral" rating.

ThinkEquity downgraded Yingli Green Energy Hold. Co. Ltd. (YGE) from a "Hold" rating to a "Sell" ratng. The slashed their price target from $3.00 to $1.00 a share.

Dahlman Rose initiated coverage on Natural Resource (NRP). They placed a "Hold" rating on the company.

Deutsche Bank (DB) initiated coverage on Penn West Energy Trust (PWE). They placed a "Hold" rating on the company.

JPMorgan Chase (JPM) initiated coverage on QR Energy LP (QRE). They placed an "Overweight" rating and price target of $21.00 on the company.

Saturday, August 11, 2012

Corn, Soybean Projections Slashed

Once again the U.S. Department of Agriculture cut its corn yield projection, dropping it 17 percent from last month to 10.8 billion bushels. Last month the USDA projected a corn yield of 13 billion bushels.

The USDA is always conservative in its downward revisements, so it's quite possible we'll see another significant downward adjustment next month, once the data from northern parts of the country are more conclusive and a fuller picture is made available.

According to the World Agricultural Supply and Demand Estimates report from the USDA, the average farm will produce about 123.4 bushels an acre in 2012, the lowest average yield since 1995.

For soybeans, estimates are for a yield of 2.69 billion bushels, down 12 percent from 2011, and way down from the 3.05 billion bushels the USDA was looking for last month.

Soybean yields are expected to come in at 36.1 bushels an acre this year, the lowest level in 9 years.

Agriculture Secretary Tom Vilsack has foolishly called for more government interference in the markets, pushing for a farm bill that he asserts "gives farmers and ranchers more certainty in this tough time, while giving USDA tools to help those producers affected by weather-related events beyond their control."

In other words, he wants even more entitlements for farmers in order to prop up failed practices. Or to put it another way, he wants taxpayers to bail out the farmers, which of the giant farmers will be the primary beneficiaries.

This is the typical government-is-the-answer-to-everything thinking, where people and the decisions they make are not allowed to fail.

Business is all about using the best data available to see the clearest picture of the future it can. Government has no right to interfere with the true entrepreneurial spirit, and that includes in the agricultural sector.

The one thing that needs to be done is to drop all the failed ethanol supports and also the government props that cause many farmers to be lazy in their practices. They need to learn again to stand on their own and dig even deeper into best practices for the sector.

Wednesday, August 8, 2012

Silver Wheaton (SLW) Acquires More Production

Silver Wheaton (NYSE: SLW) announced Wednesday it has entered an agreement with HudBay Minerals Inc. to buy all of the silver production at two of the company's mines.

The silver streaming company paid approximately $750 million for the production, as well as ongoing payments.

Silver production acquired from HudBay came from the 777 Mine in Canada and Constancia project located in southern part of Peru.

Also per the agreement, Silver Wheaton will also get all of the gold production from the 777 mine until Constancia passes a completion test, or until the close of 2016. Whichever of those two is later is how long Silver Wheaton gets the gold production from the mine.

Once that time arrives, Silver Wheaton will then get a reduction in gold production at 777, dropping to 50 percent for the remainder of the life of the mine.

The initial payout will be $500 million in cash at the close of the deal, and two more payments of $125 million each based upon specific capital spending requirements to be met at the Constancia project.

As for the ongoing payments, Silver Wheaton said that will be determined by the quantity of of gold and silver delivered, as well as the market prices at the time.

Silver Wheaton said it won't be using debt in any way to pay for any part of the deal, but rather pay it out of cash on hand. Per its other deals, the company said they won't be paying for any of the costs of exploration of other capital costs associated with the mines.

The deal will increase the amount of silver streamed by the company by an additional 4.9 million ounces a year.

Another deal has been anticipated by analysts and investors, as Silver Wheaton has been sitting on a pile of cash for some time, and much of the capital markets don't have a favorable view of the mining industry at this time, especially in Europe, where much of the investment capital for miners has come from.

Silver Wheaton closed Wednesday at $29.93, gaining $1.25, or 4.36 percent.

Friday, August 3, 2012

BHP (BHP) Writes Down $3.3 Billion

BHP Billiton (BHP) CEO Marius Kloppers announced the company has written down 3.3 billion on its gas and nickel assets.

Its gas assets in the Fayetteville shale-gas holdings of the company had a charge of $2.84 billion against it, while its Western Australia nickel sites were written down by $450 million.

The company said Klopper and petroleum business CEO Mike Yeager won't receive bonuses this year as a consequence of the writedowns. Both men requested that those actions be taken.

Companies jumping onto the shale gas bonanza have taken hard hits after the abundance of natural gas has driven the price down to 10-year lows recently.

BHP will continue to struggle with this because of the high price it paid for the gas assets, which will require a significant rebound in gas prices before it turns a profit.

The good news for BHP is the writedown was not as much as most had been looking for, coming in at the lower end of analysts' estimates, which were in a range of $3 billion to $5 billion.

Kloppers and Yeager are now moving drilling operations primarily to the Eagle Ford and Permian fields.

It is thought the company may seek to divest itself of its nickel business, but that would probably not work out well for them in a weak economic environment.

On the NYSE, BHP was trading at $67.8, up $1.78, or 2.69 percent, as of 10:33 AM EST.

Thursday, August 2, 2012

Euro Falls on Draghi Inaction

After the bravado expressed by European Central Bank President Mario Draghi concerning doing what it takes to support the euro, the announcement today that in the short term he will do nothing caused the euro to come plunging down from its recent strength.

His problem was he raised expectations far too high in the near term, something some experts said may be the case. They were right.

All that Draghi basically said was there are plans being drawn up by the ECB that would allow it to make outright purchases of bonds. Essentially all he did was say they are preparing to take steps that may or may not be taken. And odd and weak climax to the posturing he took concerning the euro.

The one major negative factor is that Germany isn't behind the moves yet, although contrary to public assertions by Merkel, she always has caved when it comes down to more stimulus in the euro zone.

So the real question appears to be how long it will take before all the mechanisms are lined up and where and how large the stimulus will be.

The euro will remain under pressure until that is more clear, and the U.S. dollar will continue to be strong.

It's almost a surety that the Federal Reserve will take some action at its next meeting in September, as the failing presidency of Obama is at risk.