Rising Prices, Higher Volatility and Greater Risk in Agribusiness

Growing Farmers / Grain Elevator issues worldwide, if we summarize they come down to following for easy understanding–

1. Risk hedging tools (Future and Options) on the derivatives market are getting more expensive (more margin) and less reliable (volatility).
These tools have long provided a way to lock in the price of a crop as it is planted, eliminating the risk that prices will drop before it is harvested. With these hedging tools, grain elevators could afford to buy crops from farmers in advance, sometimes a year or more before the harvest.
But that was yesterday. It simply is not working that way today.

2. Crops prices are soaring on the updraft of growing worldwide demand, and a weak dollar is making the crops more competitive in global markets.


3. Crop prices are not just much higher; they also are much more volatile. For example, a widely used measure of volatility showed that traders in March expected wheat prices to swing up or down by more than 72 percent in the coming year, three times the average volatility for that month and the highest level since at least 1980.


4. Those wild swings in expected prices are damaging the mechanisms — like futures contracts and options — that in the past have cushioned the jolts of farming, turning already-busy farmers into reluctant day traders and part-time lobbyists.
Farmers used to leave the market-watching to traders who work for big grain elevator companies. But with some of those companies now refusing to buy crops in advance because hedging has become so expensive and uncertain, farmers have to follow and trade in those markets themselves.

5. Higher volatility in grain prices means higher crop insurance premiums to be paid. This is not just a problem for farmers. Eventually, those costs are going to come out of the pockets of the consumers.

6. Grain elevators are coping with the volatility and hedging problems by refusing to buy crops in advance, foreclosing the most common way farmers lock in prices.
Frustrated over the flawed futures contract, Mr. Fletcher (A grain elevator guy) is voting with his feet. Last year, he entered into a contract with A.I.G. Financial Products, a leading sponsor of commodity index funds, which allows him and the index fund to hedge their risks without using the C.B.O.T.

Instead of using futures or options, A.I.G. simply buys the commodity directly from Mr. Fletcher, who stores it for a fee and buys it back six months later. His storage fee is lower than the one built into the C.B.O.T. contract, so A.I.G. pays less for its stake in the market. And he has a hedge he can rely on.
“I did a deal with them for corn a year ago, and this year I’m doing a deal on soybeans,” he said.

But private deals like these do not provide pricing data to other farmers and to the rest of the food industry, which has long relied on the Chicago Board of Trade as the best measure of supply and demand. If such bilateral contracts become more common, it will be harder for everyone in the industry to anticipate costs and potential profits — which could also push prices up.
This growing uncertainty about prices and hedging “just makes the market less efficient,” said Jeffrey Hainline, president of Advance Trading. “And anything that makes these markets less efficient increases the cost of food.”

7. Higher volatility means putting more cash as margin.
When the margin call arrives, a farmer sometimes has to rely on his bank to advance him the margin he needs to keep those hedges in place — a worrisome requirement even for a successful farmer in an economy already struggling with a credit squeeze.
“The nightmare scenario is when you have to make margin and you’re looking out your back door and seeing, maybe, a crop problem,” he said. “Everybody has a story about a guy they know getting blown out of his hedge” by unmet margin calls.

8. On dozens of occasions since early 2006, the futures contracts for corn, wheat and soybeans have expired at a price that was much higher than that day’s cash price for those grains.

For example, soybean futures contracts expired in July at a price of $9.13 a bushel, which was 80 cents higher than the cash price that day, Professor Irwin said. In August, the futures expired at $8.62, or 68 cents above the cash price, and in September, the expiration price was $9.43, or 78 cents above the cash price.
Futures, for example, are less reliable. They work as a hedge only if they fall due at a price that roughly matches prices in the cash market, where the grain is actually sold. Increasingly — for disputed reasons — grain futures are expiring at prices well above the cash-market price.




When that happens, farmers or elevator owners wind up owing more on their futures hedge than the crops are worth in the cash market. When that happens, no one can be exactly sure which is the accurate price in these crucial commodity markets, an uncertainty that can influence food prices and production decisions around the world.

These disparities also raise the question of whether farmers, who rely almost exclusively on the cash market, are being shortchanged by cash prices that are lower than they should be.

Source 1 and 2

Biofuels + and -

Corn ethanol
Pluses: May reduce U.S. reliance on oil imports and enable moderate reduction in emissions of greenhouse gases compared with oil. Fosters the building of biofuels infrastructure

Minuses: Ethanol is energy intensive to produce, and the recent boom has pushed corn prices to more than $5 a bushel (from $2 in 2006). That is increasing the cost of everything from beef to soft drinks. The biofuels craze is helping drive up grain prices worldwide as farmers devote more acres to corn and less to other crops. Over 450 pounds of corn are needed to fill a 25-gallon tank with ethanol_ enough calories to feed a person for a year.

Biodiesel
Pluses: Made from vegetable oils like soy and canola and animal fat, biodiesel provides 90% more energy than is required to produce it. Compared with petroleum-based diesel fuel, biodiesel is estimated to cut greenhouse-gas emissions 40% to 80%

Minuses: Like corn ethanol, biodiesel's production from food crops boosts "agflation." European demand has been blamed for inducing farmers in Southeast Asia to burn and replant the rain forest with palm plantations, which has released large amounts of greenhouse gases. Production is limited at the moment_ just 250 million gallons in 2006.

Sugar-cane ethanol
Pluses: Sugar cane yields more ethanol per acre than corn, and it requires less energy to produce; hence, it is regarded as greener than corn ethanol. Sugar isn't a food staple, so making ethanol from it hasn't driven up food prices as has the production of large amounts of corn ethanol. Brazil makes nearly as much ethanol from sugar cane as the U.S. does from corn; cane provides nearly half of Brazil's transportation fuel from plants grown using about 1% of its arable land.

Minuses: Growing sugar cane requires a warm, rainy climate, which limits its potential as a global fuel source.

Cellulosic ethanol
Pluses: Made by breaking down wood chips, farm waste, and nonfood crops like grasses, cellulosic ethanol wouldn't require diverting the use of cropland. Scientists are making progress at breaking down plants' tough cellulose and lignin molecules, the key to turning nonfood biomass into fuel.

Minuses: Still costly and difficult to make, ethanol produced from nonfood plants is more energy intensive than that made from corn and sugar cane. By one estimate, putting all the grassland in the U.S. into fuel production could replace only about 10% of petroleum.

Algal biofuel
Pluses: The fastest-growing plants, algae theoretically can produce 30 times more energy per acre than other biofuel options. A particularly rich mix of byproducts can be made in algal-biofuels operations (everything from nutraceuticals to feedstocks for making plastics), potentially abetting their cost-effectiveness. This is the biofuels' dark horse.

Minuses: Unlike cellulosic ethanol, the biomass for making a lot of fuel from algae doesn't yet exist; it has to be grown from scratch. Harvesting is still expensive. Cost-effectively producing algal biofuels on a large scale may be many years away.

Read the story here

Rumor is that AT&T will cut iphone price by as much as $200 this summer (2008) !!

When the 3G iPhone is introduced this summer, AT&T, the exclusive U.S. iPhone sales partner with Apple, will cut the price by as much as $200, according to a person familiar with the strategy.

AT&T is preparing to subsidize $200 of the cost of a new iPhone, bringing the price down to $199 for customers who sign two-year contracts, the source says. Apple is expected to have two versions of the new iPhone, an 8-gigabyte-memory and a 16-gigabyte-memory model with price tags widely expected to be $399 and $499.

AT&T and Apple declined to comment.

At $200, the iPhone would be within reach of a much wider consumer market and give AT&T a strong magnet to pull lucrative customers away from rivals like Verizon Wireless (VZ), Sprint (S) and T-Mobile (DT). The $200 rebate or subsidy would be limited to AT&T customers and not available through Apple’s stores. The new iPhone sold by AT&T will likely be locked or programmed so buyers can’t take the cheaper iPhone to another phone service.

Unfortunately, the $200 subsidy will supposedly be limited to AT&T customers and won't be available through any of Apple's stores

Read the story here

Rating agencies incredible role in the subprime mess

Obscure and dry-seeming as it was, this business of rating securities offered a certain magic. The magic consisted of turning risky mortgages into investments that would be suitable for investors who would know nothing about the underlying loans. To get why this is impressive, you have to think about all that determines whether a mortgage is safe. Who owns the property? What is his or her income? Bundle hundreds of mortgages into a single security and the questions multiply; no investor could begin to answer them. But suppose the security had a rating. If it were rated triple-A by a firm like Moody’s, then the investor could forget about the underlying mortgages. He wouldn’t need to know what properties were in the pool, only that the pool was triple-A — it was just as safe, in theory, as other triple-A securities.

Over the last decade, Moody’s and its two principal competitors, Standard & Poor’s and Fitch, played this game to perfection — putting what amounted to gold seals on mortgage securities that investors swept up with increasing élan. For the rating agencies, this business was extremely lucrative. Their profits surged, Moody’s in particular: it went public, saw its stock increase six fold and its earnings grow by 900 percent.

By providing the mortgage industry with an entree to Wall Street, the agencies also transformed what had been among the sleepiest corners of finance. No longer did mortgage banks have to wait 10 or 20 or 30 years to get their money back from homeowners. Now they sold their loans into securitized pools and — their capital thus replenished — wrote new loans at a much quicker pace.

Mortgage volume surged; in 2006, it topped $2.5 trillion. Also, many more mortgages were issued to risky subprime borrowers. Almost all of those subprime loans ended up in securitized pools; indeed, the reason banks were willing to issue so many risky loans is that they could fob them off on Wall Street.

But who was evaluating these securities? Who was passing judgment on the quality of the mortgages, on the equity behind them and on myriad other investment considerations? Certainly not the investors. They relied on a credit rating.

Thus the agencies became the de facto watchdog over the mortgage industry. In a practical sense, it was Moody’s and Standard & Poor’s that set the credit standards that determined which loans Wall Street could repackage and, ultimately, which borrowers would qualify. Effectively, they did the job that was expected of banks and government regulators. And today, they are a central culprit in the mortgage bust, in which the total loss has been projected at $250 billion and possibly much more.
In the wake of the housing collapse, Congress is exploring why the industry failed and whether it should be revamped (hearings in the Senate Banking Committee were expected to begin April 22).

Whom can we rely on as an investor then?
The agencies have blamed the large incidence of fraud, but then they could have demanded verification of the mortgage data or refused to rate securities where the data were not provided. That was, after all, their mandate. This is what they pledge for the future. Moody’s, S.&P. and Fitch say that they are tightening procedures — they will demand more data and more verification and will subject their analysts to more outside checks.

This leaves an awkward question, with respect to insanely complex structured securities: What can they rely on? The agencies seem utterly too involved to serve as a neutral arbiter, and the banks are sure to invent new and equally hard-to-assess vehicles in the future.

Read the enire story here

Infants thrown off roofs to thank God !!

Religious traditions are diverse and sometimes as bizarre as they can get. A village in Solapur, Maharashtra (India) has a dangerous tradition of throwing newborns from a height of 50 feet onto a sheet, which is held by devotees.

This is an age-old tradition practiced by couples who are blessed with a child after taking a vow at the dargah. The devotees also believe that this ritual is good for the health of the child.

"People have been following this tradition for almost 500 years now". While the practice may seem dangerous and superstitious to others, the devotees strongly believe that the fall will not harm the infants. The reason given is that there has been no recorded evidence of any physical disability to the infants.
"It’s our family tradition and so we follow it," a devotee said.

Both Muslim and Hindu families take part in this ritual, however the state administration chooses not to interfere and provides heavy police security during the ritual every year.



Read the ful story here

How subprime affected MBS, CDOs and Rating agencies?

Below is a visual step by step representation of how subprime loans were re-packaged by the institutions and then rating agencies went on to rate them as good investment grade.








A working model can be found here
To understand subprime, pls read here.

What is Sub-prime issue?

First what is subprime?
When banks lend money to people, they broadly classify them into prime and subprime debtors, where the former are people who are considered creditworthy and the latter, less so.

Normally banks don't lend to those who are not creditworthy, do they?
While it will be prudent not to lend to anyone other than the creditworthy, banks do lend to subprime debtors. However, since these debtors are considered less creditworthy for reasons such as low income etc, banks usually lend to them at higher rates of interest.

Subprime borrowers pay a risk premium, may we say?
Yes. And in some cases, risks were high: loans were given to NINJA borrowers (that is, No Income, Job or Assets). This is the genesis of the 'subprime crisis' that is playing itself out currently on global markets.

How is subprime crisis defined?
Firstly, one must understand that though the word 'subprime crisis' is being used as a generic term, it actually refers to a credit problem among subprime borrowers (they account for 8 per cent of total mortgages in the US) in the residential market in the US. Like borrowers anywhere in the world, the interest paid on residential mortgages in the US is linked to the central bank's benchmark and in this case, the US Federal Reserve's Fed Funds Rates.

Can we trace back the problem to find out when things began to turn messy?
Between 2004 and 2006, because of incipient inflation in the US economy, the Federal Reserve or Fed increased its discount rate from 1 per cent all that way to 5.25 per cent. Because of this, holders of residential mortgages too saw their payments on their house loans rise. This rise in rates was a disaster in the making for the banks that gave loans to subprime borrowers.

So, they would have defaulted?
True, because the first issue with subprime borrowers is that they are likely to be low-income people. When faced with higher mortgage payments, they fell behind on their payments and in cases, some also became delinquent and banks started repossessing houses.

The banks would have sold the repossessed houses to recover the dues?
In the normal course, yes. However, because of higher interest rates, people became more cautious in borrowing to buy houses and there was a general slowdown in demand in the housing market causing these banks to hold assets that people weren't just willing to buy.

Did no one see the crisis coming?
The so-called subprime crisis started unfolding when people started defaulting on their housing mortgages. Initially, it was thought that the problem was only limited to a few lenders and people didn't give it much thought. A testimonial to the fact that people didn't give it much thought is best highlighted when one looks at the level of the Dow Jones Industrial Index. The news of the subprime defaults was highlighted earlier in the year itself but the Dow actually closed at its highest level ever of 14,000 on July 19. Then things started unravelling.

The lenders take the hit when borrowers default, but we find the crisis spreading far and wide. How so?
That is because mortgages held by banks are typically bundled and sold to other institutions. These institutions will then slice these mortgages into residential mortgage backed securities (RMBS) or in other words, securities that are backed by collateral; the collateral here being the mortgages held by subprime borrowers.

And then?
These RMBS are then rated by rating institutions such as Moody's, Standard & Poors etc based on various parameters…

Which is why the wrath has now turned on the rating agencies?
That's right. These RMBS are then divided further and sold as collateralised debt obligations or CDOs to various investors; and investors will buy these CDOs based on their appetite for debt.

Risky appetite?
Obviously. The people who hold the riskiest debt also get paid the highest when times are good, and get hit first when times are bad.

When did the issue surface?
The CDO issue first arose in June when a Bear Stearns hedge fund borrowed money from Merrill Lynch and gave their CDOs as collateral. Merrill Lynch decided to sell the collateral but soon realised that there was something wrong when they were unable to sell because their sale was driving down prices.

'Painful lesson in subprime', as the media reports?
And a costly one, too. Soon the market realised that there was a serious issue with the CDOs that went just beyond the Bear Stearns debacle. Essentially since these CDOs are part of RMBS, people realised that there was little or no solid collateral backing the RMBS because of the defaults by subprime borrowers.

An 'asset' that turned out to be hollow?
Exactly. And then two issues arose. One, no one knew how much of these CDOs banks and financial institutions were holding; and two, banks and financial institutions didn't know how much their CDOs were worth because the market for the CDOs had practically collapsed. Because of this, the markets started punishing the banks that held these CDOs and that is cause behind the volatility that one is currently seeing in global equity markets. It also emerged that there were more lenders caught in this subprime mess than was initially thought…

Do we know how many are affected by the problem on hand?
As of now, it has been estimated that 127 lenders have been caught in this. On August 15, the shares of Countrywide, the largest mortgage lender in the US, fell by 13 per cent after they issued warning about the potential hit on their balance sheet. One of the biggest concerns of this debacle is that instruments that were rated at AA have now started defaulting.

Have the rating agencies woken up?
Jolted from slumber, one may say. Rating agencies have now started to downgrade all RMBS backed by subprime mortgages and that will force banks to sell them because of capital norms and this will only cause a further plunge in prices.

Now, what are the lessons from the crisis?
This subprime mess raises two very important issues. One, the way banks lend money willy-nilly to people without properly checking their credentials; and two, the absolutely pathetic rating process used by the rating agencies. While both are hazardous to the system, the latter raises issues of moral hazard because the rating agencies profited massively from rating these RMBS.

Can we say that the worst is safely behind us?
Doubtful. It looks very likely that we are merely at the tip of the proverbial iceberg as far as the subprime crisis is concerned and that there is much more below the surface.

Airlines will now charge $25 for the Second Bag to travellers

Five of the six major airlines in the United States plan to start charging coach passengers as much as $25 next month to check a second bag, in their latest move to offset high fuel prices.

“For people traveling with samples or trade show materials, they’re going to find their costs are substantially higher,” an airline industry analyst, Robert Mann, said. “It’s really not limited to leisure travelers.”

The new fee of $25 for a second bag is being levied by Continental, Delta, Northwest, United and US Airways. The low-fare carrier AirTran has announced that it will charge $10 a flight for a second checked bag. Airlines have long levied fees for checking a third bag. Some carriers have recently increased those as well, and the fees on the major carriers now run as high as $100.

As the airlines struggle to stay in the black, charges for amenities formerly included in the ticket price are on the rise. Depending on the carrier, travelers now can wind up paying extra for everything from food to curbside check-in to bulkhead seats that offer extra legroom.

As for the extra bag fee, even those who say they pack lightly for their trips anticipate problems caused by price-sensitive fliers overfilling their carry-on bags and using large amounts of scarce overhead-bin space.

“The thing that scares me about this is that it’s just going to encourage people to lug more stuff onto the plane,” Mr. Mitchell said. “For those of us that have only one bag, if I don’t board early, there’s no place for my bag.”

Some business travelers say they would express their displeasure with the new regulation by opting for carriers that do not charge a separate fee for checking a second bag. They concede, however, that this may become impossible as more airlines, reeling from the escalating cost of fuel, might look toward imposing similar fees in the future.

“I will switch to another carrier that doesn’t charge the fee,” Mr. Bower of Wine Galaxy said. He conceded, though, that this might become more difficult as more airlines follow suit.

He recently booked a business trip with AirTran to avoid paying the extra baggage charge. On April 11, however, AirTran announced that it, too, would start charging passengers to check a second bag. Although Mr. Bower’s trip is scheduled for a few days before the start of the new fee, he says next time he might just have to carry on two bags.


Another affect for the common man due to daily rising oil prices. It is slowly and steadily going to hit hard at every budget.
Click here to read entire story.

Veggie Animals in a cool way

Olympic Rings of protest

$20 cellphone with no flips, no folds - just a phone

It looks a bit like a child's toy, a walkie-talkie circa 1975, a cheap plastic throwback to the good old days when telephones were made for talking.

But to Spice Ltd., a telecommunications company in the world's fastest-growing phone market, this new product embodies the latest, greatest innovation in cellphone technology today: a handset priced at less than $20.

Spice, which is based in Noida, India, unveiled what it is branding "the People's Phone" at a wireless industry conference in Barcelona last month. The handset is an anomaly among mobile phones today: The number keys are big and bold. It is chunky and has no color screen - in fact, it has no screen at all. Nothing about it flips, folds or slides. It is, as Spice's chairman, Bhupendra Kumar Modi, described it, "just a phone."

Yet if sales unfold according to Modi's plan, Spice could sell as many of the People's Phone as Apple sells of its iPhone, which sits at the other end of the coolness - and price - spectrum, with a price tag of $399 in the United States and more in some other markets. Both companies are aiming for sales of 10 million phones in their first year, which would be about a 1 percent share of the global market in 2008.

Innovative Japanese Bar codes

Bar codes or UPC symbols, these ubiquitous emblems of our consumer civilization, have received a radical makeover by a Japanese firm D-Barcode - and this time their ideas ended up on grocery products all over Japan.

The innovation is so beautiful and very well covered by fellow blogger DarkRoastedBlend

How To Buy A Tennis Racquet ?

New high-tech materials, larger heads and longer racquets have changed the way the game of tennis is played. It is essential that you choose the type and size racquet that best fits your game.

* Matching your racquet to your ability level
o Beginners
o Intermediate
o Advanced
* Determining your racquet type
o Defining your swing type
o Power player
o Finesse player
o Combination player
* Understanding racquet technology
o Head size
o Length
o Weight
o Stiffness and flexibility
o Head shape
o Grip size
* How to choose right string
o Pre-strung racquets
o Unstrung racquets
o Understanding string technology

I will collaborate more for beginners here and have few links for them to read. Hopefully it will give them much better idea before buying anything.

Also for beginners i would suggest to go for oversize around 110, head light (for less shocks for your arm). I am looking for Head Liquidmetal 8 for power (since it is oversize) and bit control too.

Links to research -
http://www.dickssportinggoods.com
http://www.tennistom.net
http://www.tennisracquets.com
http://www0.epinions.com/

Where can i see Cherry Blossom Festival in USA?

Cherry Blossom Festivals: An Explosion of Pink and White
LIFE is, actually, a big bowl of cherry blossom festivals — at least come March and April, when more than a dozen bloom from Philadelphia to San Francisco. They vary in scope and size, but all owe their existence to the Japanese tradition of celebrating the fleeting splendor of the flowers.

"The blossoms usually only last about a week, and that's what we as Japanese find so beautiful," said Reiko Hirai, special events coordinator at the Japan-American Society of Washington, which is involved in organizing the National Cherry Blossom Festival (also called Sakura Matsuri) in Washington,

Though the natural spectacle of the bursts of pink and white flowers — which last an average of 7 to 10 days — could certainly stand on its own, the trees seem to inspire all sorts of fanfare.
The best-known festival is the one in Washington, which has 3,750 cherry trees by the festival planners' count.

Where they Blossom in USA?

MACON, GA. International Cherry Blossom Festival; 478-751-7429; www.cherryblossom.com;

WASHINGTON National Cherry Blossom Festival; 202-547-1500; www.nationalcherryblossomfestival.org;

SAN FRANCISCO Annual Northern California Cherry Blossom Festival; 415-563-2313; www.nccbf.org;

PASADENA, CALIF. Annual Cherry Blossom Festival Pasadena; 626-683-8243; www.pasadenacherryblossom.org;

PHILADELPHIA Subaru Cherry Blossom Festival of Greater Philadelphia; 215-790-3680; www.jasgp.org;

NEWARK Annual Cherry Blossom Festival; 973-268-2300;www.branchbrookpark.org;

NEW YORK Sakura Matsuri (Cherry Blossom Festival) at Brooklyn Botanic Garden; 718-623-7200; www.bbg.org;

Chinese atrocity cartoon

Funny Cartoons