Traders await the results of OPEC’s emergency meeting on November 29 in Egypt and the regular meeting December 17 in Algeria.

“So far, it appears that the Saudis would prefer to wait until the December meeting before announcing cuts,” said Robert Johnston, an energy analyst at Eurasia Group. The Saudis, OPEC’s largest producer, have the most clout.

“However, a high level of compliance with the October cuts and the continued price collapse likely increases Saudi willingness to take on further cuts, whether in November or December,” Johnston added.

Analysts at Saxo Bank wrote that, from a technical standpoint, next week will be very important. “We will be watching $56 and more importantly $61 on the January WTI [West Texas Intermediate] crude contract as potential bullish indicators.”

Source: Crude Inches Higher, OPEC Meets in a Week

And if you thought things couldn’t get any worse, the Financial Times reported on Monday that U.S. mortgage rates soared last week amid a sharp rise in Treasury market yields. Make no mistake, inflation’s back. A Volker-like response may seem alarmist, even far-fetched, to many. However, investors are bracing for the Federal Reserve to raise rates going forward.

At least those rate increases could help U.S. Treasury Secretary Paulson fulfill his recent promise to “defend the dollar.” Secretary Paulson is on the final day of a four-day trip to Saudi Arabia, Qatar and the United Arab Emirates to negotiate currency and economic issues (i.e., a supply increase) from members of the OPEC cartel.

Shall we say America’s relationship with OPEC is a bit strained? Perhaps we’ve stayed a bit too long and expected a bit too much. The greenback keeps sliding down a cliff. Oil-producing states holding their dollar currency pegs are importing more and more inflation. At some point, both parties must reconcile that M3 – the fullest measure of U.S. money supply – can’t outpace a nation’s GDP forever.

Regardless, the Fed seemed content to exchange $16 billion worth of Treasury notes for mortgage- and asset-backed securities last Thursday. In its 10th Term Securities Lending Facility (TSLF), the Fed gave desperate investment houses another chance to dump their worthless derivatives for good ol’ American IOUs. To date, brokerage firms have dumped $175 billion on the Fed’s balance sheet.

Even holders of the mighty euro are feeling the pinch. We read in The Economist last week that customs seizures of counterfeit goods rose by 17% in the EU last year. Cigarettes and clothing accounted for more than half the sham gear seized.

It seems like desperate times call for desperate measures. And the masses, desperate for answers, call on politicians for help.

And any political production worth its salt has three main characters: the hero, the martyr and the villain. Heroes (politicians) need a martyr (America’s middle class) and a villain (oil companies) – and, if they’re lucky, a super villain (foreign oil companies).

Our colleague Eric Fry sums it up best: “When share prices soar, we call it a ‘bull market.’ When home values soar, we call it ‘healthy price appreciation.’ But when oil prices soar, we call it ‘speculation’ and ‘manipulation’…and then we gaze around for someone to blame.”

The members of Congress recently convened a special hearing to berate, rebuke and ridicule executives from five major oil companies. Each congressional inquisitor took a turn excoriating the oil companies for daring to earn a profit, especially when so many Americans have so little money. It just isn’t fair.

A few months earlier, you may recall, Congress invited the heads of America’s leading financial institutions to a little tête-à-tête. During that encounter, the congressional inquisitors took turns admonishing the finance CEOs for feathering their nests a bit too lavishly. But none of the execs in attendance drew much criticism for frittering away billions of dollars of shareholder wealth.

Therefore, the essential message from the nation’s top lawmakers is clear: Losing billions of dollars of shareholder wealth is a bad thing, but not nearly as bad as adding billions of dollars to shareholder wealth. In fact, earning billions for shareholders is such a bad thing that it must be legislated away or taxed into extinction.

Where were the nation’s top legislator-inquisitors when the NASDAQ bull market of 1999 and 2000 was powering higher? Where was the outrage over the “speculation” that produced obscene “windfall profits” for the Wall Street firms?”

We’re not so sure. But we continue to see that many in the West want to go through life pretending they’re still the greatest story never told.

It comes as no surprise. From Dutch tulips to dotcoms, people fool themselves into believing it’s “different” this time.

It’s never different this time.

Christopher Hancock
for The Daily Reckoning Australia

P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Source: Congress Berates, Rebukes and Ridicules Executives from Five Major Oil Companies

Rising raw material prices, in particular rising food prices, are now causing real hardship and what represents a cause for shoppers in developed economies to grumble is a matter nothing short of life and death for the millions less fortunate around the world. This note considers what many emerging countries are doing and why their actions, far from alleviating the problem, are actually making matters worse.

Lord Mark Malloch Brown is a junior minister in the current Labour administration. He has a reputation for being forthright and often puts his colleagues’ hackles up. He is also the former deputy secretary general at the United Nations and an acknowledged authority on global issues of critical concern. His recent comments regarding the growing food crisis are significant both because he has identified some of the root causes and because he has taken steps to raise the matter where some of his more craven colleagues dare not.

Lord Malloch Brown describes, somewhat unoriginally, the confluence of factors he sees as serving to cause food prices to rise as a “perfect storm”. These factors are: a series of poor harvests in Australia, the incremental demand for improved diet caused by the newly prosperous parts of China and India, coupled with the now wide-spread process of biofuel “flag planting” on land previously devoted to the production of food stuffs. We would add a few additional factors, on which more below.

Bang on cue, the United Nations secretary general Mr Ban Ki-moon has warned that, if allowed to escalate, permanently higher food prices could not only damage global growth but also, possibly, global security too.

Rightly, the secretary general has stuck to the UN’s remit by indicating that an environment that has seen wheat prices double and the price of rice explode higher could seriously put back the process of global poverty elimination. “If not handled properly, this crisis could result in a cascade of others (including the imposition of quotas and the banning of exports) and become a multi-dimensional problem affecting economic growth, social progress and even political security around the world”.

The biofuels debate is interesting from a number of angles. Firstly, it is not absolutely true to say that the commitment of land to the production of biofuels automatically reduces food production everywhere (although that hardly makes the European Union’s full-on encouragement of plant-derived fuel right).

Supporters of biofuels tend to use the Brazilian experience as justification for the dash to plant-derived fuel alternatives, not that that country’s success should detract from the fact that there are a lot of other places where land which would otherwise have been used to grow food for human consumption has now been given over to the production of biofuel to feed machinery!

The EU could, for example, call a halt to its pre-announced intention to derive 5.75% of petrol and diesel to be manufactured from plants, although we understand the EU’s difficulties given growing stresses in the oil market too.

The developed world has hardly covered itself in glory on this matter either. In particular legitimate questions might be asked of Western countries’ commitment to what has become known as the “Washington Consensus”. Part of the reason why a number of African countries are now back on the verge of starvation is that developed nations, through their International Monetary Fund (IMF) conduit, actively encouraged many African governments to cut farming subsidies and focus instead on producing cash crops for export and by so doing, open up their previously closed economies.

That the plan has backfired is made obvious by the fact that many countries are now struggling to grow sufficient to meet basic levels of domestic demand. Whilst the UN falls back on its World Food Programme to raise sufficient funds to feed starvation zones, what is really required is greater research and development, improved credit facilities and ultimately a “green revolution” similar to that which took place in parts of Asia, not that the Asian experience is without its own pressure right now.

From the point of view of global economics there has always been a gulf between the “haves” and the “have-nots”. Generally speaking, the larger a country is, the greater the likelihood that it will be richly endowed with natural resources. The fact that not even the largest countries are so well endowed in every scarce resource is reflected in the fact that imported inflationary pressure has become a global issue. Indeed, some of the world’s largest and most populous countries are those with the greatest dependency on imported raw materials.

Estimated top global countries by resource production

The chart shows resource wealth, calculated using the most recent production data for energy, basic resources and agricultural products using average prices achieved over the previous quarter. Against this is plotted a countries’ wealth on a per capita basis, to show that some countries are likely to benefit significantly more than others. On this basis, Saudi Arabia, Canada, Australia and Russia stand out. The second chart (below) compares the global share of a country’s estimated resource wealth against its share of global population.

But this decline is likely just the start for rice prices, which have been artificially inflated by government controls and may continue to plummet by as much as 20%.

Rice – which supplies one-fifth of the world’s calorie intake – really began its journey skyward last October, when India banned exports of non-basmati rice to protect the wildly popular grain from succumbing to inflationary pressures. Later that month, India eased the ban, but reapplied it last March.

Faced with civil unrest brought on by rising food prices, other countries have been following suit. In just a few months…

• India banned exports of non-basmati rice after inflation hit a 14-year high.
• Egypt, which typically brings 1.4 million metric tons of rice to the world market each year, banned exports from April 1 to Sept. 30.
• Vietnam, after curtailing exports in March and April, extended a ban on rice sales through May.
• Brazil suspended rice exports, approximately 313,000 metric tons a year, in an effort to maintain price stability.
• Indonesia suspended exports of medium-grade rice exports to combat inflation.

The price of rice doubled, and in some cases tripled, in the first four months of 2008, according to BusinessWeek. U.S. long grain rice jumped from $400 a ton to $800 a ton. Indian Basmati rice soared 182% from $850 a ton to $2,400 a ton. And Thai jasmine shot up from $559 per ton to $1,125.

But the price surge had little to do with supply and demand. Instead, experts pointed to the protectionist measures by rice producers.

“The primary reasons for the recent price spike in rice are due to export bans and restrictions by several major exporters globally that have tightened supplies in the global market,” Nathan Childs a rice specialist at the U.S. Department of Agriculture told Voice of America. “Overall though, the 2007-2008 rice crop is the largest on record and supplies are up a little bit from a year earlier.”

Only 7% of global rice production is traded internationally, which means any government intervention in the export or import markets could have a dramatic impact on rice supply and prices. Traders, millers, wholesalers and retailers also began hoarding supplies to see how much higher prices would go. A weak U.S. dollar and higher costs for fertilizer and shipping also contributed to the rise.

Speculation among investors and consumers has run rampant in recent months, adding to political and economic pressures. As the run-up in commodities price steepened in the early part of the year, driving the price of corn and wheat to all-time highs, traders on the Chicago Board of Trade dove head first into the volatile rice market. Rice futures have gained slightly less than 80% in the past year as a result.

“We have enough food on this planet today to feed everyone,” Adam Steiner, head of the U.N. Environment Program told the Associated Press, adding that the way that access to that food is being distorted by perceptions of future markets is distorting access to that food.

“Real people and real lives are being affected by a dimension that is essentially speculative,” Steiner said.

However, the market has begun to turnaround this week, with rice prices falling 11.6% from its April 24 peak. 

The drop accompanied news that Vietnam would produce enough rice to meet demand from exporters, as well as local consumers. The country also banned speculators from its domestic market.

Also, Thailand has announced it will release 2.1 million tons of rice from the state’s stockpiles for sale to the public to ensure that consumers pay moderate prices for the grain for the rest of the year.

Thailand is the world’s leading rice supplier and has repeatedly assured the public that it would not curb exports despite speculation to the contrary. The nation produces 18 to 20 million metric tons of milled rice each year, of which 9 million is consumed at home. The rest is exported.

Thailand has committed to the export of 8.75 to 9 million metric tons this year and remains confident it can meet that commitment, Reuters reported. In addition to causing a worldwide panic, going back on its word and imposing export curbs would be political suicide for the nations current governing party, which came into power largely on its populous farmer support. Almost half of Thailand’s 65 million people are involved in agriculture, which accounts for 11% of the nation’s GDP.

“I believe the government will not betray farmers who voted for them by imposing any export restrictions, which would cut export demand and adversely affect domestic prices,” Paka-on Tipayatanadaja, a rice analyst at Kasikorn Research in Bangkok, told Reuters. “Farmers invested a lot to grow more rice after the government said it has to plans to curb export. The government has no chance to reverse the policy now.”

Thai jasmine rice is one of the most popular types of rice in the world. U.S. imports of jasmine rice have jumped by 78% over the past ten years. One shopper outside a San Francisco Costco Wholesale Corp. (COST) stores told BusinessWeek that Thai jasmine rice was “the priced one, because of its smell.”

The price of the fragrant rice has benefited greatly from the bullish rice market as its price has more than doubled. As they did so, American shoppers and restaurant owners began panic buying the popular scented rice prompting wholesale clubs like Costco and the Wal-Mart Stores Inc.-owned (WMT) Sam’s Club to limit customers’ purchases.

Fortunately for jasmine rice fans, it’s likely that the price of all Thai rice will continue to ease next few weeks, possibly by 20% according to the secretary general of the Thai Rice Exporters’ Association.

“The market is likely to correct up to 20% even if the bans by India and Vietnam remain,” Korbsook Iamsuri, who is also managing director of Kamolkij Co. Ltd., told Reuters.

The benchmark Thai 100% B-grade white rice was quoted between $1,030 and $1,050 per metric ton, slightly below last week’s record of $1,080 per metric ton, Korbsook said. If she’s right, the price could adjust to $864 by mid-May. And if the price of Thai rice drops, it’s likely others will follow suit, as Thailand – which accounts for nearly a third of the global rice trade – is typically the standard bearer for global rice prices.

If rice prices persist at record levels, most experts expect that consumers will overcome cultural loyalties and switch to medium grade rice, like that grown in California and Arkansas. California will harvest approximately 4 billion pounds of rice this year, 40% of which will be exported. While it’s not as popular as its Asian counterparts, California rice has experienced a price jump of its own. According to the San Francisco Chronicle, California growers will get $20 per 100 pounds of rice this year, double the 2007 price. As a result the amount of rice being planted in the region is on the rise. Rice has been planted on an estimated 549,000 acres in California this year, up from 534,000 acres in 2007.