Volkswagen’s Frankfurt-traded shares soared as high as $1,258 (1,005 euros) before closing at $1,186 (918 euros) yesterday.

On Monday, Porsche SE (PINK: POAHF) announced it had acquired options on 31.5% of Volkswagen’s stock, in addition to the 42.6% direct stake it already controlled. With the German state of Lower Saxony controlling another 20.2% of Volkswagen stock, that left a very small amount of shares available for short-sellers who had bet on a decline in Volkswagen’s share price – given the poor outlook for the global auto industry – to cover their “short” positions.

“We’re getting a sense of the Sturm und Drang in the markets now,” Michael Holland, the manager of Holland & Co., an investment management firm, told the International Herald Tribune. “When you get into panicked markets as we’ve had in the past few months, you get these vicious moves which happen on the downside and then to the opposite direction. It’s incredible to watch.”

The result was a zooming share price for Volkswagen as hedge funds and other institutional investors bought up shares to cover shorted positions.

Porsche announced today (Wednesday) that it would settle as much as 5% of the derivative contract that make up its indirect stake to increase the supply of VW shares in the marketplace and alleviate some of the pressure on short-sellers. That 5% stake has increased in value by $13.8 billion in the first two days of trading this week, Bloomberg reported.

“Porsche SE intends – depending on the state of the market – to settle hedging transactions in the amount of up to 5.0% of the Volkswagen ordinary shares,” the company said in a statement.

The move sent Porsche shares up as much as 43%, as it investors began to realize that the Stuttgart-based luxury carmaker stands to make a sizable profit from Volkswagen’s recent share movements.

“Porsche has many opportunities with their options,” Robert Heberger, an analyst with Merck Finck, told Forbes. “They could just cash in the money without buying the shares, and this would give them billions of gains with their options, which they can hold in cash.”

But some analysts have accused Porsche of manipulating the market to its advantage.

“Porsche has acted irresponsibly and that has damaged capital markets considerably,” Henning Gebhardt, who helps manage the equivalent of $220 billion at DWS Investment GmbH in Frankfurt, told Bloomberg News. “Porsche snuck up on Volkswagen. They knew about the short sellers, and it must have been clear to them that there would be a massive short squeeze.”

The volatile price swings caused the Frankfurt Stock Exchange to reduce Volkswagen’s weighting in the German blue-chip stock DAX Index to 10% from 27%. That move caused the share price to drop, as asset managers sell Volkswagen shares to rebalance indexed-portfolios.

Volkswagen shares closed Friday at $271.21 (210.52 euros).

Volkswagen is best-known as the producer of the hugely successful VW Beetle – which was a huge commercial winner, with more than 20 million vehicles sold, and which also became a cultural icon during the Flower-Power era of the 1960s and the gas-line-era of the 1970s. Porsche has developed such winning sports cars as the 356, the 911 and the Turbo Carrera.

The 356 hasn’t been built for more than four decades and yet still has an international following spearheaded by a special club.

Source: Volkswagen’s Racing Shares Fueled by Porsche Investment

Global wheat production will likely be 4.4% less next year, Dan Basse, president of AgResource Co. in Chicago, told Bloomberg News. Basse believes the world’s corn and soybean crops will also see declines.

“The credit situation is worrying even the biggest and best farmers,” Brian Willot, a former University of Missouri commodity analyst who now grows soybeans in Brazil, told Bloomberg. “For the financially weak, credit has dried up completely. For the strong, credit has been delayed and interest rates are higher.”

The risk-aversion of Wall Street is spreading out into other industries, as the main sources of lending for farmers – rural independent banks and crop processors such as Cargill Inc. and Archer Daniels Midland Co. (ADM) – tighten credit requirements by charging higher interest, demanding more collateral or in some cases, discontinue lending completely.

“We certainly could see tight credit having an effect on agricultural production,” U.S. Agriculture Secretary Ed Schafer said earlier this month. “The costs of farming operations today are huge, and that backs up to the banks that have balance sheets that are tight, it backs up to elevators that have credit stretched out.”

Worse, drops in agriculture yields could be devastating to more than just the agriculture industry.

“Stockpiles are going to be extremely tight,” AgResource’s Basse told Bloomberg. “The world cannot afford any dislocation in production next year, or there will be a real shortage.”

The United Nation’s World Food Programme says the world is already gripped in a “silent tsunami” of hunger. And every drop in production pushes more of the world’s hungry towards the brink of starvation.

“It is estimated that more than 100 million people in the world have been forced into poverty and hunger because of the dramatic increase in food prices,” said Benjamin Senauer, a professor of applied economics at the University of Minnesota, author and researcher, MarketWatch reported. “Millions of American families’ food budgets have been stretched to the limit and beyond. Food stamp enrollment is up and food banks are seeing unprecedented demand.”

Smaller crops could mean higher prices at a time when consumers were just starting to see some slight signs of relief in the grocery store checkout line.

The change in food and beverage prices, as tracked by the U.S. Department of Labor, had moderated slightly in August and September after the record-highs of the summer. But even off the summertime highs, the overall Consumer Price Index increased 4.9% for the 12 months ended September 2008. In the food and beverage category, the increase was 6.0% year-over-year.

Agriculture futures for corn, wheat and soybeans are trading lower from earlier 2008 highs, but a steep decline in crop yields could cause future prices to reverse course.

Source: Tight Credit for Farmers Leads to Smaller Crops, Higher Prices and More Hunger

Year-over-year, consumer prices increased 4.9% for the 12 months ended September 2008, down from a 5.4% increase in August.

Oil prices made up the bulk of the decline in consumer prices as the cost of crude has dropped by over half from its record high of $147 per barrel in July.

So-called core CPI, which excludes volatile food and energy prices, increased 2.5% year-over-year in September, the same rate as the previous month.

“The credit crunch is intensifying, and enough damage has been done to ensure the next couple of quarters will be much weaker,” James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Conn., told Bloomberg News. “The pendulum has swung sharply to the downside risks to growth rather than inflation.”

In a separate report, the Federal Reserve Bank of Philadelphia yesterday announced that its general economic index had a drastic decline to –37.5 from 3.8 in September. A negative reading indicates a contraction in economic growth.

Production at U.S. factories was down 2.8% in September due, in part, to factory closures from hurricanes Gustav and Ike, as well as a protracted strike at aerospace firm The Boeing Co. (BA).

“The data suggests the U.S. economy is mired in recession and things are getting worse rather than better,” Sal Guatieri, an economist for BMO Capital Markets in Toronto, told Reuters.

Earlier this week, the government announced that the Producer Price Index (PPI) fell 0.4%. PPI measures the wholesale prices manufacturers pay for materials to produce finished goods.

Declines in both wholesale and consumer prices could give U.S. Federal Reserve Chairman Ben S. Bernanke and the other members of the Federal Open Market Committee more incentive to lower interest rates at their next monetary policy meeting slated for Oct. 28 – 29.

The Fed lowered its target rate to 1.5% from 2.0% at an unscheduled meeting on Oct. 8 after the stock market suffered historic losses at the onset of the month.

Source: Inflation Cools as Economic Downturn Deepens

The letter from the CBO, addressed to Congress, stated there is “a significant chance — probably better than 50% — that the proposed new Treasury authority” to lend Fannie Mae and Freddie Mac money or buy their stock would not be needed before the authority’s expiration date at the end of 2009. However, if the authority were exercised, the tab for the government’s aid could easily top the CBO’s $25 billion estimate.

“I am well aware that financial market and housing challenges continue to concern America’s families. Progress will not come in a straight line, and we need to remain patient as we work through these challenges,” Treasury Secretary Henry Paulson said in a speech yesterday during his visit to New York City to drum up Wall Street support for his plan to rescue Fannie Mae and Freddie Mac.

Paulson remains committed to government aid for the struggling lending giants, despite the potential $25 billion price tag for taxpayers. Together, Fannie Mae and Freddie Mac secure almost half of the $12 trillion U.S. home mortgage market.

“We need to act in the short-term because the [government-sponsored entities] are vital institutions in our capital markets today and are vital to emerging from the housing correction,” Paulson said in a speech in New York, Bloomberg News reported. Fannie Mae and Freddie Mac are among the “most interconnected of all global financial institutions,” he said, referring to the large number of Fannie Mae and Freddie Mac securities held by financial institutions worldwide.

Lawmakers are expected to vote this week on the Bush Administration’s plan to help Fannie Mae and Freddie Mac through their current liquidity crisis. Paulson has been one of the most vocal advocates for government intervention.

“This is about not only our housing markets, but it’s about our capital markets more broadly,” Paulson said yesterday in a Bloomberg Television interview. “This goes well beyond the two institutions — Fannie and Freddie — it has to do with investors in the United States and investors all over the world.”

Source: Paulson Continues to Advocate Potential $25 Billion Bailout of Fannie Mae and Freddie Mac 

The boards of both the St. Louis-based Anheuser-Busch and InBev have approved the all-cash deal, according to a joint statement released today (Monday).

Anheuser-Busch’s popular Budweiser and Bud Light beers will join InBev’s stable of beers that includes such well-known brand names as Stella Artois, Beck’s and Brahma. The resulting merger will produce the largest beermaker by volume, as the newly formed entity will surpass the current title-holder, the British-owned SAB Miller PLC (OTC: SBMRY).

“Together, Anheuser-Busch and InBev will be able to accomplish much more than each can on its own,” InBev Chief Executive Officer Carlos Brito, who will helm the new company, said in a joint statement. “We have been successful business partners for quite some time, and this is the natural next step for us in an increasingly competitive global environment.”

The takeover battle has been hotly contested for months in both the boardroom and the courtroom since InBev’s original $46 billion offer for Anheuser-Busch in May. Fierce opposition from the board, led by Chief Executive Officer August Busch IV, was finally overcome by InBev’s bid increase of 7.7% and the Belgian brewer’s agreement to name the newly formed global entity Anheuser-Busch InBev.

“This is about giving InBev a U.S. presence and this is the most effective way they can see to achieve that,” Grant Saligari, a beverage industry analyst at Commonwealth Securities Ltd. in Sydney, told Bloomberg News. “Consumers are very emotionally attached to their beers. A peaceful deal helps maintain that.”

Aneheuser-Busch and InBev Merger Just One of Many

This merger is the latest in a string of consolidations in the largely mature global beverage industry, as skyrocketing grain costs and softening economies have led struggling brewers to seek economies of scale. Two of the largest brewers, InBev and SAB Miller, are themselves creations of mergers that took place within the past 10 years, The New York Times reported.

In January, Carlsberg A/S and Heineken N.V. (HINKY) agreed to buy Scottish & Newcastle PLC for $15.4 billion. Late last year, British-owned SAB Miller PLC (OTC: SBMRY) and Canada’s Molson Coors Brewing Co. (TAP), agreed to merge their U.S. brewing operations.

Once InBev acquires Anheuser-Busch, it will leave The Boston Beer Co. Inc. (SAM), maker of the popular Samuel Adams beer brand, one of the last large domestic brewers still under U.S. ownership.

Source: InBev Finally Woos Anheuser-Busch with Higher Offer, Top Billing

“I’ve concluded the contract cannot be awarded at present” because of flaws found by the Government Accountability Office, Gates said at a press conference at the Pentagon yesterday, Bloomberg News reported. The new bidding process will reexamine eight of Boeing’s complaints that were upheld by the GAO, out of more than 100 concerns it had initially raised, by seeking “revised proposals from the industry,” he said.

Last month, the Government Accountability Office backed a petition brought by Boeing that the U.S. Air Force altered the auction for a $35 billion aerial-tanker contract – a bid that went to a joint-venture of rivals Northrop Grumman Corp. (NOC) and Europe’s EADS NV (PINK: EADSY), and in turn, helped push Boeing’s stock down more than 11% at the time.

Boeing filed the complaint in early March, claiming that the Air Force misled the company and modified its specifications to accommodate models made by Northrop and Airbus S.A.S.

The GAO found that there were discrepancies in the bidding process and recommended the Air Force re-conduct the bidding. However, GAO rulings are only advisory in nature, and the Air Force did not have to comply.

The Air Force was given 60 days to respond to the GAO’s ruling, and the speedy decision is seen as a good sign for Boeing.

With an initial contract value of $35 billion that could easily grow to $100 billion or more over time, both sides have fiercely contested the bidding process.

“EADs feels very raw over this,” Alexandra Ashbourne, who heads Ashbourne Strategic Consulting in London, an aerospace analysis firm, told The New York Times. “There was a lot of effort expended for no return. You cannot underestimate how raw and burnt they feel as a result of all this.”

But its partner, Northrop Grumman, remains confident of eventual success, despite the delays.

Northrop Grumman is “reviewing the decision to ensure the re-competition will provide both companies a fair opportunity,” company spokesman Randy Belote said in a statement, Bloomberg News reported.

“The United States Air Force has already picked the best tanker, and we are confident that it will do so again,” Belote added.

[Editors Note: To read a related story on Boeing’s recent prediction that aircraft sales will exceed $3.2 trillion over the next 20 years, click here.]

Source: Second Chance for Boeing as Defense Department Reopens Bidding on $35 Billion Contract