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Commodity Headlines

In Monsanto, Bayer Investors Inherit Hard-to-Predict Risk

August 14, 2018 11:45 AM

Source:  Bloomberg.com

Bayer AG investors can take heart that a $289 million verdict against its newly acquired Monsanto unit will be challenged on appeal, but they’re not wrong to dread thousands more lawsuits alleging that the company’s popular Roundup herbicide causes cancer.

Some financial analysts predicted the Aug. 10 jury award in San Francisco will be knocked down or wiped out entirely, while legal experts warned of more uncertainty ahead. More than 5,000 U.S. residents have joined similar lawsuits against Monsanto -- and the lawyer who won the trial said an equal number are poised to file new claims.

“If it was a resounding victory for the defense, a lot of the plaintiffs would be discouraged and wouldn’t bring a case,” said Thomas G. Rohback, an attorney who represents companies in trials and appeals and isn’t involved in the Monsanto litigation. “But now the word is out: ‘You can win.’ Does it mean that every case is going to be a win? No, but it doesn’t mean every case is going to be a loss, either.”

The fight is over glyphosate, the main ingredient in Roundup, which was first approved for use in 1974 and grew to become the world’s most widely used herbicide. The San Francisco case was filed two years ago and the trial started in June, the same month that Bayer acquired Monsanto for $66 billion. The trial was expedited because the plaintiff, a former school groundskeeper, was dying of lymphoma.

If the verdict stands that Monsanto failed to warn consumers of glyphosate’s hazards, that in itself is of marginal consequence to Bayer, said Jonas Oxgaard, an analyst at Sanford C. Bernstein & Co. He’d expect Bayer to pull the product for common gardening use and require a license to handle it.

The move would shift liability to users, and while the company would lose household customers, farmers would simply add it to their list of regulatory requirements, he said. The shift would cost Bayer an estimated $200 million in annual revenue, equal to about 1 percent of Monsanto’s $3.5 billion profit in 2017, and amounting to a “rounding error” for Bayer, he said.

Monsanto had set aside $277 million to pay for the litigation -- slightly less than the first verdict. Oxgaard doesn’t see prospects for a settlement until there have been a few more jury verdicts, along with a decision by an appeals court reducing the damages awarded by the first jury.

If thousands of lawsuits somehow all produced verdicts of hundreds of millions of dollars, the company would face an “enormous” problem, Oxgaard said. That’s the sentiment that drove Bayer shares down as much as 14 percent Monday. The stock regained some stability Tuesday, rising 0.5 percent to 84.17 euros at 11:53 a.m. in Frankfurt.

“It quickly becomes more than Bayer’s market cap,” the analyst said. “But that assumes they all get the same thing, and that they survive appeal, and I don’t think that’s likely to happen.”

Neither does Bayer.

“While Bayer and Monsanto continue to operate independently, Bayer believes that the jury’s verdict is at odds with the weight of scientific evidence, decades of real world experience and the conclusions of regulators around the world that all confirm glyphosate is safe and does not cause non-Hodgkin’s lymphoma,” Bayer said in a statement.

The next Roundup trial is scheduled to start in October in state court in St. Louis, where Monsanto is based, with two more trials scheduled in the same court in early 2019. Hundreds more cases are pending in San Francisco, Oakland, California, and Delaware.

While juries are always unpredictable, appeals are decided by judges, said Bloomberg Intelligence analyst Chris Perrella.

“It’s easier to sway a jury than to argue medical data before a judge, so those should be easier for Monsanto to win,” he said.

If Monsanto had been trading on its own, investor reactions wouldn’t be as severe because agricultural chemical investors are “well familiar with the story of litigation risk and chemicals,” whereas pharmaceuticals going awry is a different story, Perrella said. It’s often easier to prove negative effects of a drug than whether Roundup causes cancer, he said.

“You’re going to see large jury awards that will get knocked down or overturned or reduced, and they’re going to appeal this case in six different ways -- that’s standard operating procedure,” he said. “There’s headline risk big-time, and pharma investors are not as comfortable with headline risk as materials investors.”

Plaintiffs’ lawyers in the San Francisco trial said they didn’t get to put on as strong a case as they could have because the judge excluded some of their evidence. A federal judge in San Francisco overseeing more than 300 cases has voiced skepticism about the science backing plaintiffs’ claims but has agreed to let the suits go to trial.

One of the considerations an appeals court will weigh is whether the judge who handled the first trial allowed plaintiffs to introduce evidence “designed to inflame the jury with too much emotional appeal,” Rohback said.

“What’s too much is not cut and dry,” he said. “That’s why you have a trial -- because there’s enough material evidence of fact on both sides.”

China May Have to Resume U.S. Soybean Purchases in Weeks

August 7, 2018 10:42 AM

Source:  agriculture.com

HAMBURG, Aug 7 (Reuters) - China may have to start buying U.S. soybeans again in coming weeks despite the trade war between the two countries as other regions cannot supply enough soybeans to meet China’s needs, Hamburg-based oilseeds analysts Oil World said on Tuesday.

In July, China imposed import tariffs on a list of U.S. goods, including soybeans, as part of the trade dispute with the United States. China is the world’s largest soybean importer and has been seeking alternative supplies, especially in South America, where supplies available for export are down.

“China has to resume purchases of U.S. soybeans,” Oil World said in its latest newsletter. “The South American supply shortage will make it necessary for China, in our opinion, to import 15 million tonnes of U.S. soybeans in October 2018/March 2019, even if the current trade war is not resolved.”

Chinese purchases of U.S. soybeans could re-start “in coming weeks,” Oil World added.

Soybeans, crushed to make cooking oil and the protein-rich animal feed ingredient soymeal, were the biggest U.S. agriculture export to China last year at a value of $12.3 billion, according to the U.S. Department of Agriculture.

Oil World said with South American export supplies expected to be down sizeably from a year earlier in the next six months, China will face very tight domestic soybean supplies unless it resumes large-scale purchases of U.S. soybeans.

“There is a risk that China will have to cut back its livestock production, implying higher prices on the domestic market,” it said.

China is also likely to raise imports of processed soymeal as an alternative to soybeans for crushing, it said. Ironically this could mean China could still end up with U.S. soybeans that have been processed in Argentina.

“The biggest increase is likely to be seen in soymeal exports from Argentina to China," it said. "If China begins purchasing Argentine soymeal, a lack of soybean supplies in Argentina is likely to raise Argentine imports of U.S. soybeans.” (Reporting by Michael Hogan, editing by Jane Merriman)

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Trade spat weighs on markets, but Apple's $1-trillion valuation boosts Nasdaq

August 2, 2018 12:26 PM

Soruce:  Reuters

NEW YORK (Reuters) - A deepening trade dispute between the United States and China weighed on global stocks and bond yields on Thursday, but a rise in Apple shares took its valuation above $1 trillion, the most for a U.S.-listed company, and helped lift some U.S. indexes.

In midday trading, Apple Inc became the first publicly traded company with a market capitalization exceeding $1 trillion. That led a rebound in technology stocks that helped key U.S. indexes pare earlier losses to turn positive.

“It’s certainly a tremendous achievement to create a company with a $1 trillion market cap,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. Still, he said, “it’s just a number.”

The tech company’s stock jumped 2.8 percent to as high as $207.05, bringing its gain to about 9 percent since Tuesday when it reported quarterly results that beat expectations and said it bought back $20 billion of its own shares.

On Wall Street, the Dow Jones Industrial Average fell 36.87 points, or 0.15 percent, to 25,296.95, the S&P 500 gained 9.06 points, or 0.32 percent, to 2,822.42 and the Nasdaq Composite added 69.55 points, or 0.9 percent, to 7,776.84.

The Nasdaq and benchmark S&P indexes had opened lower, but began to turn positive as the advance in Apple shares took the focus away from the trade dispute.

Still, concerns remained over the U.S.-China trade spat, which intensified on Wednesday after U.S. President Donald Trump raised pressure on China by proposing a higher 25 percent tariff on $200 billion worth of Chinese imports.

China on Thursday urged the United States to “calm down,” but market participants remained unnerved.

MSCI’s gauge of stocks across the globe shed 0.75 percent, while the pan-European FTSEurofirst 300 index lost 0.85 percent.

Germany’s blue-chip index DAX, which is seen as a trade war proxy, fell 1.5 percent while the broader pan-European STOXX 600 was down about 0.8 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.6 percent down, dragged down by a 1.8 percent fall in Chinese H-shares.

Benchmark U.S. government bond yields edged lower as the market sought safe-haven debt in Treasuries amid the trade dispute.

“We’re in risk-off mode after the back and forth between China and the U.S. on tariffs,” said Priya Misra, head of global rates strategy at TD Securities in New York. “You’re already seeing (trade tension) affect investment decisions globally, so it is a growth concern.”

Euro zone government bond yields dipped, and borrowing costs in Germany and France pulled back from seven-week highs.

On Wednesday, the Federal Reserve kept interest rates unchanged as expected, characterizing the U.S. economy as strong and staying on track to increase borrowing costs in September and likely again in December.

Gold prices held steady on the news after falling 11 percent since April to its lowest in a year.

Spot gold dropped 0.1 percent to $1,214.60 an ounce. U.S. gold futures fell 0.37 percent to $1,223.10 an ounce.1.1613

Oil prices strengthened after an industry report suggested U.S. crude stockpiles would soon begin to decline again after a surprise rise in the latest week.

Traders said prices rallied when industry information provider Genscape reported that crude inventories at Cushing, Oklahoma, delivery hub for U.S. crude, dropped 1.1 million barrels since Friday, July 27.

U.S. crude rose 1.98 percent to $69.00 per barrel and Brent was last at $73.40, up 1.4 percent on the day.