CME Group’s expansion of electronic trading hours comes just one week after its competitor, IntercontinentalExchange, began around-the-clock trading of grain products.

The National Grain and Feed Association has voiced concern over the extended hours, claiming there was insufficient time to close out and reconcile floor-trading activities and perform the required accounting and other back-office functions before electronic trading reopens.

In addition, the association and grain traders object to electronic trading at 7:30 a.m., when major U.S Department of Agriculture crop reports and other data are released. The group says the availability of electronic trading during the release of the reports could lead to “extreme volatility”.

“We look forward to continuing to discuss with the CME Group, other exchanges and other parties possible ways to address industry concerns about USDA reports being released during market hours,” said Randall C. Gordon, acting president of the National Grain and Feed Association.

Next month, CME Group plans to change the way grain futures contracts are settled by using prices from both the pit and from electronic trading.

With the news of extended trading hours in the grain and soybean complex and plans in June to incorporate both electronic trading and pit prices in daily price settlement procedures in, a growing number of traders on the floor are questioning the intent of the exchange.

“I would like to know if the exchanges are taking into consideration all the market participants,” said Greg O’Leary, owner of GX Trading.

Traders contend the exchange is concerned about retaining high-volume algorithmic traders in light of stepped-up competition from ICE.

“There is a feeling that the exchange [CME] has abandoned its original purpose… that they are driven solely by stock price and thus become beholden to the high-frequency traders, who provide “an enormously huge revenue stream”, argued Kelly King Taylor, who is an independent floor broker.

Two organizations have sprung up in protest of the CME’s propoals — protectagfutures.com and savethefloor.com.

The exchange initially planned a transition to the new settlement procedures for both grains and livestock futures in March and then in April but that plan was met with strong opposition from floor traders and the aforementioned groups.

“Initially when electronic trading started, it gave all players access to the marketplace with a computer, argued Heather Koch, director of protectagfutures.com. “It wasn’t supposed to be this mathematical model determining food prices.”

Click here to see: A brief walk through the housing crisis

U.S. housing starts rose more than expected in the month of April, the Commerce Department reported this week, with builders breaking ground at an annual pace of 717,000 homes. The seasonally adjusted pace is 2.6 percent more than the revised 699,000 annual pace for the month of March. Compared to April 2011, residential housing construction was up by almost 30 percent. The increase is a sign that the housing market may finally be regaining momentum – almost five years after the housing bubble burst.

Total foreclosure filings in April decreased for the third month in a row. The percentage of loans in foreclosure fell to 11.33 percent in the first quarter to the lowest level since 2008, the Mortgage Bankers Association reported Wednesday. The percentage of loans 90 days past due or in the process of foreclosure – known as the serious delinquency rate – dropped to 7.44 percent.

“The declines we saw were even greater than the normal seasonal adjustments would predict, so delinquencies are clearly continuing to improve,” Michael Fratantoni, MBA vice president of research and economics, said in a statement. “Newer delinquencies, loans one payment past due as of March 31, are down to the lowest levels since the middle of 2007, indicating fewer problems we will need to deal with in the future.”

Although that percentage has decreased, it remains at a historically high level.

Cosi, Inc. posted its seventh consecutive quarterly loss in the first quarter, but beat analysts’ estimates by a penny. Still, the loss underlined ongoing concerns about the company’s lack of profitability.

The Deerfield-based fast casual restaurant chain posted a loss of $1.1 million, or 2 cents per diluted share, up 47 percent from a loss of $2.1 million, or 4 cents per diluted share, in the same period a year ago. Total revenues increased 4 percent, or $964,000, to $24.7 million, while company-owned net restaurant sales also increased by 4 percent, or $916,000, to $23.9 million.

The results come in advance of the company’s decision to issue $15 million worth of stock at 65 cents per share later this month. Shares of Cosi ended trading Thursday down 5 cents, or 6 percent, at 78 cents.

Update 5:00pm CST: Analysts met enthusiastic expansionary goals from Cosi management on Thursday’s conference call with a mixture of confused, terse responses, some irritated that the company’s $15 million capital-raise later this month will dilute the the company’s stock price and dampen investor confidence. Analysts seemed unimpressed by Cosi’s goal of being EBITDA profitable in fiscal year 2012. Cosi has never reported annual profits in its nine-year existence.

Consumers can be sheepish when it comes to how food is produced. More shoppers are choosing antibiotic-free meat in order to avoid unnecessary exposure to antibiotics and other additives. (Ian Sawicki/MEDILL MONEY MAVENS)

Carly Helfand co-wrote this report. 

Pressure is mounting on the Food and Drug Administration to change how it regulates the use of antibiotics in ethanol production after a recent study showed traces of antibiotics in distillers grains (DGS), a byproduct of ethanol production that becomes feed for animals.

The concern is that unnecessary exposure can lead to drug-resistant bacteria, prompting some to call for further regulation – or prohibition – of antibiotics. But increased FDA control could potentially put some smaller pharmaceuticals producers in hot water and mean more setbacks for an already shaky ethanol industry.

“There’s no guidance and no one is monitoring the use,” said Julia Olmstead of the Institute for Agriculture and Trade Policy (IATC), who wrote a report May 1 detailing a University of Minnesota study that found traces of antibiotics in DGS . “It’s really up to the plant how much they use, and there’s no tracking.”

May 11, Sens. Edward J. Markey (D-Mass) and Louise Slaughter (D-NY) sent a letter to the FDA expressing concerns over ethanol-related antibiotics resistance. Olmstead says her trade policy group and others are also considering legal action to spur the FDA.

“I do think we’ll start to see some action from the FDA,” Olmstead said. “They’ve spoken in the past that they plan to issue some guidances about it in the near future, so I hope that it happens, and I think that it will.”

The Minnesota study found that 89 percent of samples of 159 DGS samples contained antibiotic residues, including penicillin and erythromycin, both commonly used by humans, and tylosin and tetracycline, neither of which has been cleared by the FDA for use in ethanol.

The FDA states on its website that “it is well established scientifically that all uses of antimicrobial drugs, in both humans and animals, contribute to the development of antimicrobial resistance.” Which specific product an ethanol producer chooses to use – and how much of it – are left to the producer’s discretion.

The amounts used are only increasing with the development of antimicrobial resistance, said Lloyd Schantz, the executive vice president for BetaTec Hops Products Inc., a company which markets hop-based alternatives to antibiotics.

“We’ve gone into plants where the guy will say, “I used to use 2 pounds, now I’m using 6,” Schantz said. “There’s a reason for that.”

Dr. Gerald Shurson, the University of Minnesota professor behind the study, does not consider his findings alarming. He said the antibiotics residues he found in DGS didn’t appear to have any biological activity, which speaks to the fact that “safety-wise, as it stands today, DGS is pretty safe as a feed ingredient.”

“It’s a small piece of the overall puzzle,” Shurson said. “Not to ignore it, but I think there are other issues related to antibiotics resistance that probably have a bigger impact.”

For ethanol producers, the implications of stricter regulations would be manifold. Squeezing every dollar from the raw material grains allows for ethanol to be profitable. DGS are a nutrient-rich feedstock and comprise roughly 20 percent or more of all ethanol-generated revenue. Without their sale to livestock producers as farm-animal feed, ethanol production wouldn’t be profitable for most ethanol producers.

Chris Hurt, an extension agricultural economist at Purdue University, said being unable to sell DGS tainted with antibiotics would “have major implications” for the industry, as any extra cost brought on by higher regulatory bars has the potential to strip away narrow profit margins.

“Ethanol producers currently have negative margins without distillers grains value in there,” Hurt said. “They would be shut down if they were unable to sell distillers grains and, secondly, had to pay to have them disposed.”

With increased regulation, ethanol plants could also incur potentially higher costs for a non-antibiotic solution. In addition, cleanup or infrastructure updates might be necessary at older, heavily exposed plants to eradicate the existing bacteria.

“It would cost more or they would have to make some infrastructure changes,” Olmstead said.

Conventionally, ethanol producers have resorted to antibiotics to prevent bacterial outbreaks from occurring during the distillation process. In the fermentation tanks, yeast vies with bacteria for sugar. If the bacteria prevail, the final ethanol product is soured to an inferior quality or altogether ruined.

“If an ethanol company has a bacterial contamination, the financial cost of that is quite high,” Shurson said. “Depending on the length of time that this problem persists, it could result in thousands of dollars of loss in ethanol production or ethanol yield.”

Increased regulation or a ban on antibiotic use could also spell trouble for some chemical companies– including Phibro Animal Health Corp. The New Jersey-based company is the producer of Lactrol, which Schantz called the most widely used antimicrobial in ethanol production.

The company declined to comment, but in a 2009 statement, Phibro asserted that its Lactrol sales had been made to “far greater than 55 percent” of the  then-currently operating ethanol plants. Today, Schantz estimates, Phibro’s market share is about 80 percent.

Phibro is the only producer of Lactrol’s active ingredient, virginiamycin, which was declared Generally Regarded as Safe (GRAS) in 2010 for use as a processing aid in the production of ethanol and DGS. But if antibiotics were no longer permitted as a part of ethanol production, regulatory effects could be felt financially.

“For the antibiotics companies, obviously if the plants reduced the use or stopped using them, that would have a pretty big impact on revenue and profitability,” Shurson said.

Schantz said that antibiotics typically run from $100 to $120 per pound, with producers using a rough average of 3 pounds per fermentation cycles. With the typical 100 million gallon plant doing between 950 to 1,000 fermentation cycles a year, that’s between $300 and $400 thousand dollars of revenue lost for each plant that stops using antibiotics, he said.

Antibiotics producers may already be starting to feel these effects as plants voluntarily make the transition to antibiotics alternatives, such as increasingly popular hop-based products. Schantz said his company, BetaTec Hop Products, is steadily gaining customers, especially since POET LLC, which comprises 27 ethanol plants nationwide, made the commitment to go antibiotics-free in mid-2011.

“There’s always been a segment of the market that’s been reluctant to use antibiotics for whatever reason,” said Scott Gemmell, a Sales Manager for the Ethanol Performance Group who is responsible for sales of Lactrol. “Whatever their beliefs are, real or perceived, they use a non-antibiotic solution.”

Shurson said that antibiotics are “useful tools,” cautioning that DGS yield could be threatened by a total absence of antibiotics in a plant in the event of an infection, which hop-based substitutes may not be able to combat.

“The company loses multiple ways – loss of production, reduced value of its distillers grains, and all the other labor and costs to get back to where things should be operating normally,” Shurson said. “It’s a pretty significant factor.”

Still, he said, the ethanol industry needs to “get a little bit smarter” about when and how antibiotics are used and “continue to explore other alternatives.”

“There’s no doubt that we need to raise questions about antibiotic use and be a little more prudent and smarter about how we use them in the future,” he said.

 Please click here for interactive chart

Margins are thin for producers of ethanol. In order for it to be profitable, they must be able to sell a feedstock byproduct known as distillers grains.

And to hear them talk about it, those record-low rates mean record-high confidence in the state and in its future.

Sam Kirkland/MEDILL

“The sale demonstrates continued investor confidence in the Quinn administration to correct decades of fiscal mismanagement,” said David Vaught, office of management and budget director, after a March sale—and that was before pension and Medicaid reform proposals that maybe, just maybe, indicate real change is coming to Springfield.

Yet there’s another explanation for the record-low rates that isn’t mentioned in press releases.

The Federal Reserve’s easy-money policies have made it more affordable for everyone to borrow, including Illinois. The central bank has maintained its zero to 0.25 percent federal range for more than three years—and says those historically low rates are likely to continue through 2014.

Meanwhile, there’s little evidence to equate confidence that Illinois won’t default on its debt—no state ever has, so it’s considered a safe bet even in tough times—with confidence that the state is on the right track. And some evidence suggests things are getting worse.

When Illinois bonds were priced to yield 3.62 percent earlier this month, comparable U.S. Treasuries were yielding 1.94 percent. The difference, called a spread, was 1.68 percentage points, an indication of how much more expensive it is for Illinois to borrow than it is for the U.S. government. At the time of the March sale, by contrast, 10-year Treasuries were yielding 2.13 percent as Illinois bonds were priced to yield 3.56 percent, a spread of 1.43 percent. So while rates went up just 0.06 percentage points in those two months, the spread increased by more than four times that amount.

Demand remains high for Illinois bonds, the Wall Street Journal has reported, despite concerns about the state’s finances. The takeaway? While investors may not be flocking to Illinois paper like they are to the safety and security of U.S. Treasuries (as Bloomberg has reported), the state bond market is still seen as a low-risk alternative to the stock market in an economy that could still be teetering. But the perceived relative risk of investing in Illinois is increasing even as lawmakers say they’re getting things under control.

Moody’s downgraded the state’s bond rating earlier this year to A2—worst in the nation and just the sixth-highest rating Moody’s gives, although it’s still considered investment-grade. This month, the rating agency said another downgrade could happen before the end of 2012, likely a cause for the uptick in the spread seen in May. State income tax collections jumped by more than 30 percent in fiscal year 2011 thanks in part to a “temporary” rate increase from 3 percent to 5 percent, but that wasn’t enough to satisfy rating agencies or watchdogs.

The Civic Federation, a nonpartisan research group, has warned of “financial disaster” in the state if the Medicaid and pension crises are not solved. Unfunded pension liabilities totaled more than $83 billion at the end of fiscal year 2010, and the organization estimates the backlog of unpaid Medicaid bills will exceed $20 billion by the end of fiscal year 2017.

Gov. Pat Quinn proposed major changes to pension funding in April after taking some heat after his February budget address for deferring specifics to a pension working group made up of budget officials and legislators.

“This plan rescues our pension system and allows public employees who have faithfully contributed to the system to continue to receive pension benefits,” he said at a news conference.

Specific changes to go before the General Assembly include: a 3 percent increase in employee contributions; a reduction in cost-of-living adjustments; and an increase in the retirement age to 67. The reforms are big changes likely to rile those in line for state pensions. Weakened resolve on the part of legislators could be the result, as every member of the General Assembly is up for reelection this year.

Here’s the link to the video:

Garage sales in full bloom from darren zancan on Vimeo.

After  the disclosure of a $2.3 billion trading loss last week, JP Morgan Chase and Co. (JPM) Chairman and Chief Executive Officer Jamie Dimon will face shareholders Tuesday morning during the company’s annual meeting.

Many have expressed frustration and even outrage at the lack of risk management that allowed such a staggering loss. But investors have yet to revolt against Dimon, one of Wall Street’s most popular CEO’s.

During today’s meeting, shareholders will have a chance to not only voice their opinions but will also have the opportunity to vote on Dimon’s $23 million 2011 compensation package. In the executive compensation vote, shareholders will also weigh in on an approximately $15 million package for Ina Drew, the firm’s former chief financial officer who resigned on Monday in an effort to take responsibility for the firm’s trading debacle. Recently shareholders of Citigroup Inc. (C) shot down CEO Vikram Pandit’s $15 million compensation package during the company’s annual shareholder meeting.

In addition to voting on compensation, shareholders will also address a proposal to remove Dimon as the firm’s chairman. Some believe that the separation of the roles will provide a greater opportunity for analysis of executive performance. Earlier this week Massachusetts Senate candidate Elizabeth Warren called for Dimon to step down from his position on the board of the Federal Reserve Bank of New York.

Since the company disclosed its trading loss, the company has seen about $20 billion loss in market value. The stock has dropped over 11 percent closing at $35.79 on Monday.

Economists forecast Italy's recent GDP contraction to continue into 2012. (Peter Rawlings/Medill)

Italy auctioned off €5.25 billion worth of debt on Monday, issuing 3-year bonds, whose yield ticked uponly slightly from April, as well as longer-term 10- and 13-year bonds, which it had not issued for the last seven months.

The yield on the Italian three-year notes was 3.91 percent, up slightly from the 3.89 percent yield in April’s auction. Longer 10- and 13-year bonds, which are considered riskier given the Eurozone’s uncertain future, produced yields of 5.66 percent and 5.9 percent respectively.

These bonds outperformed those auctioned by the Spanish government Monday—that country’s 10-year notes produced a 6.29 percent yield—suggesting that investors have greater confidence in the Italian government’s ability to repay its loans.

The yields on Italian bonds did continue to creep up following the morning auction however, amid investor concerns about the country’s underlying finances. The yield on Italy’s 3-year bond ended the day at 3.94 percent, while the 10-year bond finished at 5.7 percent.

Italy’s sovereign debt has been hit with a wave of downgrades by all three major ratings agencies in recent months because of concerns about the country’s exposure to the broader European debt crisis and its own domestic budget shortfalls.

When Moody’s in February downgraded the government’s bonds from A2 to A3, it emphasized the need for the Italian government to reduce public spending, stating that it believes “the euro area as a whole possesses considerable economic and financial strength, with its creditworthiness constrained by its institutions and by a legacy of fiscal imbalances rather than by its access to resources.”

In January when S&P imposed its own downgrade it agreed with Moody’s that “deepening political, financial, and monetary problems within the eurozone are exacerbating the external funding constraints on the Italian public and private sectors.”

However S&P also stated that it “believe[s] that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.”

Prime Minister Mario Monti has opted to push for fiscal austerity and the Italian government’s borrowing costs have dropped since last November, when he became prime minister. He is pushing for €20 billion in spending cuts and tax increases in the Italian budget, as the country tries to reduce its current €1.9 trillion debt.

It’s hoped that Monti’s efforts would give the government easier access to credit and help stave off a looming recession. Italy’s economy shrank by 0.4 percent in the fourth quarter of 2011, reversing the slight gains of the first three quarters. Economists predict the recent contraction will continue into 2012.

The Chicago-based company’s shares have rebounded about 3 percent since reporting a loss of $448 million, or $1.36 per share on Apr. 27, wider than the $213 million, or 65 cents per share in the year-ago period.

The loss was primarily due to glitches in the airline’s new computer reservation systems, which resulted in passenger check-in delays, as well as lower revenues from seats sold.

“Though it was bigger compared to last year, it was largely due to one-time charges related to the integration with Continental,” said Robert Herbst, airline industry consultant at AirlineFinancials.com LLC.

But solid travel demand and falling fuel prices are making analysts hopeful of a comeback for the airline industry in general, and UALContinental in particular.

Crude oil prices continued to drop Thursday, with West Texas Intermediate crude falling below $97 a barrel, the lowest level since the year began. Brent crude dropped below $113 a barrel.

Meanwhile, passengers can expect fuller flights thanks to a record number of international travelers and an overall improving economy, according to Airlines for America, the industry’s trade association.

The trade group estimated U.S. airlines will carry 206.2 million passengers between June and August, little changed from last year. But international travel on U.S. airlines is expected to surpass last year’s record level.
In April, the airline’s consolidated passenger revenue per available seat mile (PRASM) rose an estimated 4.5 percent to 5.5 percent from a year ago. Its load factor increased 2.4 percentage points.
“Supply and demand trends remain consistent with our profit estimates, the wheels of consolidation appear to still be turning, and [airline] stocks look highly attractive” in spite of already-healthy gains in airline shares this year so far, said J.P. Morgan Securities LLC analyst Jamie Baker in a report released on the earnings day. The firm listed UAL’s stock “overweight”, and set its target price at $35 by the end of 2012, compared with the consensus of $30.27. Fourteen of 16 analysts surveyed by Bloomberg LP are also recommending buying UAL shares.

UAL has a trailing price-to-earnings ratio of 14.9, roughly comparable with the 15.3 for the Standard and Poor’s 500 index and 14.7 for the airline industry. But its low forward P/E of 4.2 suggests the stock has further room to rise.
With major U.S. airlines struggling in the turmoil of bankruptcy in the last decade, high labor and fuel costs are threatening the whole industry, and require airlines to have large cash cushions.
United reported a very strong balance sheet in the latest quarter with $7.8 billion in cash and short-term investments to cover its current and future obligations.
Meanwhile, the airline is looking for ways to downsize its capacity and raise fees. It is also trying to cut its costs by purchasing aircrafts from one single manufacture. The airline is in its final negotiations with Boeing Co. regarding a large order of 737 commercial jets. As United is still in the merger process with Continental Airlines, high expenses such as fleet maintenance, labor contracts and pensions are inevitable.
But once these issues are smoothed out in the future, analysts believe the airlines will regain its competitiveness.
“We believe the industry will continue to take the steps necessary to ensure profitability and continued balance sheet repair.” J.P. Morgan’s Baker said.

From A4a website:
A4A Forecasts Record Summer International Air Travel

Industry Reports First-Quarter Loss

WASHINGTON, May 9, 2012 – Airlines for America (A4A), the industry trade association for the leading U.S. airlines, today said passengers can expect full flights this summer thanks in part to a record number of people traveling internationally and an improving economy. The good news for travelers is that airfares have not kept pace with the inflation rate, keeping air travel a relative bargain.
“Customers are benefiting from record airline operational performance and greater access to the global economy while fares continue to trail the price of other services,” said A4A President and CEO Nicholas E. Calio. “The fact that travelers will take to the air this summer both domestically and in record numbers beyond our borders underscores the value airlines are delivering to customers.”
In its annual summer forecast, A4A today predicted that from June through August, U.S. airlines will carry an average of 2.24 million travelers globally every day. Total passenger volumes remain 5 percent below the summer 2007 all-time high of 217.6 million.
A4A also expects a record number of people to travel internationally. Of the 206.2 million total passengers expected to travel on U.S. airlines this summer, 26.8 million will be traveling on international flights. This estimate surpasses last summer’s record of 26.3 million passengers flown on international flights. Domestically, 179.4 million passengers are expected to fly this summer, comparable to summer 2011.
The good news for travelers is that airfares have not kept pace with the inflation rate, which rose 31 percent since 2000. Over the same period, average domestic airfares, per the Department of Transportation, rose just 9 percent, or 15 percent including optional ancillary services – less than half the rate of U.S. inflation. Adjusted for inflation, average domestic airfares actually fell 16 percent over the period or 12 percent including ancillary services.

Major U.S. stock indexes fell as investors’ initial resilience to the weekend’s elections in Greece and France crumbled, and fear over Europe’s monetary union took over.

“After initially shrugging off the headlines, markets are showing some concern over election news from Europe,” said deputy chief economist Adolfo Laurenti in a note for Financial Mesirow Holdings Inc.

The Dow Jones Industrial Average declined 0.6 percent on Tuesday, and both the Standard & Poor’s 500-stock index and the NASDAQ posted losses of 0.4 percent.

Yet the losses seemed reasonable when compared with those of European equity markets. The Stoxx Europe 600 index dropped 1.7 percent and Greece’s ASE Composite Index closed at its lowest level since November 1992, losing 3.6 percent.

With volatility and fear reigning around global markets, investors rushed to less risky investments. The safe-haven U.S. 10-year Treasury bond saw its yield fall to 1.83 percent, “ a level usually associated with major international financial stress,” Laurenti noted.

So, how bad could these elections have been to justify such financial stress?

Scariest of all for investors was, once again, the situation in Greece. The country’s government coalition didn’t secure enough seats to claim a majority and pass the austerity measures required to receive the much-needed international fiscal aid.

As Tuesday’s centrist and leftist parties failed to come to an accord during the day’s negotiations, the possibility of forming a ruling coalition looked grim. If no deal is passed in the next couple of days, new elections will be planned. Yet for many analysts, Greece’s departure from the monetary union looked all but inevitable.

In France, Francois Hollande defeated incumbent Nicolas Sarkozy to become the next president. Besides Hollande’s socialist stance, two uncertainties that swirled over the president-elect were scaring investors, according to Laurenti.

“Will Hollande strengthen his victory or lose support in parliamentary elections next month? And how will he be able to fulfill his campaign promises when French finances are in such disarray?” Laurenti wrote.

With the determining parliamentary elections in France and the likely call for new elections in Greece both in plain sight, Europe will continue to make headlines in the following weeks, probably causing more volatility in global markets.

But there is one glimmer of hope for Europe that came with the weekend elections, said Laurenti. European parties that are calling for the end of the Euro failed to advance. So, he said, “Those who expected recent elections to take us closer to the final days of the euro have, once again, made the wrong bet.”