Stock Market Crash Expected In 2008 To Be Worse Than 1929

[Soldier4Christ]

Opec says oil could hit $200

Opec’s president on Monday warned oil prices could hit $200 a barrel and there would be little the cartel could do to help.

The comments made by Chakib Khelil, Algeria’s energy minister, came as oil prices hit a historic peak close to $120 a barrel, putting further pressure on global economies.

His remarks suggest Algeria wants Opec to continue to resist calls by US and European leaders for the cartel to pump more oil to help ease prices. But Mr Khelil blamed record oil prices on the weak dollar and global political insecurity.

He told El Moudjahid, Algeria’s government newspaper: “I don’t think that an increase in production would help lower prices, because there is a balance between supply and demand and the stocks of gasoline in the United States have recorded a surplus and are at their highest level for five years.”

He added: “The prices are high due to the recession in the United States and the economic crisis, which has touched several countries, a situation that has an effect on the value of the dollar. Each time the dollar falls 1 per cent, the price of the barrel rises by $4 and of course vice versa.”

Some US senators have pinned the blame for high oil prices directly on Opec and Saudi Arabia, its largest and most powerful member.

In a letter to President George W. Bush last week, they said Riyadh had cut its oil production by about 2m barrels a day over the past three years, even though oil prices had continued to rise.

[Soldier4Christ]

Oil futures climb past $120 to a fresh record
Prices up a second day on Nigerian supply concerns, weak U.S. dollar

Crude futures climbed to uncharted territory in New York Monday as concerns about supply disruptions in Nigeria and weakness in the U.S. dollar lifted prices past $120 a barrel in electronic trading.

Crude oil for June delivery climbed as high as $120.21 a barrel in electronic trading on the New York Mercantile Exchange. The contract was last up $3.43, or 3%, at $119.75 after peaking at $120 in regular trading.

"Nigerian oil off the market and increasing tensions with Iran seem to be the flavor of the day," said Phil Flynn, a vice president at Alaron Trading.

Nigeria's rebel group Movement for the Emancipation of the Niger Delta, MEND, said Sunday it was responsible for an attack on a Shell oil flow station in the south of the country, according to media reports. Shell confirmed the attack and said that some oil production had been closed down, according to reports.

In recent months, MEND has claimed responsibility for a series of attacks on oil facilities in the Niger Delta.

And "with last week's bullish headlines from the U.K. out of the way, Nigeria is the lingering hotspot the markets will be focusing on," said Edward Meir, an analyst at MF Global, in a research note.

Meanwhile, "the dollar is getting smoked," contributing to oil's rally, said Flynn, in emailed comments.
On the currency markets, the dollar fell against most of its major counterparts. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, dropped 0.3% to 73.26.

On Friday, crude rallied $3.80, or 3.4%, to end at $116.32 a barrel, boosted by news reports that Turkish planes bombed bases of separatist Kurds in northern Iraq.

Also on the Nymex Monday, June reformulated gasoline gained 6.3 cents at $3.03 a gallon and June heating oil rose 1 cent at $3.22 a gallon.

June natural gas climbed 21 cents to stand at $10.99 per million British thermal units.

[Soldier4Christ]

Chicken, pork prices
to rise in next wave?
'American consumers are only
just beginning to feel the impact'

Americans may be getting another helping of food inflation, and it seems likely to come from higher prices for chicken and pork.

Overall food inflation could double this year, lifted by the rising costs of fuel, corn and soybeans, some analysts predict.

Food inflation hit 4 percent last year, up from 2.4 percent in 2006. While beef prices were already high, chicken and pork prices didn't reflect record costs for feed and fuel. That's poised to change as chicken and pig producers who have been losing money slaughter more animals to decrease the supply and raise the prices they can charge.

Higher food inflation would further challenge shoppers who are already limiting themselves to sale items and store brands as they contend with the worst food inflation since 1990.

Mary Lee Rydzewski, a retired Amtrak engine dispatcher who lives in Cheshire, Conn., says she has already switched to store brands and sale items because of higher food prices. If they increase more, she plans to cut back again.

But Karen Leedahl, a pastor who lives in Latrobe, Penn., said she always bought store brands and shopped for sale goods. Two weeks ago, she started walking more than a mile round-trip to the grocery store instead of driving.

If prices increase more, "I'm kind of in trouble," she said. "I was already trying to save."

U.S. shoppers spent 5.8 percent of their income on food in 2006, according to the U.S. Department of Agriculture—a lower proportion than any other nation. In the United Kingdom, consumers spent 8.7 percent of their income on food, and in most of the world it's at least 10 percent.

But the U.S. portion seems certain to rise, as chicken and pig producers say prices have to go up as feed costs increase.

"American consumers are only just beginning to feel the impact of sharply higher food prices," said Pilgrim's Pride Corp. Chief Executive Clint Rivers. The nation's largest chicken producer posted a wider quarterly loss Monday as it paid more for feed and took a restructuring charge.

Tyson Foods Inc., the world's biggest meat producer, forecasts that its expenses will rise $1 billion this year, including $600 million for corn and soybean meal and $100 million on grain. The balance will come from higher prices for cooking oil, breading and fuel costs, the company said. Last week Tyson reported a $5 million second-quarter loss and withdrew its earnings outlook, saying feed prices were too volatile.

"I think food inflation has got to go up," said C. Larry Pope, president and chief executive of Smithfield Foods Inc., the world's largest pork producer, in a recent speech. "Everything that uses wheat, everything that uses corn, everything that uses corn syrup has got to go up."

The exception may be beef, as already high beef prices may not see the increases that chicken and pork could, said Jim Hilker, an agricultural economist at Michigan State University. "I'm not sure beef prices will go up a lot, but they won't come back down."

Pork farm losses, though, may total $3.8 billion for 2008, one-quarter of total production, according to Chris Hurt, an agricultural economist at Purdue University. He calls the industry "a financial disaster in progress."

It will be easier for publicly traded meat producers to weather a money-losing quarter than for farmer Bill Tentinger in LeMars, Iowa. Tentinger said he expects to spend $85 per hundredweight feeding his hogs this year; at current levels, they will fetch prices in the mid $40s.

"Take that figure, times 10,000 hogs, and see if you can eat breakfast decent in the morning," said Tentinger, 59.

The biggest driver to prices is grain costs, which have been affected by the rise in ethanol production and strong export demand due to the weak dollar. Corn costs have more than doubled over the last two years from $2.50 a bushel to $6. That has added $6 billion to chicken farmers' annual feed bills, according to the National Chicken Council, a trade group.

As a result, companies are slaughtering animals to tighten supply. The move will temporarily increase supply, lowering prices, but as farms herds and flocks get smaller, it will raise prices.

Fieldale Farms Corp., a privately held chicken producer, is cutting its production by 5 percent starting in the middle of the month. Tom Hinsley, senior vice president, said he expects higher chicken prices by midsummer.

"They will have to rise, big-time, otherwise, there will be no chicken," Hinsley said.

Pilgrim's Pride said it plans to reduce weekly chicken processing by 5 percent in the second half of the year, and keep production down until margins improve. Smithfield said in February that it would slaughter 4 percent to 5 percent of its breeding sows.

A smaller breeding population and a wave of expected hog farm failures will boost pork prices by 2009, Hurt predicted. He estimates 6 percent to 8 percent of breeding sows will need to be slaughtered to support prices.

The government is giving pork producers a hand by taking some pork off the market. Agriculture Secretary Ed Schafer last week announced a government plan to buy up to $50 million of pork for child nutrition and domestic food assistance programs—at the urging of the National Pork Producers Council.

For Tim Bierman, a third-generation farmer in Larrabee, Iowa, pork price increases can't come soon enough.

Bierman spent a recent morning alternately calling and texting his commodities broker from the seat of his tractor, trying to cut the loss he'll take on his 9,000 pigs by hedging the cost of feed on the futures market.

"We're trying to cover ourselves on the futures, if not to turn a profit, then to lose less than we would if we did nothing," said Bierman, 47.

Meat and poultry executives have also come out against federal ethanol mandates, which they say are driving the cost of corn higher. On Monday, Senate Republicans asked environmental regulators to halt the ethanol expansion plans amid the rising food prices.

The U.S. Department of Agriculture predicts overall food prices could increase another 4 percent to 5 percent in 2008. But consultant Jim Hertel, of Willard Bishop food retail consultants in Barrington, Ill., thinks that high commodity and fuel prices, plus demand from India and China, could push food inflation anywhere from to 7 percent to 10 percent.

Hertel is counseling his grocery store clients on price-increase strategies. One piece of advice—don't make your store brands too cheap. Shoppers who buy them are looking for a 20 percent discount, so stores that price them 30 percent cheaper are losing money.

"We haven't seen hard-core food inflation for 30 years," he said. That's not only a challenge for shoppers, it's a challenge for retailers, he said. "A lot of people who knew what to do, who learned their lessons in the late 70s or early 80s, they're retired at this point, if they're lucky."

[Soldier4Christ]

Stocks close lower as oil hits another record
Price of crude oil tops $123 creating worry amongst investors

Wall Street tumbled Wednesday as the price of a barrel of oil soared to a record near $124 and touched off concerns that the stock market’s recent gains might have been premature while consumers grapple with rising energy and food costs. The major stock market indexes each lost more than 1.5 percent, with the Dow Jones industrial average declining by more than 200 points.

Sharp gains in commodities prices have drawn fresh attention from investors worried that consumers — the lifeblood of the U.S. economy — will be forced to pare discretionary spending to keep up with increasing costs for necessities.

Oil prices have doubled over the past year, causing gasoline prices to surge further into record terrain and strap consumers, who drive more than two-thirds of economic activity, with yet another financial burden.

Wall Street slid Wednesday amid a cacophony of worries about the effects of rising prices. Kansas City Federal Reserve President Thomas Hoenig in a speech late Tuesday pointed to inflation as his main concern. Treasury Secretary Henry Paulson said in an interview with The Associated Press Wednesday that while the worst of the credit crisis might have passed, rising gas prices will dampen the benefits from the 130 million economic stimulus checks that the government is distributing.

[Soldier4Christ]

Saudis to increase output by 300,000 barrels a day
Came at request of 'about 50 customers worldwide' – most of extra oil going to U.S.

Saudi Arabia announced Friday that it will boost oil production by about 300,000 barrels a day to meet increased demand from customers next month. The announcement came after President Bush met with Saudi King Abdullah to appeal for help in bringing down oil prices that are hitting record highs.

The Saudi increase is a modest one and appeared unlikely to have much effect on crude oil prices. But with the president under pressure at home to show he is fighting to lower gas prices, the gesture gave Bush a face-saving benefit from a day-long meeting with Saudi leaders.

In a news conference after the meeting, Saudi Oil Minister Ali al-Naimi said the increase went into effect Saturday and would raise output to 9.45 million barrels a day in June.

"On May 10, we increased our response to our customers by 300,000 barrels because they asked for it," Naimi said. "So our production for June will be 9.45 million barrels per day." He said that the increase came at the request of "about 50 customers worldwide" and that most of the extra oil would go to the United States.

Earlier, Bush's national security adviser, Stephen J. Hadley, said Naimi and other Saudi officials told Bush that they were doing all they can to increase production but suggested that other factors are keeping prices high.

"What they're saying to us is . . . Saudi Arabia does not have customers that are making requests for oil that they are not able to satisfy," Hadley said. He told reporters that the Saudis indicated they are willing to put oil on the market in amounts sufficient to meet their customers' demands.

Even if they increase production, Hadley quoted the Saudis as telling Bush, that would not dramatically reduce gasoline prices in the United States. The officials told Bush they are doing "everything they can do" at present and are investing in ways to increase oil production in the future, Hadley said.

The Saudis are saying that "if our customers come to us and say they have a shortage of crude oil, we will meet that request," Hadley said.

It was not immediately clear why Hadley did not mention the 300,000 barrels-a-day increase when he briefed reporters on Bush's meeting with Abdullah.

Bush met with Abdullah in Saudi Arabia in January and pushed for more oil production then as well, but the Saudis rebuffed the request.

News of the production increase appeared to have little effect today on crude oil prices, which continued to climb. The price of a barrel of light, sweet crude for June delivery was up $2.20 to $126.29 in trading on the New York Mercantile Exchange at closing this afternoon after spiking at a record $127.82 a barrel earlier in the session. Oil prices currently are about 30 percent higher than they were in January. The national average for regular gasoline now stands at $3.78 a gallon.

Saudi Arabia often adjusts its oil production to meet demand, which is set to rise in the United States with the advent of the peak summer driving season.

In part for that reason, oil industry analysts doubted that the Saudi announcement amounted to much more than a gesture.

"It's just a token increase, but it shows that the Saudis realize just how important it is for the president to not come back empty-handed," said Peter Beutel, president of Cameron Hanover Inc. in New Canaan, Conn., according to Bloomberg news service. "This is about a lot more than oil; the special relationship between the countries is at stake."

"It's a way to raise production without raising production," said Phil Flynn, an analyst at Alaron Trading Corp., the Associated Press reported. "I think it was a way to save face."

Bush flew to the Saudi capital from Jerusalem on Friday, turning his attention not only to the rising price of oil but to the looming threat from Iran, two of the big issues on the agenda for his meeting with Abdullah.

U.S. officials and other experts said the king probably was most interested in discussing Iran. The leaders of this Sunni-dominated kingdom are deeply concerned about what they see as the aggressive actions of Shiite Iran in Lebanon, Iraq and elsewhere in the Middle East, and they have been pushing the administration to be more assertive in confronting Tehran.

Briefing reporters following Bush's meetings with Abdullah this afternoon, Saudi Foreign Minister Saud al-Faisal made clear the Saudi disappointment with Bush's speech Thursday to the Israeli Knesset. Bush touched only lightly on the Palestinian quest for a state of their own, while paying homage to the 60th anniversary of the Jewish state.

"We are well aware of the special U.S.-Israeli relationship," Saud said. But he added: "Stressing the right of a nation to exist should not strike out or revoke the rights of other nations." The Palestinians "are in dire need to enjoy their rights," he said.

Before Bush arrived, the White House announced that the two nations had negotiated four "critical agreements to strengthen the protection of energy resources, enhance peaceful nuclear cooperation, broaden the fight against global terrorism and bolster nonproliferation."

The White House said Saudi Arabia will join the 70-nation Global Initiative to Combat Nuclear Terrorism and the 85-nation Proliferation Security Initiative. The United States will work with the Saudis to help protect the kingdom's vast energy resources and infrastructure and to develop civilian nuclear power to be used in medicine, industry and power generation.

Briefing reporters before the trip, Hadley said Bush has made clear to the Saudis and other oil suppliers that "as they consider their pricing policies and as they consider their production targets, they need to take into account the economic health of the global community; need to take into account the economic health of their customers who pay these prices."

But Hadley also sought to dampen expectations. "Capacity is limited in the international market. It just is," he said. "Capacity is limited in the Middle East. There are limits to how much that production can be ramped up without enormous investments of dollars and enormous investments of time."

Administration officials, including Vice President Cheney, have lauded the Saudis for making billions of dollars in investments to expand their capacity in recent years. The Saudis now pump about 9.2 million barrels of oil a day, and they have an overall capacity to pump about 11 million daily.

"The Saudis are doing all you can reasonably expect," said J. Robinson West, chairman of PFC Energy in Washington, adding that the kingdom sees an inconsistency between the United States demanding more production and not opening itself to more drilling.

But Youssef M. Ibrahim, a freelance writer and consultant who specializes in oil, said in an interview that the Saudis should be able to do more but don't want to. "They have plenty of money -- there is no reason for them to increase production to get new income," he said. "They don't feel any compelling need to help out. They see Bush as leaving. It's his last nine months."

[Soldier4Christ]

Congress vs. OPEC: Flexible-fuel cars

An engineer and energy authority says the Organization of Petroleum Exporting Countries (OPEC) led by Saudi Arabia wants to drive the world into an economic depression with the eventual goal of establishing a worldwide Islamic caliphate

Dr. Robert Zubrin has a Ph.D. in nuclear engineering and is president of Pioneer Astronautics, an aerospace engineering firm. He recently published Energy Victory: Win the War on Terror by Breaking Free of Oil. He believes the OPEC cartel has consciously decided to restrict the production of oil in the face of growing world demand, and that this year the U.S. is going to spend $1 trillion on oil, most of which is going into the pockets of the cartel.
 
"They'll use part of it to fund terrorism internationally," he says, "and they're putting the rest into a giant takeover fund called sovereign wealth funds, which they will use to take over the companies that they wreck as they push us into recession. They'll take over these companies at a fraction of their value; 10 cents on the dollar," Zubrin contends.
 
The author argues that the power of the OPEC cartel must be destroyed internationally -- and that the U.S. Congress can help. He urges Congress to make "flex-fuel" the international standard and force gasoline to compete at the pumps.
 
"The United States Congress can effectively destroy OPEC with the stroke of a pen, simply by passing a law requiring that every new car sold in the United States gives the consumer fuel choice. That is, [to] be a fully flex-fueled car able to run not just on gasoline but on methanol and ethanol," Zubrin explains.
 
According to Zubrin, a Senate bill cosponsored by Senators Evan Bayh (D-Indiana) and Kansas Republican Sam Brownback (R-Kansas) would do just that and crash the price of oil to $50 a barrel.
 
Flexible-fuel vehicles, or FFVs, according to the U.S. Department of Energy, are designed to run on gasoline or a blend of up to 85% ethanol (E85), and have been produced since the 1980s. The DOE says while FFVs experience no loss in performance when operating on E85, they typically get fewer miles per gallon because an equal amount of gasoline contains more energy.

[Soldier4Christ]

Home prices drop at sharpest rate in 20 years
20-city index tumbled 14.4% during quarter

A closely watched housing index shows U.S. home prices dropped at the sharpest rate in two decades during the first quarter.

The Standard & Poor's/Case-Shiller said Tuesday its U.S. National Home Price index fell 14.1 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988.

Its narrower indices also set record declines. The 20-city index tumbled 14.4 percent during the quarter, the lowest since that index was started in 2001. The 10-city index plunged 15.3 percent, a record in its 20-year history.

"There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path," said David Blitzer, chairman of S&P's index committee.

[Soldier4Christ]

Oil crisis triggering
scramble for seabed
Fevered effort for control going on in secret
at little known office of U.N. in New York

A fevered scramble for control of the world's seabed is going on - mostly in secret - at a little known office of the United Nations in New York.

Bemused officials are watching with a mixture of awe and suspicion as Britain and France stake out legal claims to oil and mineral wealth as far as 350 nautical miles around each of their scattered islands across the Atlantic, Pacific, and Indian oceans. It takes chutzpah. Not to be left out, Australia and New Zealand are carving up the Antarctic seas.

The latest bombshell to land on the desks of UN's Commission on the Limits of the Continental Shelf is a stack of confidential documents from the British Government requesting an extension of UK territorial waters around Ascension Island, St Helena and Tristan da Cunha.

The three outposts between them draw big circles in the Mid and South Atlantic, covering unexplored zones that may one day offer deep reserves of crude oil and gas.

A similar request has already been made for eastward expansion from the Falklands and South Georgia - much to the fury of Argentina. "If the British do not change their approach, we shall have to interpret it as aggression," said President Nestor Kirchner, before he handed power to his wife Cristina.

Ascension Island - famed for its enormous green turtles - is a dusty cluster of 44 volcanoes, covered with cinder. It is barely big enough to host America's "Wideawake" airfield and a tracking station for Ariane 5 space rockets. First garrisoned by the British in 1815 to keep an eye on Napoleon, it now boasts 1,100 hardy souls. St Helena - the "Atlantic Alcatraz" - is yet more remote, if greener.

The forgotten relics of the Empire make Britain a player in the marine race. There are the waters off the Falkland Islands and South Georgia, already home to a clutch of oil exploration companies; the Pitcairn Islands in the Pacific; Diego Garcia in the Indian Ocean; and a string of outposts such as Montserrat, the Caymans, the British Virgin Islands, the Turks and Caicos, and Bermuda.

The French "Outre-Mer" is a bigger network - from the Isles Crozet to Saint-Paul and Kerguelen in the southern seas, to Clipperton off western Mexico. They too have been busy at the UN, requesting an extension of their zone off French Guiana and New Caledonia.

All the maritime powers are nibbling gingerly at the edges of Antarctica, though the Antarctic Treaty bans fresh claims on the world's last pristine landmass.

The two-page summary of Britain's submission to the UN gives little away. It merely notes that the UK is providing information on the limits of shelf "beyond 200 nautical miles", adding that there will be further requests. A Foreign Office spokesman said the motive was to "protect the environment".

Greenpeace demurs. "It is a grab for resources. These countries are in a panic about commodity prices and now view the seas as key to their national security," said Charlie Kronick, the group's climate chief.

The Law of the Sea allows the maritime powers to claim 200 miles of waters around their islands. They can win an extension to 350 miles if the geology of the seabed fits a set of complex technical conditions.

The requests are studied by a panel of world experts, and usually granted on a strict scientific basis. This is not conducted like the Eurovision Song Contest, where imperialists score "nul points".

The deadline expires in May 2009, so there is now a rush to stake out claims. If countries waive their right, the area from 200 to 350 miles automatically returns to the world community: claim it now, or lose it forever.

In a sense, the system is deeply unfair. China gets virtually nothing. Poor landlocked countries get absolutely nothing. Yet the old powers - after enjoying the fruit of imperial rule for four centuries - enjoy a second bite of the cherry. "The sea goes to the most powerful states that were able to colonise the remote parts of world. That's the way the law is," said Martin Pratt, head of the international boundaries unit at Durham University.

Nobody has ever explored these regions thoroughly for oil and minerals, although Mr Pratt said there was a burst of interest 20 years ago in "polymetallic nodules" - boulders of manganese, and such, on the sea floor. Commodity prices did not stay high enough to make it worthwhile investing, and the waters were mostly too deep.

That calculus is now changing fast as oil futures contracts for 2016 vault to $135 a barrel. The International Energy Agency warns that world output will fall far short of the estimated 116m barrels per day by 2030 unless there is massive investment.

The technology of deep-water drilling is improving in leaps and bounds. Three-dimensional seismic imaging can look through the salt canopies that cover up reserves and play havoc with exploration.

The ageing North Sea rigs drill to around 3,000ft: the Jack 2 test well, run by a consortium of oil companies, plunges through 7,000ft of water and 20,000ft of sea floor into the entrails of the earth below the Gulf of Mexico.

The state-of-the-art fields off Angola may soon be routinely drilling at near 9,000ft. It is no longer far-fetched to imagine rigs drilling as deep as 15,000ft, once oil companies learn to cope with crude gushing out at temperatures of 300C.

Shell and Lasmo explored the Falklands in the 1990s, but gave up when crude prices crashed to $10 a barrel. Nothing much came to light. Desire Petroleum, Rockhopper, Borders & Southern and Falkland Oil and Gas are all probing again. Desire plans to start drilling this year. "A working hydrocarbon system in the North Falkland Basin has been established," it said.

Dr Phil Richards from the British Geological Survey - who helped to prepare the UK's extension claim - doubts stories that the area could hold 60bn barrels of oil (Saudi Arabia purports to have 260bn).

"That is not credible. It is based on how much oil the rocks are potentially capable of holding. We won't know how much there is until we actually drill. All we have so far are educated guesses," he said.

Mr Richards denies that the Government is privy to secret discoveries. "There are no vast reserves that we know about. But who knows, it may come good for our grandchildren," he said.

Is it in the interests of mankind to tap deep-sea reserves? We may have no choice. The world has consumed one trillion barrels of oil already. The second trillion is located but not yet tapped, and will take us to 2035 or so. The third trillion eludes us. Any suggestions?

[Soldier4Christ]

General Motors closing 4 truck, SUV plants
Surging fuel prices hasten dramatic shift to smaller vehicles

General Motors is closing four truck and SUV plants in the U.S., Canada and Mexico, affecting 10,000 workers, as surging fuel prices hasten a dramatic shift to smaller vehicles.

CEO Rick Wagoner said Tuesday before the automaker's annual meeting in Delaware the plants to be idled are in Oshawa, Ontario; Moraine, Ohio; Janesville, Wis.; and Toluca, Mexico. He also said the iconic Hummer brand will be reviewed and potentially sold or revamped.

Wagoner said the GM board has approved production of a new small Chevrolet car at a plant in Lordstown, Ohio, in mid-2010 and production of the Chevrolet Volt electric vehicle in Detroit.

Wagoner announced the moves in response to slumping sales of pickups and SUVs brought on by high oil prices. He said a market shift to smaller vehicles is permanent.

GM shares rose 25 cents, or 1.4 percent, to $17.69 in morning trading.

The cuts will affect 10,000 hourly and salaried workers. Many will be able to take openings created when 19,000 more U.S. hourly workers leave later this year through early retirement and buyout offers.

Wagoner said the company has no plans to allocate products to the four plants in the future.

"We really would not foresee the likely prospect of new products in the plants that we're announcing today that we'll cease production in," he told a Moraine, Ohio, city official who asked a question in a telephone conference call.

More cuts will be announced later. Wagoner said GM will consolidate engine, transmission and other parts operations to go with the assembly plant actions.

The actions add to a string of plant closures by the Big Three in the last several years. GM, Ford Motor Co. and Chrysler LLC have announced the shutdown of 35 plants since 2005, according to Sean McAlinden, chief economist with the Center for Automotive Research in Ann Arbor. Along with 35 additional closures at GM and Ford's chief suppliers, Delphi Corp. and Automotive Components Holdings LLC, he said the total hourly and salaried jobs eliminated comes to 149,000.

In that same time period, foreign automakers have built or announced plans to build five U.S. assembly plants, he said. In 2007, foreign auto companies employed 113,000 people in the U.S., a number McAlinden projects will rise to 152,000 by 2011.

The Oshawa truck plant, which builds the Chevrolet Silverado and GMC Sierra pickups, likely will be shuttered next year. The Moraine plant near Dayton, will stop making Chevy TrailBlazer and other mid-size SUVs in 2010 "or sooner if demand dictates," Wagoner said. In Janesville, the plant that builds medium-duty trucks and big SUVs like the Chevrolet Tahoe, will cease production starting at the end of 2009, finishing in 2010 or sooner if demand stays weak. In Toluca, production of medium-duty trucks will end by the end of 2008, Wagoner said.

The moves will save the company $1 billion per year starting in 2010. Combined with previous efforts, GM by 2011 will have cut costs by $15 billion a year over in 2005, Wagoner said.

Wagoner said General Motors Corp.'s board approved the production schedule of the Chevrolet Volt, and the company plans to bring the plug-in electric car to showrooms by the end of 2010.

Fully charged, the Volt could drive about 40 miles without using any gasoline, and a small conventional engine would recharge the vehicle, extending its range and allowing it to get the equivalent of 150 miles per gallon. GM plans to sell about 100,000 Volts a year by 2012.

Wagoner said the change in the U.S. market to smaller vehicles likely is permanent. "We at GM don't think this is a spike or a temporary shift," Wagoner said.

On the Hummer, Wagoner said GM is "undertaking a strategic review of the Hummer brand, to determine its fit with GM's evolving product portfolio" in light of changing market conditions.

"At this point, we are considering all options for the Hummer brand... everything from a complete revamp of the product lineup to partial or complete sale of the brand," he said.

Detroit's automakers have been making the shift to more fuel-efficient vehicles, but not at the pace that matches consumers' drive to hybrids and high mileage models made overseas. Gas prices have accelerated the retreat from trucks and sport utility vehicles, leaving the Big Three at the most critical crossroads in 30 years.

The U.S. market is difficult for every automaker, with consumer confidence weak and 2008 sales expected to be the lowest in more than a decade. But it is most difficult for the Detroit Three, who have relied more heavily on sales of trucks and SUVs than their foreign counterparts. Trucks make up 70 percent of Chrysler LLC's U.S. sales, for example, compared to 41 percent at Toyota Motor Corp.

GM President and Chief Operating Officer Fritz Henderson said the new small car to be built in Lordstown would get 9 miles per gallon better fuel economy than the company's current small cars, the Chevrolet Cobalt and Pontiac G5 when equipped with a manual transmission. The most efficient Cobalt now gets 36 miles per gallon on the highway, although Henderson would not give a total mileage number.

It would be powered by a 1- to 1.4-liter four-cylinder gasoline engine that could be turbocharged for additional power, GM said. The new engine would be built in Flint.

Henderson said the plant closure measures would reduce the company's capacity to produce pickups and large SUVs by 700,000 per year, about 35 percent.

He also said GM is planning for gasoline prices to stay around $4 per gallon for the foreseeable future, "with a bias upwards."

When asked if GM should have moved more quickly to smaller vehicles, Henderson said he doesn't spend time looking in the rearview mirror.

"There's not much I can do about what I didn't do in the past," he said.

Pete Hastings, senior analyst with Memphis, Tenn.-based Morgan Keegan & Co., said GM's moves are painful yet prudent.

"It's a permanent shift, and they're right to recognize it," he said. "But is it enough? It's a bit early to tell. ... That's the hard part of gauging where we are in the economy -- and how deep or strong the shift in demand is for more fuel-efficient vehicles."

Analyst Kevin Tynan of New York-based Argus Research Corp. said the Detroit Three automakers have been "caught with the market running away from them." While he recognizes GM's plight and efforts to overcome it, he still questions the aggressive push to market with the Volt, which is demanding heavy investment at a time when money is tight.

"It's very bad timing, very late in the game to be making big bets," he said. "At the same time, you don't have a choice."

The announcement is an economic blow to Janesville, which long has been entwined with automaking. The sprawling GM plant has survived the Depression, a world war and GM's major layoffs in the 1980s, but it will not escape the latest round of corporate belt-tightening.

"There were some tears and a lot of people were kind of ticked off, but it's part of the business," said Scott Lambert, 39, who has worked at the plant for 13 years.

He said he was headed to buy an atlas to figure where other GM plants were that might be hiring.

The plant, GM's oldest, opened in 1919 and long was the largest employer in Janesville, a city of 60,000 about 100 miles northwest of Chicago. But cutbacks have shrunk the work force to about 2,600, so it's no longer the city's biggest employer.

Detroit-based GM also has just emerged from a spate of labor problems, with two local union strikes at key factories and a nearly three-month strike at key parts maker American Axle and Manufacturing Holdings Inc.

GM said in a recent regulatory filing the strikes will cost it a total of $2 billion before taxes in the second quarter.

AP Business Writers Emily Fredrix in Janesville, Wis., and Jeff Karoub in Detroit and AP Auto Writer Dee-Ann Durbin in Detroit contributed to this report.

[Soldier4Christ]

More Americans hop on mass transit
'High gas prices are motivating people to change their travel behavior'

More Americans are leaving their cars at home and jumping on buses, trains, and trolleys as retail gasoline prices approach $4 per gallon, according to a report released Monday by the American Public Transportation Association.

American mass transit use increased 3.3 percent during the first quarter of 2008 while Americans drove 2.3 percent less during the same period, the report said.

The trend builds on last year's record increases when U.S. mass transit use reached a 50-year high as consumers tried to temper the impact of soaring gasoline prices.

"More and more people have decided that taking public transportation is the quickest way to beat the high gas prices," APTA president William W. Millar said in a press release.

"There's no doubt that the high gas prices are motivating people to change their travel behavior," he added.

Average retail gasoline prices have topped $4 per gallon in 13 states and are running about 25 percent higher than last year, according to travel auto group AAA.

Travel on light rails, which includes streetcars and trolleys, showed the highest increase with a 10.3 percent bump in ridership, according to APTA.

Commuter rails came in second with a 5.7 percent increase in usage during the first quarter in large metropolitan areas. Seattle's commuter rail system had the highest jump with nearly 28 percent more riders in the first quarter.

Buses had the least increase in ridership at 2 percent, although cities with populations under 100,000 saw a large increase -- 7.8 percent -- in bus ridership.

[Soldier4Christ]

The socialists plans of turning this into a third world nation are coming together.

[Soldier4Christ]

Unemployment rate hits 5.5% as 49,000 jobs lost
Biggest monthly increase in more than 2 decades

The unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline, the Labor Department reported on Friday.

Economists construed the weak monthly jobs report as an indication of the pain assailing tens of millions of Americans amid an economic downturn that most experts assume is a recession.

The labor market is continuing to deteriorate, eroding the size of paychecks, just as gasoline and food prices surge, and as the declining value of real estate erodes the wealth and credit of many households.

“It’s unambiguously ugly,” said Robert Barbera, chief economist at the research and trading firm ITG. “The average American already knows that gas prices are up a ton and its really hard to find a job. Sally and Sam on Main Street are already well aware of this, and that’s why sentiment surveys are lower than they were in each of the last two recessions.”

On Wall Street, stock markets were down sharply in morning trading as investors saw in the weak job numbers signs that the overall economy could remain mired in trouble for some time.

The spike in the jobless rate also ratcheted up the policy debate in Washington, where the White House has pledged to veto a supplementary Iraq war financing bill that includes an expansion of unemployment benefits. The White House has opposed the bill for imposing deadlines on the withdrawal of troops.

Among the 8.55 million people who were unemployed in May, 1.55 million had been unemployed for 27 weeks or longer. Federal unemployment benefits currently expire after 26 weeks. The bill approved by the Senate and facing a vote in the House would add another 13 weeks of cash assistance.

“It would show a new level of callousness by Congress, a new level of disconnect between Washington and the rest of the country, not to pass an extension now,” said Andrew Stettner, executive director of the National Employment Law Project, a national advocacy group for the unemployed.

The White House argues that jobless benefits have never been extended with the unemployment rate this low, a position that White House spokesman Tony Fratto said remained in place even after Friday’s report.

The leap in the unemployment rate also appeared to cool talk that the Federal Reserve might soon begin inching up interest rates in an effort to choke off rising prices for gasoline, food and other goods, and to support the weak dollar. The Fed policy board meets again at the end of the month.

“I don’t think we’ll be seeing Ben Bernanke defending the dollar anytime soon,” said Michael T. Darda, chief economist at the research and trading firm MKM Partners, who has worried that the Fed has stoked inflation by lowering interest rates too aggressively. “The Fed more than anything else puts emphasis on the labor market indicators. This will make it very difficult for the Fed to take back the easing in an expeditious fashion.”

For six months, the Fed has been steadily lowering interest rates, which tends to spur borrowing and investment, in an effort to bolster the economy. As inflation fears have grown, so have calls in some quarters that the Fed alter its course. That conversation has been amplified by talk on Wall Street that the economy appeared to be stabilizing, and banks were past the worst of their mortgage-related woes.

But Friday’s report injected a substantial note of gloom into that view.

“We simply haven’t had five months of net job losses without being in a recession,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington.

The details of the report fleshed out how economic troubles that began with the fall of real estate prices and then spread to the construction industry have continued to ripple out to other areas of the economy. Many homeowners who are no longer able to borrow against the values of their houses have been cutting their spending, shrinking sales at shopping malls, grocery stores and home improvement outlets. That has prompted to businesses to cut payrolls, taking more purchasing power out of the economy.

Construction again led the way down in May, shedding 34,000 more jobs, according to the report. Profession and business services — which includes lawyers, accounts, architects and management consultants — declined by 39,000.

Manufacturing lost 26,000 jobs as the sector continued its steady decline. Retail payrolls shrunk by 27,000 jobs, and transportation and warehousing by 10,500.

Health care remained a rare bright spot, adding 33,900 jobs in May, while restaurants and bars added 11,400 jobs

The jobs picture has turned particularly mean for more vulnerable segments of the population, with the unemployment rate among African-Americans leaping to 9.7 percent in May from 8.6 percent in April .

Over the same period, joblessness among those aged 16 to 19 climbed to 18.7 percent from 15.4 percent, underscoring why many economists predict this will be the weakest summer job market for teenagers in at least 60 years.

The White House and some economists questioned the validity of the spike in unemployment, noting that most of results from a surge in people entering the labor force. Some suggested that this meant that the Labor Department may have miscalculated its seasonal adjustments for graduating college students entering the market, inflating the numbers of those seeking work.

“I think this move is exaggerated,” Mr. Darda said, who noted that new unemployment claims, while recently crossing above 370,000 a week, are still not consistent with such a dramatic surge in joblessness. “This is strange.”

Even at 5.5 percent, the unemployment rate remains relatively low by historical measures, the White House noted.

But others said the report appeared to catch up with other indicators, like several years of weak hiring, that have made a search for a job far more difficult than the simple unemployment figure reflects.

The unemployment rate does not count people who have given up looking for work. The percentage of working age-Americans employed dropped to 62.6 percent in May, down from 63 percent a year earlier. And years of weak hiring have made some companies so lean that they have few people left to cut.

“Companies didn’t have so many people on the payrolls to shrink in the first place,” Ed McKelvey, an economist at Goldman Sachs, said.

In recent months, many companies have been cutting the working hours of those on their payrolls and generally avoiding layoffs, while hoping that the economy would improve. That trend held up in May, as those working part-time because they could not find full-time work or because of slack business nudged up from 5.22 million to 5.23 million.

But that was a much smaller increase than the previous month. The slowing of that trend, coupled with a net loss of jobs, was taken by some economists that businesses are running out of hours they can cut: Now, they are faced with the possibility of layoffs.

“This is what happens when an economy grows solidly below trend for six months,” said Mr. Bernstein. “Employers cut back first on hours, then on jobs.”

[Soldier4Christ]

Oil prices skyrocket, taking biggest jump ever
Speculative bubble? Futures surged more than $10 a barrel, or almost 8%, to $138

The rise in oil prices turned into a stampede on Friday with futures jumping a staggering $11 a barrel to set a record above $138 a barrel. The unprecedented surge came as the dollar fell sharply against the euro and a senior Israeli politician once again raised the possibility of an attack against Iran.

Friday’s jump capped a second day of strong gains on energy markets, and fed suspicions that commodities might be caught in an investment bubble.

Oil prices have doubled in the last 12 months, and are up 42 percent since the beginning of the year. Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York Mercantile Exchange, their biggest jump since contracts began trading in 1983. The record rise brought a two-day jump of more than $16 a barrel, after Thursday’s 5.5 percent gain.

“This market is going to shoot itself in the foot,” said Adam Robinson, an energy analyst at Lehman Brothers. “It is searching for a price that will build a safety cushion in the system — either as inventories or as spare capacity. This takes time. But the market has gotten extremely impatient and is not willing to wait.”

The latest jump came as the dollar lost more than 1 percent against the euro amid bleak economic news that fanned recession fears. The unemployment rate surged to 5.5 percent in May, the government said, the biggest increase in more than two decades.

Friday’s negative news pricked a budding sentiment on Wall Street that the financial system was on the mend, and stocks fell sharply. The Dow Jones industrials lost 394.64 points, or 3 percent, to 12,209.81, with financial stocks showing the biggest declines. The broader Standard and Poor’s 500-stock index fell 3 percent, its biggest drop since February.

The pronounced volatility in energy markets in recent weeks continued to puzzle traders. Prices kept rising despite a lack of shortages in the market and strong evidence of lower consumption in industrialized countries. But investors are caught in a bullish mood, focusing on the perceived risks to future oil supplies and the growth in oil demand from emerging economies, where fuel prices are subsidized.

Even as uncertainties abound about the fundamentals of the energy market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister and a deputy prime minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable” if Iran did not abandon its nuclear program.

Iran is the second-largest oil producer within the OPEC cartel and exports nearly two million barrels a day. Because the world has few supplies to spare, any interruptions in Iran’s exports could push prices to higher levels. The world currently has about three million barrels a day of spare capacity, and consumes 86 million barrels a day of oil.

“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker. The “comments bring home the point that the dispute over Iran’s nuclear program remains unresolved and that the risks of military confrontation are indeed increasing.”

Investors also reacted to the latest forecast by a large Wall Street bank that oil prices would keep rising. Morgan Stanley predicted that prices would spike to $150 a barrel in the next month because of strong demand in Asia.

The threat of a strike by Chevron’s workers in Nigeria also raised concerns that some production could be shut down. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.

A strike may delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is to begin June 15.

One view gaining ground is that the commodity market is caught in a speculative bubble akin to the recent housing bubble or the technology bubble of the late 1990s. That theory was raised by politicians in Washington and by OPEC producers, who blame speculators for the staggering oil rally. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”

But many analysts say that fundamentals, not speculation, are driving prices.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. I don’t see who would buy at these prices unless they need to.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before a Senate committee last month, said he saw no evidence of a speculative bubble in commodities. Instead, Mr. Harris pointed to a confluence of trends that has contributed to the oil price rally, including a weak dollar, strong energy demand from emerging economies, and political tensions in oil-producing countries.

“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”

[Soldier4Christ]

Freaky Friday on Wall Street
Dow's 395-point drubbing is biggest 1-day point loss in 15 months

Dark day on Wall Street
The Dow's 395-point drubbing is its biggest one-day point loss in 15 months, after crude prices' largest one-day advance ever and a poor jobs report.

Stocks tanked Friday, with the Dow industrials shedding 395 points, after oil prices spiked more than $11 a barrel and the May jobs report showed a big jump in the unemployment rate.

Bond prices surged, as investors sought safety in government debt, while the dollar tumbled versus the yen and euro.

The Dow Jones industrial average (INDU) lost 395 points, or 3.1%, its biggest one-day decline on both a point and percentage basis since February of 2007, at the start of the subprime mortgage crisis.

The broader Standard & Poor's 500 (SPX) index lost 3.1%, while the Nasdaq composite (COMP) lost 3%. Both saw their biggest one-day declines on both a point and a percentage basis in more than four months.

The unemployment rate shot up to 5.5% in May from 5.0% in April, the government reported, marking the biggest one-month surge in over 20 years. The report was a clear indication that the economy could be in a recession after all, despite some recent bets that one could be narrowly avoided.

As rattling as the unemployment number was, the stock market was even more spooked by the spike in oil prices, said Bill Stone, chief investment strategist at PNC Wealth Management.

"I think more than anything, it's the shock of oil prices being up this substantially two days in a row," Stone said.

Crude jumped more than $16 in two sessions, with prices settling up $10.75 to $138.54 a barrel Friday on the weak dollar and in response to a Morgan Stanley note that said oil could hit $150 a barrel by July 4.

The spike exacerbated worries about consumer spending, already stretched as gas prices near a national average of $4 a gallon.

"You're definitely seeing the fear trade today, with the dollar down, commodity prices up and bonds rallying," Stone said.

Stocks could be vulnerable to further declines in the week ahead, after the S&P 500 closed below a key technical level that has previously given a floor to the selling. Traders said stocks could be in danger of moving back to the lows of March and January, which were seen as something of a bottom after months of stock declines.

Jobs market deteriorates: The unemployment rate surged to 5.5% from 5.0%, beating forecasts for a rise to 5.1% and showing the biggest one-month jump since 1986.

The spike really caught people by surprise, said Stuart Hoffman, chief economist at PNC Financial Services Group. He said the report makes it clear that at least for so-called Main Street and the labor market, "we are in a recession, regardless of how we economists define it."

He was referring to the fact that GDP has been limping higher and the economy has not been officially declared to be in a recession by the National Bureau of Economic Research.

However, with non-farm payrolls dropping for a fifth consecutive month, it feels to many people like it's a recession, he said. Employers cut 49,000 from their payrolls, the report showed, versus forecasts for a decline of 60,000.

Dollar falls, oil spikes: The dollar continued its slide versus the euro on the weak jobs report and comments Thursday that the European Central Bank could potentially raise interest rates. The dollar also tanked versus the yen.

The dollar's decline contributed to a rally in dollar-traded commodity prices, with U.S. light crude oil for July delivery settling at $138.54 a barrel, a jump of $10.75. The increase was the biggest single-day price gain since record-keeping began in 1983 - taking out the previous session's record.

Oil prices spiked to a record trading high of $139.12 after the close, before pulling back a bit.

Gold and other commodities rallied too. COMEX gold for August delivery rose $23.50 to settle at $899 an ounce.

Gas backs off record: The national average price for a gallon of regular unleaded gas fell to $3.986 from the previous day's record of $3.989, AAA reported. Gas prices had set new records for 28 of the previous 29 days.

Other markets: Treasury prices rallied, lowering the yield on the 10-year note to 3.93% from 4.05% late Thursday. Bond prices and yields move in opposite directions.

On the move: Stock declines were broad based, with all 30 Dow issues falling.

The Dow's financial components were hit the hardest, with American Express (AXP, Fortune 500) and Citigroup (C, Fortune 500) both down 5%, and Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) down more than 4%.

AIG (AIG, Fortune 500) slumped more than 7% on reports that the Securities and Exchange Commission is looking into whether the insurer overstated the value of contracts connected to subprime markets, something AIG denies. Additionally, it was reported that federal prosecutors have asked the SEC for material related to the investigation.

Other big blue-chip losers included General Motors (GM, Fortune 500), down nearly 5%, and Boeing (BA, Fortune 500), down 5.4%.

Intel (INTC, Fortune 500), Oracle (ORCL, Fortune 500), Cisco (CSCO, Fortune 500) and Qualcomm (QCOM, Fortune 500) were among the biggest technology decliners.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by over 4 to 1 on 1.48 billion shares. On the Nasdaq, decliners topped advancers by nearly 4 to 1 on volume of 2.20 billion shares.

Stocks spiked Thursday on a surprise dip in weekly jobless claims, stronger-than-expected May retail sales and a merger in the telecom sector. But the advance was short-lived as Friday's barrage of discouraging economic news and spiking oil prices brought out the sellers

[Soldier4Christ]

Floods send corn, ethanol soaring

Corn futures rose to another record high and ethanol prices surged to a two-year high on Friday as storms lashing the US Midwest raised the specter of a crop that will be too small to satisfy demand for food, feed and biofuel.

The seventh straight surge in corn prices further squeezed margins for US ethanol producers, who are scaling back unprofitable operations and also face flooding at distilleries that turn corn from nearby farms into the biofuel.

Flood waters have inundated fields throughout the corn belt. Especially worrisome for the crop, were cresting rivers in Iowa and Illinois, the top two growing states.

At the Chicago Board of Trade, July corn closed up 22-3/4 cents, or 3%, at $US7.31-3/4 a bushel, after peaking at $US7.37. The contract for July 2009 hit $US7.81-1/2, the highest price for any corn contract.

''They are looking for crop conditions to decline. In Iowa and the southern half of Illinois and Indiana, it's bad ... there will be holes in the crop,'' said Dan Cekander, an analyst for Newedge Trading.

The overflowing Cedar River forced the evacuation of downtown Cedar Rapids, which with a population 200,000, is Iowa's second largest city.

Flooding has also swamped parts of other big agricultural states, including Minnesota, Wisconsin, Michigan, Missouri and Kansas, hurting crops at a time that demand for food and fuel is soaring globally.

The upper Mississippi River was closed to barge traffic and the 300-mile (480 km) stretch of the most important US waterway for getting grain to export terminals, may be cut off for several weeks.

Corn prices have jumped 22% this month and are up nearly 90% from a year ago, putting increasing financial pressure on livestock feeders, exporters, ethanol and biodiesel makers and, ultimately, on grocery shoppers and commuters.

The nearby CBOT ethanol contract rose 4% to $US2.799 per gallon, striking its highest level since July 2006.

The spot ethanol price in the Midwest rose from $US2.37 per gallon on Monday to bids and offers at $US2.69/$US2.71 on Friday.

Prices were lifted by a Citi Investment Research report that said five small to mid-sized US ethanol plants were forced to shut and 2 billion to 5 billion gallons of ethanol could go offline in coming months due to high corn prices.

US food and grains company Archer Daniels Midland said on Friday it closed its Cedar Rapids, Iowa ethanol plant because of local water use constraints due to flooding.

POET Chief Executive Jeff Broin told Reuters in an interview that the largest US ethanol company would not cut production even though some rail lines had been flooded and some of its plants were losing money as feedstock corn prices soar.

''We have plants both slightly below and above break-even today. Certainly, these are not the best of times,'' he said.

Pavel Molchanov at Raymond James and Associates in Houston estimated that average US producers now lose 8 cents for every gallon of ethanol distilled, compared with a profit margin of 20 cents two weeks ago. Besides higher corn prices, margins also have been squeezed by two-year highs for natural gas, which fires most ethanol plants.

Steve Sorum, Project manager at the Nebraska Ethanol Board said that water was seeping into plants where it should not and reported that one fermentation tank at a plant under construction in Aurora, Nebraska collapsed due to strong winds.

The United States has an ethanol production capacity of about 8.8 billion gallons per year from 154 distilleries.

''Right now, producer margins are so poor, growing conditions are bad,'' said one Midwest oil dealer. ''From a price perspective, this thing can only go higher.''

''Even with imports coming from Brazil and the Caribbean basin, it still says this goes higher,'' he added.

On the New York Mercantile Exchange, July crude ended down $US1.88, or 1.37%, at $US134.86 per barrel, on a stronger dollar and a report that Saudi Arabia was considering increasing output.