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UPDATE 3-Goldman posts wider-than-expected Q3 loss

* Stock up 2.4 pct in early tradingBy Lauren Tara LaCapraOct 18 (Reuters) - Goldman Sachs Group Inc lost $428 million in the third quarter, only its second quarterly loss as a public company, as its investment portfolio tanked and trading revenue fell.The results underscore how investment banks can face headaches from their assets even as regulators clamp down on risk-taking.Goldman, the largest U.S. investment bank by assets, signaled that it is taking steps to cut costs, including employee pay, for the benefit of shareholders. Its shares rose 2.4 percent in early trading to $99.23.In a statement, Chief Executive Lloyd Blankfein blamed the loss on difficult market conditions and a lack of confidence among investors and corporate clients.”Our results were significantly impacted by the environment and we were disappointed to record a loss in the quarter,” Blankfein said.The loss amounted to 84 cents per share, much deeper than the loss of 16 cents expected, on average, by analysts.Since going public in 1999, the only other quarter in which Goldman was in the red was a $1.6 billion loss in the fourth quarter of 2008, after the demise of Lehman Brothers.The bank’s third-quarter net revenue totaled $3.6 billion, down 60 percent from a year earlier — its sixth consecutive year-over-year revenue decline. Wall Street has struggled with new regulations and choppy markets.As profitability shrinks in the industry — Goldman generated a return on equity of just 6 percent for the first three quarters of 2011, even ignoring a special charge — the bank is cutting costs. It cut its workforce by 4 percent during the quarter, helping to lower compensation costs by 59 percent.During the pre-crisis era, Goldman could generate a return on equity of more than 30 percent per quarter.Although revenue declined in some of Goldman’s core banking and trading businesses, the main source of losses was its Investing & Lending division, which uses the firm’s own capital to make long-term investments.Revenue from that division has fluctuated wildly since Goldman restructured into different business segments at the start of 2011.The division reported negative revenue of $2.48 billion for the third quarter as asset values dropped sharply. Goldman’s stock investment in Industrial and Commercial Bank of China Ltd alone generated more than $1 billion of paper losses.The U.S. financial reform law known as Dodd-Frank features a provision called the Volcker Rule, which is meant to limit banks’ betting with their own money. Regulators last week released a draft of the rule. which focuses on short-term trading.Big declines in Goldman’s bond-trading and underwriting revenue also weighed on results, more than offsetting gains from equity sales and trading and its advisory business.Goldman’s fixed income, currency and commodities client trading business — once a key profit driver for the bank — reported $1.73 billion in revenue, a 36 percent decline from a year earlier.Equities sales and trading is now a larger slice of Goldman’s revenue pie, as higher trading volumes led to bigger commissions. That business reported $2.3 billion in revenue, up 18 percent.The bank’s underwriting business suffered as clients held back on issuing new securities into volatile markets. Underwriting revenue dropped 61 percent to $258 million, while advisory revenue rose 5 percent to $523 million.In the year-earlier third quarter Goldman posted a profit of $2.98 per share.

Analysis: Hog, poultry firms to extend use of feed wheat

What initially began as a summer fling with an unprecedented premium for corn prices over wheat has turned into an enduring trend as livestock producers lock in longer-term wheat deals — many of which can’t be quickly undone even as the corn price premium finally recedes.Some livestock producers initially resisted the switch, fearing it would slow weight gain of their animals, or disrupt the eating habits. Now they have embraced its financial benefits, injecting a new dynamic into grain markets.”We are going to continue feeding (wheat) so we can stretch the corn crop through the whole season. I think (corn) availability is going to be an issue this coming year as well,” says Tim Thomas, an independent pig producer in Timberlake, North Carolina, who has been using a 50-50 mix.”Some groups of hogs won’t like the flavor as well as they will straight corn, but normally we can blend up to 50-50 and don’t have any problems getting them to eat it,” he said.In most years, wheat feeding is a short-term phenomenon that occurs in June, July and August, after the U.S. winter wheat harvest. But some U.S. chicken and hog producers are looking to extend their use of feed wheat throughout the year.The implications run deep into the corn market, which has slumped 12 percent since September 1 on signs that “demand rationing” — essentially consumers being priced out of the market — is far more widespread than believed.In April, wheat futures on the Chicago Board of Trade dipped below corn for the first time in nearly 15 years. Since June, CBOT wheat has been trading at an average of 10 cents below corn, the longest such inversion since at least the early 1970s. Cash prices were at times even more favorable for wheat buyers.Wheat prices have periodically rallied back above corn, including as recently as this week, but the change in feed habits should stick.”We hear of wheat feeding being booked all the way through the spring in the southeast markets,” said Rich Feltes, vice president for research with R.J. O’Brien in Chicago.A DIFFERENT MIXThe changing feed mix follows a summer in which U.S. corn stocks threatened to shrink to near their tightest since World War II. Corn prices surged to a record above $8 a bushel, while swelling global wheat supplies depressed prices.In the United States, plentiful supplies of wheat — especially soft red winter wheat grown in the southern Midwest — provided a welcome alternative for livestock feeders in the Southeast.Nutritionally, wheat offers more protein than corn but less energy from fat, so most operations have to recalibrate rations to accommodate wheat as a substitute ingredient.Wheat feeding has been less common this year in the big cattle feedlots of the southern U.S. Plains because a drought slashed production of the region’s hard red winter wheat crop.Some cattle feeders were able to book a four-month supply of hard red winter wheat this past summer as local cash corn prices surged, but wheat has become less competitive since then, said Joe Christopher, a grain merchandiser with Crossroads Co-op in Sidney, Nebraska.Elaine Johnson, analyst with CattleHedging.com, said cattle producers try to ensure they have enough supply to stay switched for six months to a year. Booking large quantities enables them to blend new ingredients into and out of their feed rations slowly, over several weeks.”They do not want to feed wheat and then a month later go back to the other mixture. It is not something they like to do on a short-run basis,” Johnson said.The U.S. Department of Agriculture on Wednesday lowered its estimate of the amount of U.S. wheat used for animal feed in the 2011/12 marketing year to 160 million bushels, or 8 percent of all wheat production — but still the highest share in three years.PRODUCERS FIND IT PALATABLEWheat has found favor among large-scale poultry producers.”We are steadily increasing its usage,” said Margaret McDonald, director of communications at Pilgrim’s Pride, the No. 2 chicken producer in the United States.”As long as prices make sense, we will keep maximizing its usage,” she added.Tyson Foods Inc, the biggest U.S. chicken company, has also been using wheat in its feed rations.”We continue to use small amounts of wheat in some of our poultry complexes,” Tyson spokesman Gary Mickelson said.With U.S. corn stocks expected to remain scarce through 2011/12, setting the stage for another year of high cash corn prices, price signals telling feeders to use wheat could strengthen.”For the foreseeable future, we are going to have high-priced input costs, and grain is going to be expensive, and the industry is going to have to adjust, which I think it’s doing,” said Mike Cockrell, chief financial officer for Sanderson Farms Inc, the No. 4 U.S. chicken producer.Sanderson is not currently using wheat in its poultry rations but has not ruled out adding it in the future.”There is no doubt that at least for the next crop year, we’ve got high-priced corn. Until these supplies rebuild and the balance sheets improve,” Cockrell said, “that’s just a fact of life.”

Wall St unlikely to automate bond trading - report

* Big investors enjoy uneven playing fieldOct 12 (Reuters) - Wall Street is unlikely to automate trading in opaque areas of the bond market over the next two to three years because large investors do not want to trade electronically, according to a report on Wednesday.”Unlike cash equity and foreign exchange markets before them, the fixed income markets present unique challenges which deter automated trading,” said Anshuman Jaswal, an analyst with financial-services consulting firm Celent.Although automated trading is widespread in stock and currency markets, and has expanded into Treasurys, most other types of debt transactions still occur “over-the-counter,” with brokers and customers negotiating by phone.Many bonds are traded infrequently and lack historical information or market benchmarks to compare performance against, making it difficult to put them on automated exchanges, Celent said in a report.But an even bigger barrier to automation may be that large investors do not want it to happen. Jaswal noted that big clients prefer to negotiate bond deals with their brokers directly, because they see an advantage to the pricing and services they receive.”The lack of an even playing field is a major barrier, because there is not sufficient incentive for the larger buy-side players to encourage algo trading,” said Jaswal.Automation in the stock market in the 1980s and 1990s made trading less expensive for investors. It also became a boon for online brokerages and a curse for large Wall Street banks.Treasury bonds stand alone as a debt instrument that trades frequently online, according to Celent. In that market, 55 to 60 percent of bonds trade hands electronically.