Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's Insanely Leveraged Housing Market Will Enter Its Secular Bull Market In 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16
Is Obama Juicing US Government Spending To Get Hillary Clinton Elected? - 16th Oct 16
Seek Your Independence: Anything Else Will Destroy You - 16th Oct 16
SNL - US Presidential Debates, 1st, 2nd, VP - Like You've Never Seen them Before! - 16th Oct 16
End of Economic Growth Sparks Wide Discontent - 16th Oct 16
Donald Trump on Life Support, May Abandon Election Campaign and War on Republican Party - 15th Oct 16
The Gold Manipulators Not Only Will Be Punished, They Have Been Punished - 15th Oct 16
Black Votes Matter - Is the US on the Verge of Mass Race Riots? - 15th Oct 16
Gold Stocks Screaming Buy - 14th Oct 16
Brace Yourself for the Quadrillion-Dollar Reckoning - 14th Oct 16
The Next Recession Will Blow Out the Budget - 14th Oct 16
John Mauldin: My Infrastructure Plan to Save the US Economy - 14th Oct 16
World War III On The Brink: War Will Continue Until It Triggers Economic Collapse - 14th Oct 16
US T-Bill Rejection At Ports In Progress - 14th Oct 16
These 2 Debt Instruments Pose Peril to Millions of Investors - 14th Oct 16
China’s Rocketing Housing Market Real Estate Bubble - 14th Oct 16
DIY Winter Home Maintenance Money Saving 22 Point Checklist to Get Ready for Winter/Fall - 14th Oct 16
US Stock Market, Big Picture View - 13th Oct 16
Stock Buybacks Main Force Driving Bull Market; Rewards Investors and Starves Innovation - 13th Oct 16
SPX Gapping Down... - 13th Oct 16
Syria - Obama Stepped Back From Brink, Will Hillary? - 13th Oct 16
The Structure and Future of Gold in the Investment and Monetary World - 13th Oct 16
Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - 12th Oct 16
Gold and Crude Oil - General Stock Market Links - 12th Oct 16
Samsung's Galaxy Battery Just The Tip Of The Iceberg - 12th Oct 16
Hillary: Deceit, Debt, Delusions (Part Two) - 12th Oct 16
Gold and Silver Metals Show Strength Relative to the USD Index - 12th Oct 16
Announcing Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 12th Oct 16
Confirmed Stock Market Sell Signals - 11th Oct 16
Hillary Deceit, Debt, Delusions - 11th Oct 16
Trump Support Crashes to New Low of 6.4 on Betfair Odds Betting Market - 11th Oct 16
The World Is Turning Dangerously Insular - 11th Oct 16
An American Tragedy: Trump Won Big - 11th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

LEARN to Trade

Agricultural Commodity Markets Inflationary Peak Forecast 2013

Commodities / Agricultural Commodities Sep 20, 2012 - 03:42 AM GMT

By: John_Hampson


Diamond Rated - Best Financial Markets Analysis ArticleAgricultural commodities prices resumed upward trends in June 2012, largely due to drought conditions in key global farming areas on top of existing low inventories. Extreme global conditions continue, with the period June-August of 2012 the hottest such period historically on record.

Source: NOAA

Taking a broad agricultural commodities ETC (ETF), we can see that softs are now back up into the price range experienced in 2011, and not far from 2008′s peaks.

Agricultural commodity price rises typically feed through to retail food prices 4-6 months later, which means we could expect food prices to really escalate as of the final quarter 2012. Here is the UN food price index up to the end of August 2012:

Source: Food And Agriculture Organisation Of The United Nations

Now take a look at how the 2008 and 2011 episodes of rising food prices brought about social unrest and political upheaval in poorer countries across the world:

Source: NECSI

The chart shows when outbreaks of violence erupted in different countries. As food prices escalate towards those levels again as we reach into 2013, the likelihood is of renewed protest and conflict.

We can cross-reference this with solar cycle studies. 2013 is the year of the forecasted solar maximum. Alexander Chizhevsky’s analysis of 2500 years of human history and solar cycles revealed that the period into and around solar maximums (4 years) was historically one of protest, revolution and war. Last year’s North African and Middle Eastern revolts fit with this, as does the prospect of food-price based protest and conflict into 2013.

The Arab Spring revolutions and protests in 2011 brought about oil supply disruption, both real and perceived, which in turn rallied oil prices. Rising oil prices feed back into food prices through processing and distribution. Precious metals in turn benefit as inflation hedges.  A price feedback loop develops between these different commodities, and a feedback loop also occurs between commodity price rises and social conflict.

These two charts confirm the close inter-relations of food prices with oil and gold:


Source: Prudent Investor

Source: Casey Research

As we stand in September 2012, energy and metals are lagging soft commodities as supportive evidence for an inflationary spike in 2013. Global economic weakness is the reason, whilst grains have accelerated largely on extreme weather conditions. In response to the economic slowdown, central banks have cut interest rates and renewed stimulus (such as China’s infrastucture programme and US Quantitative Easing (QE) 3). This in turn should be reflationary, which should lift commodities as a class. In reponse to the US Fed’s announcement of renewed QE, five year inflation breakeven expectations surged, as shown in the chart below. Official inflation, CPI, has historically followed this indicator with a lag, suggesting inflation should accelerate as we enter 2013.

Source: Zerohedge

There is a feedback loop here too, as rising inflation inspires more money into hard assets as inflation hedges, which lifts commodity prices, which in turn brings about higher inflation.

With renewed QE, the US Fed continues its policy of massive money supply expansion, although this is not as potent as it might be, due to a weak money multiplier. However, the money multiplier shows evidence of having bottomed out and dollar circulation in the economy is beginning to gather pace, which can be inflationary.

Source: St Louis Fed

Renewed QE also devalues the currency. As the US dollar is the world’s reserve currency, to which many nations peg their currencies, a US dollar devaluation acts as a global devaluation. As commodities are priced in US dollars, this global currency devaluation typically brings about a commodities revaluation (hard assets rising in value versus paper).

The first chart below shows that the US dollar is labouring at secular lows in real terms, whilst the second chart shows that it is gradually making a rounded base around these levels. Its recent technical behaviour post QE announcement, namely the loss of a key support, in addition to its languishing near secular lows, suggests that it can provide the backdrop for an inflationary finale into 2013, before a new secular dollar bull gradually emerges.

Source: Scott Grannis

Source: Stockcharts / James Craig

Inflationary monetary policy has become the norm, not just in the US but throughout indebted nations globally. Official US CPI inflation calculations have been gradually changed since the 1980s, but John Williams’ Shadowstats data provides a more consistent picture of inflation over time and reveals that the Federal Reserve has been successful in restoring price inflation since 2008′s deflationary panic. I have used official US stats until 1980, then Shadowstats, to maintain a continuous picture of real US inflation:

This chart also show the compelling historic relationship with solar cycles.

2013 is forecast to be the solar maximum, and if history repeats, we should see an inflationary peak close to the solar peak. As the chart shows, peaks in inflation correspond to solar maximums and troughs in inflation to solar minimums, historically. The biggest peaks in inflation corresponded to secular commodities peaks, as we might expect due to commodity prices fuelling inflation. These secular commodities peaks all occurred close to the solar maximums, with one luni-solar cycle between each, which is around 33 years. These ultimate peaks in inflation / commodity prices were preceded by a shadow peak 5 years prior.

The last secular commodities peak was 1980. One luni-solar cycle later is 2013. The solar maximum for solar cycle 24 is forecast for 2013, 5 years later than 2008, when we experienced a (shadow) inflation/commodities peak. Drawing together secular, solar and inflation history, I can therefore forecast a secular commodities peak and an inflation peak in 2013. Regular readers know this is a forecast that I have held for some time, and as we close in on the end of 2012, we see increasingly supportive evidence for its fulfillment, as documented above: forthcoming food price inflation from current soft commodity price rises; social conflict from food price inflation; central bank policies of reflation and paper/hard asset revaluations.

This table shows how close the inflation peaks were in relation to the official solar peaks: between 2 months before and 4 months after.

Currently NASA forecast the solar maximum for around September 2013, whilst SIDC project around March 2013. I expect the difference to be resolved one way or the other as we end 2012, as the sunspot data gradually gives more clues.

From a fundamental perspective, an inflationary peak in 2013 could be justified by a three-way feedback looping between commodities and other commodities, between commodities and conflict, and between commodities and inflation, supported by inflationary monetary policies. From a solar studies perspective, maximum solar activity brings about maximum human biological and behavioural excitability, which manifests as buying, speculation and risk-taking in the markets and economy, and the feedback loops are therefore between solar peaking, secular asset peaking (in this case commodities) and inflationary peaking (speculation into commodities and buying/risk-taking mania). From this alternative perspective, it is the solar maximum of 2013 which is the key driver. Either way, evidence is building towards a fulfillment of an inflationary peak in 2013, and I am positioned accordingly, with my biggest weighting long commodities.

Next: Forecast 2013 Part 2: Secular Commodities Peak

John Hampson, UK / Self-taught global macro trader since 2004 (formerly / Predicting The Financial Markets With The Sun

© 2012 Copyright John Hampson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2016 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife