Best of the Week
Most Popular
1.Gold Price Crash Through Key Support, Crude Oil in Freefall - Clive_Maund
2.Marc Faber Warns Japan's Bond-Buying Program is a Ponzi Scheme - Bloomberg
3.Silver Price and Powerful Forces - DeviantInvestor
4.Stocks Bear Market Catastrophe as Stocks Flash Crash to New All Time Highs - Nadeem_Walayat
5.Marc Faber Warns Not to Hold Any Gold in the U.S. - GoldCore
6.U.S. Housing Market San Francisco at Critical Mass - Harry_Dent
7.Global Scramble For Silver - Coins “Hard To Get,” “Premiums Likely To Jump” - GoldCore
8.Major World Stock Market Indices Analysis: SPY, QQQ, DAX, FTSE, CAC, HSI - Michael_Noonan
9.Japan's kaput?! - Axel_Merk
10.Tesco Empire Strikes Back, £5 off £40 Discount Voucher Spend Explained, Exclusions Warning! - Nadeem_Walayat
Last 5 days
Gold's Volatility and Other Things to Watch - 21st Nov 14
Australia Stock Market and AUD Dollar Analysis (ASX200 and AUDUSD) - 21st Nov 14
New Algae Research May Have Uncovered an “Energy Forest” Under the Sea - 21st Nov 14
The Cultural and Political Consequences of Fiat Money - 20th Nov 14
United States Social Crisis - No One Told You When to Run, You Missed the Starting Gun! - 20th Nov 14
Euro-Zone Tooth Fairy Economics, Spain Needs to leave the Euro - 20th Nov 14
Ebola Threat Remains a Risk - New Deaths in Nebraska and New York - 20th Nov 14
Stock Market and the Jaws of Life or Death? - 20th Nov 14
Putin’s World: Why Russia’s Showdown with the West Will Worsen - 20th Nov 14
Making Money While The World Burns - 20th Nov 14
Why This "Quiet Zone" Is Now Tech Stocks Biggest Profit Sector - 20th Nov 14
My Favorite Stock McDonalds Just Got Kicked Off My “Buy” List - 19th Nov 14
European Economies in Perpetual State of Shock, What's Scarier Than Deflation? - 19th Nov 14
Breakfast with a Lord of War and Nuclear Weapons - 19th Nov 14
The U.S. Economy’s Ebb and Flow - 19th Nov 14
What You Need to Know Before Investing in Alibaba - 19th Nov 14
Forget About Crude Oil Price Testing 2009 Low - 19th Nov 14
What Blows Up First? Part 5: Shale Oil Junk Bonds - 19th Nov 14
Bitcoin Price Did We Just See an Important Slump? - 18th Nov 14
How to Profit From Oversold Crude Oil Price - 18th Nov 14
Stock Valuations Outrunning Profits Growth - And the Band Played On - 18th Nov 14
ECB Buy Gold Bullion? Japan's Monetary Policy Dubbed "Ponzi Scheme" - 18th Nov 14
Gold, Silver, Crude and S&P Ending Wedge Patterns - 18th Nov 14
How High Could USD/JPY Go? - 18th Nov 14
On Obama and the Nature of Failed Presidencies - 18th Nov 14
Globalism Free Trade Immigration Connection - 18th Nov 14
An Epiphany From Hell - Buy Gold and Silver - 18th Nov 14
Too Difficult to Get a U.S. Home Loan - 18th Nov 14
Has the Gold Bear Trap Been Set - 18th Nov 14
Gold Price and Miners Soar on Huge Volume - 17th Nov 14
Cameron Says Second Global Economic Crash is Loomin, Japan in Recession - 17th Nov 14
How to Play the Stock Market 2014 Year-End Rally - 17th Nov 14
What The Fed Has Wrought, Who Needs Wage Earners Anyway? - 17th Nov 14
Stock Market Indexes Fluctuate Along Record Levels - Will Uptrend Continue? - 17th Nov 14
Stock Market Trend Deceleration Tends To Precede Corrections - 17th Nov 14
Stocks Bull Market Set to Continue After Consolidation - 17th Nov 14
The World Is Run By Fools, And We Let Them - 17th Nov 14
Gold Price Golden Bottom? - 17th Nov 14
Gold Dragons Grand Strategy - 16th Nov 14
Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - 16th Nov 14
Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - 16th Nov 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Dramatic Stock Market Selloff

2014 Year of Commodities (March Update)

Commodities / Agricultural Commodities Mar 25, 2014 - 04:42 PM GMT

By: Ned_W_Schmidt

Commodities

That 2013 was a year when equities ruled supreme is now well recorded history. Generally speaking, expectations at the end of the year were that 2014 would be more of the same. Among the popularly reported forecasts were the S&P 500 going to 2,000 while $Gold would plunge to $1,050. While the calendar will ultimately decide the wisdom of those forecasts, reality is already casting doubt on them. Perhaps the numbers in those forecasts were inadvertently switched.



In the above chart are plotted year-to-date returns for some popular investment strategies. Immediately obvious is that the three components of the commodity group are all up while equities, depending on the index, are either down or up only modestly. Also readily apparent is that the Agri-Food Price Index has risen by the greatest amount, achieving a new all time high as shown below. Gold followed in second place. Equities follow in clearly fourth place.

These price returns tell us that demand for Gold and Agri-Foods is stronger than supply. Weak equity prices indicate that supply is in excess of demand. Quite simply, the supply of equities is excessive and the supply of Gold and Agri-Foods is inadequate.

That the Agri-Food Price Index is at a new high is made more significant by pervasiveness of the move in Agri-Commodities thus far this year. As shown in chart below of year-to-date price changes, 14 of 16, or 98%, of the Agri-Commodities have experience price increases thus far in 2014. Those price increases range from +4% for sugar to +60% for hogs. Corn, which some had forecast to trade at US$2.50, has instead risen by 10% and traded over $5 briefly. Why have the prices of Agri-Commodities, as well as those of Gold and oil, risen despite warnings of strong supply? Answer is simple: Demand is stronger than supply.


One perhaps important flaw in the consensus global outlook at turn of the year was that U.S. economic activity would strengthen while outside the U.S. it would weaken. The likelihood that this forecast is "upside down" is increasing. Consumer demand within China, and most of Asia, is strong. For example, milk prices recently hit an all time high in Chicago. Chinese milk imports during 2013 rose 25% and are expected to rise 28% in 2014(theagriinfo.com, 28 December 2013). Such consumption is an indication of rising consumer incomes as milk has not historically been a common consumer product there. Clearly, demand for dairy products is stronger than supply.



Chinese consumers, recognizing a bargain when the Street saw none, bought 40% more Gold in 2013 than in the previous year(bloomberg.com, 9 March). Because of higher prices, Chinese demand for Gold is expected to begin the year weak. Note the wording carefully. Chinese are not selling Gold, they just might buy less than the 1,176 tons purchased last year. We also suspect they are not buying NASDAQ fantasy stocks either. And which of those two are they likely to buy in the future?

Demand for Gold and Agri-Commodities seems to be the dominant factor for prices this year, even after taking into account unique supply situations in some cases. As the year continues to unfold, investor attitudes on commodities, and in particular Gold and Agri-Commodities, need to adapt to the reality of the situation. Street fantasies, like those noted in the first paragraph, are not likely to enhance your wealth. Have they ever?

By Ned W Schmidt CFA, CEBS

AGRI-FOOD THOUGHTS is from Ned W. Schmidt,CFA,CEBS, publisher of The Agri-Food Value View, a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To contract Ned or to learn more, use this link: www.agrifoodvalueview.com.

Copyright © 2014 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2014 http://www.MarketOracle.co.uk - 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

Free Report - Financial Markets 2014