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Commodity Markets Analysis, Meat, Gold, Corn and Peak Oil

Commodities / Inflation Apr 08, 2007 - 12:22 PM GMT

By: David_Petch

Commodities

Where's the Beef?? It Better be in Your Freezer - Several different things I want to address first before getting to analysis of the HUI. The first one has to do with meat. The governments do not include the price of food or energy in the core rate of inflation (soon they will be including those that lie in graveyards into their index to further “average” the price down I am sure of it) so everything that you or I have to buy in the grocery store no matter how much costs rise is not “their definition of inflation”. This is the government's way of hiding the volumes of money being created out of thin air.

The coming of Peak Oil is causing a movement in the US to produce ethanol in order to provide an alternate fuel source. The big corporations are pushing for corn because it is big money. Use of straw grass, sugar beets etc. is far more efficient in the energy balance of the production equation.


More energy is put into growing corn, fermenting it, distilling the ethanol and transporting it that what will be generated in energy in the car. Also, ethanol damages rubber gaskets, is corrosive and has a whole host of problems. The biggest problem is that corn is a staple for many poor families and also animal feed.

Higher prices for animal feed translates into higher meat prices, cereal etc. The price of corn has doubled the past year, so people should be expecting to see meat in the supermarket rise by as much as 30-40% by year's end. Sound crazy? There is a fixed cost for animal feed and a doubling in corn price will amount to a doubling of the percentage that goes to grow cattle, pigs etc. for harvest.

More and more farmers are going to be planting corn this year; there is only so much land available for producing crops, so other crops such as soy, wheat, barley, flax etc. etc. are going to also rise in price due to a reduction in output with an ever increasing global demand. We are on the cusp of seeing food inflation rise by 10-15% YOY for at least the next 4-5 years out.

At some point, high natural gas prices looming in the background will make the cost of fertilizer too expensive which will cause lower applications which will result in lower crop yields. This will in turn drive the price of grains and meat even higher, which is one reason many should consider buying some arable land with access to an available water source. Note that the price increases from peak natural gas have not even been factored into the higher prices of meat or grains. Food will become so expensive that the ethanol boom will absolutely collapse due to public demand for “Food instead of Fuel”.

Right now, there is a 3-4 week window for meat prices to remain reasonably low due to excess meat being sold on to the market and no new purchases of new feed supplies. Everyone should own a chest freezer and should consider loading up on different meats, fish etc. When the price of beef rises, people will shift to chicken and fish until there is a balance of high prices across the board. Sounds a bit like hoarding, but better to buy now when the prices are lower, rather than buying stuff at a 30-40% premium.

With Ethanol demand, farmers are going to require holding larger and larger percentages of their crop to ensure that enough feed is available for the animals and for the following year's planting. I think that the US could soon become zero exporters of corn in the coming years, which will cause severe hatred from Mexicans who rely on corn for tortillas, the primary diet of the poor. Americans in general will not care about this, but how will they feel when Mexico becomes a net oil importer by 2012??? This is what will transpire for most countries that used to export food and energy……when there is not enough for even their own populous, they become classified as net importers of that item (corn, oil, wheat, natural gas). Canada likely will stop selling natural gas to the US in 6-8 years when there is hardly any left, so nations will be fighting among nations.

Wonder why so many countries are secretly building so many detention centers? It is to try and contain the have-nots of the populace. The North American populous has never had to worry about famines, wars, and energy shortages, as there has always been something to fall back on. Unfortunately, lack of government insight and failure to follow through with the energy policies puts in place during the 70's are all but a dream now. When the requirement for nuclear energy and other fuels are needed, the infrastructure will not be there, which is why parts of North America will be essentially walking with candles for 10-15 years until the dust settles.

This portion of today's article highlights the need to plan for food storage as a part of the strategy going forward in the coming 5-8 years. The peak energy issue is going to literally occur like a big rock falling from the sky and just sitting in the middle of the field; it will be there for all to see. The implications will quickly be seen and the change in public mindset will soon follow. The change will be a shift to “fight or flight”, with emotion taking control. Preservation of capital will jump to the forefront and with the US government stupidly trying to pull the chain of a sleeping giant ( China ) is not going to help. China has over 1 trillion USD on hand and if they play economic warfare, hyperinflation in the US would occur sooner than most expect. Is China playing fair? They are not playing fair with their currency and they are trying to overcome IP issues, but with 1.2 billion people, it becomes difficult to regulate things. Both parties are at fault, but when one nation is a debtor and the other holds 1 trillion of your currency, they dictate the rules and if not yet they soon will.

This is going to send commodity stocks, gold and silver to the moon, which is why we have been banging the table to build positions in bullion and energy/PM stocks. When people are in a mad a frantic panic, they will pay “anything” to save their dollars and by already preparing for what is in the pipe, we can act in a mechanical fashion without falling into the “run with the pack mentality”.

By David Petch

http://www.treasurechests.info

The main focus of my work pertains to analysis of the USD index, S&P 500 Index, 10 Year US Treasury Index, AMEX Gold BUGS Index and the AMEX Oil Index using market analysis specified in a former article I wrote titled “The Technical Palette” (Elliott Wave, Bollinger bands, stochastics). We also cover around 30-40 gold/silver, base metal and energy stocks, which have done quite well recently. If this is the kind of analysis you are looking for, we invite you to visit our new and improved web site and discover more about how our service can further aid you in achieving your financial goals. For your information, our new site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented 'key' information concerning the markets we cover. And if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line . We very much enjoy hearing from you on these matters.

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Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.


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