Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Commodities Topping One by One, Silver Collapse Warning

Commodities / Agricultural Commodities May 03, 2011 - 12:37 PM GMT

By: Ned_W_Schmidt


Best Financial Markets Analysis ArticleSlowly the list of commodity prices that have topped out seems to be growing. Sugar was first. Now cotton follows as farmers are going to increase plantings fairly dramatically, and China has cancelled orders for the fiber(Financial Times, 28 April 2011). Have soybeans also done so? North American production of that miraculous yellow grain just might be somewhat better than the extremely bearish forecasts. On Chinese soybean demand, we note reports of over booking and second half 2011 imports likely being below year ago levels(Commodity News for Tomorrow, 11 April 2011). Could investors be ignoring this situation? Lastly, is the collapse of Silver perhaps a warning from the gods? (Note: Trading persistently below $44.69 confirms a Silver bear market.)

Plotted in the above chart is our Agri-Food Price Index. In that graph we have highlighted the similarities between current times and 2008. In both cases, the major up trend was broken. The index has moved into a trading range, just as it did in 2008. Warnings are sufficiently numerous to raise a yellow flag. Should our index break 240 a yellow card might be appropriate.

In previous comments we noted the rise of hedge fund assets to a new record. A higher percentage of the asset growth over the past year, ~$700 billion, by those speculators likely went into the commodity market than was the previous case. That view is reasonable as they have not been as active in the mortgage market. Their speculative activities certainly played an important role in the 2008 commodity bubble, and its bursting.

We remain a raging bull on the longer term prospects for Agri-Foods. That bullishness does not blind us to the reality that the long-term is comprised of multiple short-term experiences. Think of a giant, decade long Elliot Wave pattern. While the ending point may indeed provide a rewarding experience, included in it are several A-B-C corrections.

As with all markets, sectors within it show unique strength and developments. We noted hogs as one example last we talked. In general, meat prices need to rise by 50-100% to restore profit equilibrium in that sector. Rice, in the graph below, is perhaps the sleeping grain, and it could awaken in 2011.

Based on the strength of the trend, for some time rice has ranked either 14 or 15 out of the 15 Agri-Commodities on which we focus. Other three of the Big Four Grains, corn, wheat, and soybeans, have all moved higher. As commodity prices directly influence economic behavior, that condition usually causes responses that ultimately lead to higher prices.

Only about 7% of global rice production trades in the export market. For that reason, small production disturbances have a larger impact on price than might normally be the situation. Tsunami and radiation leaks from a nuclear plant may restrict severely production in an important rice growing region in Japan. Consumers there are worried about anything that comes into contact with water, rightly or wrongly. Japan may have to revise important restrictions on rice that have protected an inefficient farming sector.

Thailand, the Saudi Arabia of rice, represents one third of the global rice export market, and exports more than twice that of the U.S. With three crops a year there the ricehopper has thrived, and that pest is a serious threat to production. The third planting may be eliminated to break the life cycle of the ricehopper, and seriously reduce Thai exports. See "The Thai Rice Bowl May Get a Little Skimpier" by A. Bjerga & S. Suwannakaij from Bloomberg Businessweek, 11 April 2011.

In the U.S. we do not yet know how much the weather problems in the southern part of that country will reduce rice production there. Flooding in the entire Mississippi River system and delta along with infrastructure damage by the tornados will have some impact. Safe to assume that impact will not be in a positive fashion.

Above situation means that rice could be setting up for a material and unexpected price advance this year. Repercussion of such an event should not be minimized. Neither India nor China would be pleased with higher rice prices. In today's world, Agri-Food prices matter not just to the family budget, but perhaps to the global political situation.

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:

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 - 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