Friday, February 29, 2008

Financial Times: Food and the spectre of Malthus

Article in Tuesday's Financial Times about what's different about high food prices this time around, and the ramifications that could be felt as a result.

Jim Rogers: US "out of control"

Rogers went on a familiar rampage against US monetary policy yesterday for 750 fund managers in Japan.

I think it's really hilarious how he tears into Bernanke - it never gets old for me. Also interesting to note that although the dollar has tanked quite a bit, he added "you ain't seen nothing yet."

He also mentioned that over the next two decades, the prices for all commodities would go "through the roof." Good to see that he still sees them as cheap based on historical standards, even given this awesome run up we're experiencing.

Wednesday, February 27, 2008

GoldMoney: More Solid Gains for the Precious Metals

If you're a precious metals fan, GoldMoney's James Turk is probably a must read for you.

DailyWealth: Brazil Key to Upcoming Food Crisis

Full article

Summary:
  • UN says world food production must increase by 60% over next 20 years to meet demand
  • Grain and meat production is extremely water intensive - many areas in the world do not have the excess water to ramp up grains and meats
  • Brazil will be the key - it has 23% of the world's arable land, and 40% of it is currently unused

Kevin Kerr: Farmageddon

Full story

Summary:
  • Kerr believes a sharp correction could arrive at anytime
  • Corn prices are likely to remain high as long as the US gov't continues to subsidize ethanol
  • Longer term, the bull market in ag commodities should continue for some time

Monday, February 25, 2008

Weekly Positions Update - 02/25/08

Was out of town this weekend, so I'm late in posting the positions. Not sure even what to say at this point - it's a pure runaway market. Just hang on and enjoy the ride!

Open Positions
Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss
02/14/08 Long 1 MAY 08 Cocoa 2535 2603 $680.00
02/14/08 Long 2 MAY 08 Cotton 71.26 77.22 $5,960.00
02/14/08 Long 1 MAY 08 Coffee 'C' 154.25 163.95 $3,637.50
02/14/08 Long 1 MAY 08 Coffee 'C' 155.10 163.95 $3,318.75
02/22/08 Long 1 MAY 08 Coffee 'C' 162.50 163.95 $543.75
02/14/08 Long 2 MAY 08 Rough Rice 16.265 17.260 $3,980.00
02/14/08 Long 1 MAY 08 Sugar #11 13.79 14.27 $537.60
06/04/07 Long 1 JUL 08 Sugar #11 10.05 14.40 $4,872.00
08/01/07 Long 1 JUL 08 Sugar #11 10.48 14.40 $4,390.40
12/20/07 Long 1 JUL 08 Sugar #11 11.37 14.40 $3,393.60
01/02/08 Long 1 MAR 08 Swiss Franc 0.899500 0.9200 $2,562.50
02/19/08 Long 1 MAY 08 Mini Soybeans 1417 1482 $650.00
02/22/08 Long 1 MAY 08 Mini Soybeans 1425 1482 $570.00
Net Profit/Loss On Open Positions: $35,096.10

Account Balances
Current Cash Balance $82,720.28
Open Trade Equity $35,096.10
Total Equity $117,816.38
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $117,816.38

Friday, February 22, 2008

USDA: Food Prices to Rise in 2008

Well...duh.

Full story

Summary:
  • US retail prices in 2007 rose about 4% - highest gain in 17 years
  • Similar gains expected for 2008
  • Reduced production of meat and poultry expected in 2009 (our next investment theme, maybe?)

Potash CEO: Record Crops Needed to Avoid Famine

Full stories:
Summary:
  • Potash CEO William Doyle says grain farmers need to harvest record crops every year to meet demand and avoid famine
  • Potash execs are so confident in long term demand that they considered taking the company private in mid-January
  • "We need a record crop in 2008 just to stay even with this very low inventory situation," Mr. Doyle said.

Thursday, February 21, 2008

T. Boone Pickens Short Oil, Natural Gas

Legendary oil investor T. Boone Pickens told CNBC this morning that he is short oil and natural gas. He believes that oil will have a short term pullback.

I was surprised by this - Pickens has been (correctly) calling higher oil prices for quite some time. I'm glad I'm not long oil or nat gas right now - because I wouldn't want to be on the other side of this trade!

Tuesday, February 19, 2008

What to Make of the Soft Commodity Rally

What to make of the '08 soft commodity rally? Things have happened so fast - even I'm not sure in the short term. I still believe that the long-term case (next 5-10 years) is firmly in place. Rising demand and limited supply will take time to fix - and by that time, most of the soft commodities (sugar, coffee, cotton, cocoa, etc) should make all-time highs.

In the near term, things are certainly exciting, but a bit dangerous. The softs are up big this year - their prices are being driven hard by investment funds and speculators piling into these markets.

Let's take a quick look at the news to get a view of the fundamentals of my three favorites: coffee, sugar, and cotton.

Coffee
Brazil just had a disappointing harvest - off 21% from last year, due to dry weather during the flowering season. Remember back in Sept/Oct, when coffee rallied on the dry weather - then dropped when it rained. Well, turns out it was not enough rain after all.

Brazil is far and away the world's largest coffee producer - so as Brazil goes, so do coffee prices generally. However there are also speculations that Vietnam and Colombia will also report sub-par harvests.

World demand is going up, as the world turns more and more "American". Keep a close eye on China and the rest of Asia, as a very small but growing coffee market continues to gain ground on tea, the traditional caffeinated drink of choice.

Could there be setbacks? Of course. However, the fundamentals are setup for us to see a super spike in coffee over the next 5 years - and I believe we'll see $2+ coffee at some point.

Sugar
After sugar made its run at 20 cents a couple of years ago, guess what happened? A ton of sugar came on the market. Inventories of sugar went up - and in concert, the price went down - all the way below 10 cents again.

Well sugar is on the move up once again - now climbing above 13 cents. According to investor Felix Zulauf, the price of sugar still lags below the cost of production in the two largest sugar producing countries: Brazil and India.

The story of sugar is, and has been, its use as a biofuel in Brazil. Last time I checked, oil was still high - so I have no reason to suspect the demand of sugar as a biofuel to do anything but increase. Remember, sugar is the only economically viable biofuel without subsidies.

The price is going higher at some point. This may be the beginning of the move. Be careful though - as there is still a fair amount of inventory on the market to work through. And if the speculators head for the exits, the price could take a hit. All setbacks will likely be temporary though, presenting buying opportunities for those not yet long.

Cotton
Now this is one of the few commodities that has done absolutely nothing since the bull market started! This excites me. It's still cheap, and it has to move at some point - and we have a lot of upside ahead of us.

Of course, there are a lot of smart people that realize this. Fundamentally, cotton acreage will continue to suffer - as farmers in the US South and other places plant higher priced crops (basically anything at this point) in favor of cotton. Supply goes down, demand is rising, and prices skyrocket - the beauty of a bull market.

Demand for cotton is increasing at a breakneck speed in the places that matter most - China and India. Demand is decreasing in the developing world, but the increase in China and India is now enough to offset this decline. Expect cotton to spike sooner rather than later.

This article was published by Seeking Alpha

Daily Wealth: The Bull Market That's Killing Domino's Pizza

Article in today's Daily Wealth about how the bull market in commodities is hurting the fortunes of food companies.

Summary:
  • Gov't mandates for corn-based ethanol have driven up all grain prices
  • For the forseeable future, consumers will pay more for food
  • The stock prices of food producers have been hammered, as they struggle to deal with rising costs

Sunday, February 17, 2008

Jeremy Grantham Interview in Barron's

An interesting interview with superinvestor Jeremy Grantham.

Perhaps of interest to readers of this blog: he mentions he is long the Japanese yen, the Swiss franc, and the Singapore dollar.

Telegraph: Why the price of 'peak oil' is famine

Full article

Summary:
  • The current commodity cycle is unique because energy and food have "converged" in price - they are now interchangeable due to biofuels
  • Without government subsidies, sugar cane would be the only economically viable biofuel (@ $35/barrel equivalent)
  • Land devoted to biofuels projected to continue its climb


Weekly Positions Update - 02/17/08

Open Positions
Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss
02/14/08 Long 1 MAY 08 Cocoa

2535 2519 ($160.00)
02/14/08 Long 2 MAY 08 Cotton

71.26 70.18 ($1,080.00)
02/14/08 Long 1 MAY 08 Coffee 'C'

154.25 152.20 ($768.75)
02/14/08 Long 1 MAY 08 Coffee 'C'

155.10 152.20 ($1,087.50)
02/14/08 Long 2 MAY 08 Rough Rice

16.265 16.470 $820.00
02/14/08 Long 1 MAY 08 Sugar #11

13.79 13.79 $0.00
06/04/07 Long 1 JUL 08 Sugar #11

10.05 13.89 $4,300.80
08/01/07 Long 1 JUL 08 Sugar #11

10.48 13.89 $3,819.20
12/20/07 Long 1 JUL 08 Sugar #11

11.37 13.89 $2,822.40
01/02/08 Long 1 MAR 08 Swiss Franc

0.899500 0.9142 $1,837.50
Net Profit/Loss On Open Positions: $10,503.65

Account Balances
Current Cash Balance $82,764.51
Open Trade Equity $10,503.65
Total Equity $93,268.16
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $93,268.16

Cashed out: $5,000.00
Total value: $98,268.16

Weekly return: 7.7%

Friday, February 15, 2008

Video: Jim Rogers Commodities Picks and Pans

Short 2 minute clip of Jim Rogers on Yahoo Finance.

In short, he's:
  • Wary of precious metals right now (may consolidate if US drops into recession)
  • Buying agriculture "as he speaks"

WSJ - Heartland Sees Boom With Grains In Demand

By JULIE JARGON

February 15, 2008; Page A1

ALBION, Neb. -- The U.S. economy may be teetering on the brink of recession. But there's a bountiful harvest down on the farm.

Grain prices are surging to historic levels. Spring wheat, a variety often used in bread, hit a record $18.53 per bushel yesterday. Corn is trading above $5 and soybeans are bringing in more than $13, all 25% or more above their year-ago prices.

Net farm income is expected to hit $92.3 billion in 2008 -- a 51% increase over the 10-year average of $61.1 billion. Across much of the Great Plains, unemployment rates are well below national figures and housing markets remain robust. Robert Moskow, a food industry analyst at Credit Suisse, has proclaimed this the "golden age" of agriculture.

Rest of article (subscription required)

Wednesday, February 13, 2008

More On Peak Oil

Here's the 2nd half of the interview I posted yesterday about Peak Oil - I haven't read this guy's book yet, but maybe I should.

Tuesday, February 12, 2008

Peak Oil Reached in '05

Another good one from Agora - the case that peak oil was reached in 2005.

Wheat Going Crazy - Trading Band Widened

From Agora's 5 Min Forecast:

Likewise, the wheat “trading band” has been widened this week for the first time in eight years. In response to upward pressure on wheat prices over the past year, U.S. commodity exchanges are allowing the wheat price to move a maximum 60 cents up or down each day, instead of 30 cents.

On cue, wheat soared nearly 60 cents in Chicago, to a new record high of $11.53. The price retreated quickly, back to $10.48 -- 45 cents below its opening price. Swings like this are likely to continue for some time.

“When you get a rally like we have seen in wheat,” explains Kevin Kerr, “the exchanges (and government) get nervous. So they take action. In this case, the limits on the wheat market were raised considerably, and in essence, that will raise margin requirements too, and force many individuals to liquidate. We are not seeing wheat back off too much yet, but it will almost certainly have an impact.

“This has been an incredible rally for the grains, but now is not the time to be overly bold. Now is the time to use caution. Changes like this can send a chill through the market and make traders nervous. This is one of those times to be defensive and secure profits until things get sorted out.”

Sunday, February 10, 2008

Weekly Positions Update - 02/10/08

Open Positions
Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss
01/30/08 Long 1 MAR 08 Cocoa 2284 2379 $950.00
12/20/07 Long 1 MAR 08 Cotton 66.45 68.41 $980.00
01/09/08 Long 1 MAR 08 Cotton 69.61 68.41 ($600.00)
01/22/08 Long 1 MAR 08 Japanese Yen 0.9460 0.9343 ($1,462.50)
02/04/08 Long 1 MAR 08 Coffee 'C' 139.95 146.30 $2,381.25
02/01/08 Long 1 MAR 08 Rough Rice 15.010 15.600 $1,180.00
12/20/07 Long 1 MAR 08 Sugar #11 11.10 12.75 $1,848.00
06/04/07 Long 1 JUL 08 Sugar #11 10.05 13.30 $3,640.00
08/01/07 Long 1 JUL 08 Sugar #11 10.48 13.30 $3,158.40
12/20/07 Long 1 JUL 08 Sugar #11 11.37 13.30 $2,161.60
01/02/08 Long 1 MAR 08 Swiss Franc 0.899500 0.9090 $1,187.50
Net Profit/Loss On Open Positions: $15,424.25

Current Cash Balance $71,201.28
Open Trade Equity $15,424.25
Total Equity $86,625.53
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $86,625.53

Cashed out: $5,000.00
Total value: $91,625.53

Weekly return: 3.6%

Saturday, February 09, 2008

S and P Index adjusted for inflation


Returns don't look so great when adjusted for inflation, huh?

Dollar Ready to Rally vs. Euro?

Interesting take in Daily Wealth on why the dollar is about to rally vs. the Euro (scroll to bottom - though the top article is good too).

My opinion - even if the dollar does not rally vs. the Euro, I don't think it has much farther to fall vs. the Euro either. However the dollar does have a ways to drop vs. the Asian currencies in order to restore some sort of balance to the trade balances - those currencies have been artificially depressed for some time.

And don't forget the carry trade currencies - favorite of Jim Rogers right now - the Swiss franc and Japanese yen.

NYC: Euros Accepted Here

This about sums up the sad state of our currency.

Reuters-Jefferies CRB index hits all-time high

As stocks continue to flounder, commodities continue to soar across the board. Platinum has set 7 record highs in the last 8 trading days. All wheat contracts also set all-time highs.

No doubt this is a flat out bull market. But all bull markets have set backs, so we need to keep that in mind.

What are the best ways to trade this market:
  • If you're a momentum/technical trader, you may be loving the action right now in the strongest performers. At the risk of sounding like your mother - have fun, but be careful! The volatility is really nuts right now, and that means prices can go down as well as up.
  • If you're a longer term, fundamental trader (as I am) - take a look at the stuff that is still low, but starting to move up. I look at sugar, coffee, and cotton as great bargains right now.
We all know the long trend of these markets is up, but it's also imporant to manage risk and not get burned (too badly) if the markets swing back. There are a lot of long speculative positions in these markets right now, and a fast liquidation of these positions would send everything tumbling. We saw a dress rehearsal of this a few weeks ago when the global markets tanked.

Friday, February 08, 2008

Daily Reckoning: Peak Food

Great essay (as always) by Bill Bonner in today's Daily Reckoning.

Very interesting that corn stocks are still near a 33-year low, even with the "high" corn prices over the last year. Even the bumper harvest of last year couldn't low down the rising prices - too much of it is going into gas tanks.

Wednesday, February 06, 2008

Jim Rogers Interview on resourceinvestor.com

Recent interview by our hero, Jim Rogers, on Resource Investor.

Much of the same material we've talked about here before, but I tried to read anything by Jim Rogers I can find. He reiterated his best investment ideas for right now:
  • agriculture
  • Chinese renminbi
  • Swiss franc
  • Japanese yen
  • short Investment Banks
I have been reading that a lot of value investors are taking a hard look at Japan - stocks are so beaten down that many are trading for the cash on the books. Maybe another good way to get Yen exposure - something to investigate.

Sunday, February 03, 2008

Super Bowl Spread

Real quick, as I am on my way out to start drinking beer...and I'm not sure anyone who reads this blog would be the gambling type. Yeah right - ha!

Last I saw, it was Pats -12. The line opened a couple of weeks back a point or two higher. From what I've been reading, this spread is still a point or two too high - even folks in Vegas have admitted it.

People are still terrified to bet against the Pats since they opened the season covering every week - over the last half of the season though, including the playoffs, they have not covered once. Remember, never bet on a trend to end. Take the Giants with the points today.

Full disclosure: I am a long suffering Bills fan with an ingrained hatred of the Pats. Needless to say, I will be taking the Giants plus the points.

Weekly Positions Update - 02/03/08

Date Position Qty Month/Yr Contract Strike Call/Put Entry Price Last Price Profit/Loss
01/30/08 Long 1 MAR 08 Cocoa 2284 2317 $330.00
12/20/07 Long 1 MAR 08 Cotton 66.45 68.16 $855.00
01/09/08 Long 1 MAR 08 Cotton 69.61 68.16 ($725.00)
01/22/08 Long 1 MAR 08 Japanese Yen 0.9460 0.9422 ($475.00)
02/01/08 Long 1 MAR 08 Rough Rice 15.010 15.170 $320.00
12/20/07 Long 1 MAR 08 Sugar #11 11.10 12.30 $1,344.00
06/04/07 Long 1 JUL 08 Sugar #11 10.05 12.98 $3,281.60
08/01/07 Long 1 JUL 08 Sugar #11 10.48 12.98 $2,800.00
12/20/07 Long 1 JUL 08 Sugar #11 11.37 12.98 $1,803.20
01/02/08 Long 1 MAR 08 Swiss Franc 0.899500 0.9193 $2,475.00
01/28/08 Long 1 APR 08 Mini Gold 935.0 913.1 ($727.08)
Net Profit/Loss On Open Positions: $11,281.72

Current Cash Balance $72,373.72
Open Trade Equity $11,281.72
Total Equity $83,655.44
Long Option Value $0.00
Short Option Value $0.00
Net Liquidating Value $83,655.44

Cashed out: $5,000.00
Total value: $88,655.44

Weekly return: 5.2%

Friday, February 01, 2008

Jim Rogers: Avoid Platinum

Look at cotton, coffee, and sugar, he says.

This is interesting because I was really kicking myself for prematurely selling my platinum position after it took off last week due to the S Africa drama.

NY Times: Rethinking the Meat-Guzzler

Thanks to my boy Cincotta for sending this along (pounding my chest and pointing East right now).

Increased meat consumption will mean more meat production - which means more grain consumption. Which means higher grain prices. But meat production won't be able to keep up with consumption - so that means higher meat prices too. Brings a tear to my commodity trading eye - nothing like a bull market to tug at my emotions.

Plus don't forget the Fed is doing its best to flush the dollar down the porcelain throne - so everything will increase in dollar terms anyway.

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