Sunday, November 23, 2008

Are Any Grains Worth Buying at These Prices?

Are there any grains worth buying at these prices? Have you seen any article, commentary that may be of help?

This question was posed by our buddy and regular reader/contributor Moyo, who runs the fine commodity focused site FuturesCafe.

I think that sugar, cotton, and coffee are the most attractive agriculture plays at this point. For the simple reason that their prices have not moved up recently - therefore, additional supply has not come on the market. Couple this fact with the further tightening of supply that commodities will experience across the board as a result of the current state of the credit markets, and these, I believe, are good candidate commodities to lead the way up.

Cotton is the most attractive investment opportunity I can see - it is actually trading below the prices it was at when the bull market in commodities began in the first place.

Cotton's price spike in 07-08 was really a speculative phenomena. Traders started piling into cotton futures contracts, as everyone knew cotton was destined for a spike - driven by reduced supply as farmers planted higher priced corn and soybeans in lieu of cotton.

The self-fulfilling prophesy proved to be short-lived, as the market was not able to sustain a rally. But it's coming.

Wheat also may be worth a look here. Corn, rice, and soybeans interest me less, as they are coming off a recent run-up, and have been planted from sea to sea across the world. It may take more time to work off the new supply on the market - though it's possible that prices already reflect this.

BOTTOM LINE: "Ag-flation" is coming again, in a very big way. Agriculture is very attractive at current prices, but I would caution you against being "early" into these trades. Wait for an uptrend - you'll have plenty of time to build up your positions, as commodities, particularly agriculture, are likely to be the first assets to recover in price.

1 comment:

Moyo said...

I look at wheat, and corn, and I ask myself, "how much lower?" It doesn't seem feasible to me that they may have more to the downside at these prices, else it will be completely absurd.

Also with prices as this levels, especially for ag products that took a major hit before everything collapsed, it is certain there would be a shortage in 09, and like you said "the cure for low prices is low prices", plus the government's new printing press...i worry

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