Wheat, Corn Stocks Still at 30-Year Lows

Despite record harvests last year, corn and wheat stocks are still sitting near 30-year lows.  Which means, anything short of a bumper crop could send the grains skywards once again.

Here are some very cool charts, courtesy of Chris Mayer at DailyWealth, that depict the stocks-to-use ratios of of wheat and corn since 1970, versus their inflation-adjusted prices.

Investing in grains is actually pretty easy - when supplies are low, and prices are low, you know prices should eventually go up.  Then, at some point, high prices spur enough new supply onto the market that prices come down.  Ideally, that's when you go short!

You'll notice from the charts that grain stocks and prices move in fairly long cycles - about 15 to 20 years in length.  It takes time to bring new supply online, to replenish stocks...ultimately to rebalance the supply/demand situation.

This time should be no different.  China is industrializing in a big way, and its citizens have taken a liking to eating, a habit they're not likely to give up, no matter how bad the global economy gets.  Most notably, they are adopting Western style high protein diets, with lots more meat...and livestock require a lot of grains to raise.

Bottom line - it's safe to tune out the talking heads on TV when thinking about agriculture...just focus on supply and demand.  It's that simple.  When demand exceeds supply, prices will rise, until supply is able to overtake demand.  Sure, things like currency devaluation, a falling dollar, will toss fuel on the fire...but at the end of the day, it's all about supply and demand.

Marc Faber Loves Agriculture at These Prices

Marc Faber says that investing in agriculture today will be like investing in oil in 2001, when it was priced at $17/barrel, according to The National Post.

Faber says that record low inventories, declining agricultural productivity, and increasing demand for food will drive prices higher.

The falling productivity line is especially interesting...Faber says productivity in agriculture has been declining since 1990, and expects that trend to continue.  If this is true, which I'd imagine it is, it's counter to what most folks (including me) believe.

Read the full article here...

More reasons to invest in agriculture:

• Jim Rogers loves the fundamentals too
• Sugar especially has an appealing supply/demand situation shaping up

Ed. Note: Stay up to date on the latest in agriculture and be sure to check out our weekly insights published every Sunday: This Week in Commodities

Jim Rogers: The US is About to Have a Currency Crisis

If you have the majority of your savings in US dollars, this may be the most important insight you ever hear from Jim Rogers.

In an interview with Bloomberg from this morning, Rogers said:

“We’re going to have a currency crisis, probably this fall or the fall of 2010.  It’s been building up for a long time. We’ve had a huge rally in the dollar, an artificial rally in the dollar, so it’s time for a currency crisis.”

Jim reiterated that the place to be invested is in commodities, particularly agriculture:

"You're going to have serious food shortages in the next 3-5 years - prices are going to go through the roof."

You can view a video of this entire interview using this link (click on the "Video" tab on top).

Want some ideas about agricultural commodities with particularly appealing fundamentals right now?  Check out This Week in Commodities, which is heavily focused on agricultural commodities - right now we're invested in sugar and orange juice, both profitable trades to date and still climbing.

More recent insights from Jim Rogers:

• Rogers believes world is heading for Depression
• Jim interviewed by GoldSeek Radio
• Rogers prefers oil over gold right now

Ed. Note: I just got done reading Jim Rogers' new book - review to follow. Long story short, it's an insightful, quick read that I'd highly recommend. Pick up a copy if you haven't already:

Jim Rogers in BusinessWeek - April 14, 2009

Our favorite investor, Jim Rogers, was recently interviewed by BusinessWeek magazine - he's been in the media quite a bit recently, plugging his new book A Gift to My Children: A Father's Lessons for Life and Investing, which is scheduled to be released this Tuesday, April 28.

Here are a few of my favorite excerpts below - and you can read the whole piece on BusinessWeek.com.

On diversification:

"Diversification is something that stock brokers came up with to protect themselves, so they wouldn't get sued [for making bad investment choices for clients]. Henry Ford never diversified, Bill Gates didn't diversify. The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket."

On commodities:

"If the world economy is going to revive, commodities are going to lead it back up. If the world economy is not going to revive, commodities are still the place to be—especially with governments printing so much money. Look at the 1970s. The world economy was in the tank, but commodities did very well. We have supply constraints. Oil production is declining."

"The prices historically are still very depressed, compared with most other commodities. I bought all commodities recently, but I probably bought more agriculture than anything else."

More recent coverage of Jim Rogers:

• Jim prefers oil over gold right now
• An excellent 30-min TV interview from March, where he mentions he thinks the world is heading for a depression
• Rogers waiting to short US Treasuries - again

Receive our Jim Rogers updates on Twitter: https://twitter.com/commoditybull

The Snowball Effect of Agricultural Subsidies in America

The folks at Reason TV recently put together an excellent 8-minute video about agricultural subsidies in America, from their roots in the Great Depression, to their effects today on commodity prices and economies around the world.

As a commodities trader and/or investor, it's extremely important for you to be familiar with these subsidies.

I should warn that you may get a little riled up and enraged in exploring the absurdity of these subsidies, and the collective ignorance of the politicians who allow them to continue.  

Just be sure to regather your personal Zen before trading reopens on Monday. While agricultural subsidies are obviously complete bullshit, their existence, and more importantly, future changes to them, can have drastic effects on commodity prices, and hence our trading. So it's important that we anticipate their effects with a clear head.

For example, if there was a real chance that cotton subsidies could be reduced or eliminated in the US, you can believe that the futures markets would quickly take this fact into account, and you'd see cotton futures prices start to really take off.

And if you want some cocktail party fodder for riling up any liberals in your life - higher cotton prices would indeed help many poor Africa nations, whose farmers are not cost competitive today because they don't have a government behind them printing money and subsidizing their farming.  So there you go - we can profit by speculating on cotton, and also help the poor kids in Africa.  

Yes we can!

Cotton Ready to Bounce off its "Double Bottom"?

Cotton put in a strong effort today - up 1.21, on a day when many of the softs were down - so I perused the short and long term charts for May futures.

Looks like cotton definitely has put in a double bottom, which is usually seen as a bullish indicator, and is rallying off its lows.  If cotton breaks above its highs from earlier this year, we'll be very interested in potentially taking a position here.

Source: BarChart.com

USDA Planting Intentions Report Sparks Rally in Grains

Corn and soybean futures each jumped roughly 5% today after the USDA released its Planting Intentions Report.

Some quick highlights from the report reveal that there appears to be plenty of corn and beans coming our way, but cotton will continue to be neglected, as we had anticipated.

• Corn acreage is down 1% from last year, but is still projected to be the 3rd largest acreage in over 50 years.

• Soybean acreage is on track for a record year, up slightly from 2008.  This is below expectations though, hence the rally.

• Cotton acreage is projected to be 7% below last years total, and the lowest since 1983.  The Associated Press reports that low acreage and high production costs are being blamed.

Cotton futures rallied on today's planting intentions report.

Jim Rogers: If gold goes down some more, I'll buy some more

Full article, with commentary on Jim Rogers' current takes.

• If base metals continue to consolidate, he plans to buy more
• Rice prices must go much higher to cause supply to rise
• He expects the dollar rally to continue, because everyone is bearish (including him)
• He holds the currencies of commodity producing countries, such as Canada, Australia, and New Zealand
• He's still short US investment banks
  

Good Midwest Weather Sends Corn Down

Ah the joys of trading agriculture :)

Dow Jones - CBOT corn futures are firmly planted in negative territory, as the market extracts weather premium from prices, analysts say.

Sacramento Bee: Panic over rice prices hits home in capital

Well, when it hits the front page of your local newspaper, it's probably time to sell. It will be interesting to see where prices go this week. For now, the line is still going from the "lower left to the upper right", as Dennis Gartman likes to say.

Sacramento Bee: Panic over rice prices hits home in capital

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Australian rice farmers switching to growing wine grapes

Another good one from Agora - courtesy of their 5 Minute Forecast (if you couldn't tell, I read this publication religiously):

On the other side of the world, extreme drought and telling profit margins have Australian rice farmers switching to growing wine grapes. Australian rice? Yeah, that’s what we thought, too. But the reduction in rice imports from Australia has helped add pressure to an already strained global market for the little white grains.

A multiyear drought has crushed the Australian rice industry. According to The New York Times this morning, the Aussie rice crop has been decimated… down 98% over the past six years.

As the weather worsens, Australian farmers have taken to growing wine grapes -- not because the grapes command higher selling prices, but because the water required to grow rice is too expensive.

Regardless what you think of their politics, The N.Y. Times makes great charts. We nicked this one for you this morning:

Another Record High for Rice

Courtesy of Agora's 5 Min Forecast:

Headlining the global food crisis, rice found itself another record high yesterday.

Futures in Chicago ticked up another 2.3%, to $22.67, per 100 pounds when the Philippines -- the world’s biggest rice importer -- put in a buy order for 1 million metric tons. That’s more than 50% of all the Philippine rice imports in 2007… clearly, the government is concerned about food supplies.

According to the USDA yesterday, only 2% of the Arkansas rice crop is in the ground. Arkansas, the biggest rice state in the U.S., had planted 31% of its crop this time last year. As Kevin reported yesterday about corn crops this year… too wet, too cold to plant.

Kevin Kerr: Corn Crop in Trouble

From Agora's 5 Minute Forecast:

“This cold, wet start to April,” explains Kevin Kerr, “means farmers may not get corn into the ground before May 1. That is devastating. If cold, wet weather persists in the Corn Belt and farmers don't plant until after May 1 and then, as in '83, we see dry weather come in around June, well, then you can kiss this crop goodbye.”

Even if farmers managed to sow their crops, Kevin tells us that current yields based on planting intentions have no room for error… nothing less than a near perfect harvest will satisfy demand.

“A disaster would take only a nod from Mother Nature. Last year, Australia and China -- maybe this year it's our turn to get spanked. I have decided to head out to see some of my farmer friends in Minnesota and Iowa with my family in a couple weeks. I will keep you posted on how the fields look as I visit each of their farms.”

AP: Analyst Predicts Corn Rationing in 2008

Shout out to my boy Marcos for forwarding this one along.

A BB&T Capital Markets analyst said Monday corn rationing may be necessary this year, following a U.S. Department of Agriculture report predicting farmers would plant far fewer acres of corn in 2008.

Full article

The Growth Stock Wire: Agriculture Is Entering a Blow-Off Top

Full article

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.